Sunday, September 12, 2010

Demise of the Free-Market?

Bluntly, Obama's economic policy is Bread and Circuses for the masses to buy votes.  There is a greater question concerning presidential economic policies that go back beyond beyond Obama. Specifically, are these policies distorting the free-market?  The answer is YES.

The old Soviet Union had a planned economy.  One of the criticisms of the planned economy for the USSR was that it overproduced certain items, underproduced other items, and did not really respond to consumer needs.

Obama recently gave a couple of speeches on his economic agenda.  Principally he speaks of "creating jobs". That is somewhat of an oxymoron in the sense that the President does not directly create jobs, that is the responsibility of the private sector.  So of course what he is really talking about are creating policies and favorable tax conditions that would encourage private industry to hire people.  But that really begs a very serious question, why would a company hire people if customers are not buying?  After all companies are not noted for altruism and the high unemployment rate is reflective of that.  Of course the argument goes that people hired will go out and buy. But what will they buy?

Recently CNBC had an interview with Michael Jackson the CEO of AutoNation and I believe the CEO of KB Homes, Jeff Mezger. Both CEOa noted that their respective companies had benefited from the "stimulus" programs to promote the buying of houses and cars. Now that the stimulus program has ended, sales have fallen.  Clearly continued sales were unsustainable, so the "stimulus" achieved was a short uptick in sales that cannibalized future sales. The collapse of the US housing market (2008) and the consequent near meltdown of our financial system are further indications that the free-market was not fully functional. While the US may not have a central bureaucrat defining production goals, we do have egregious programs that stimulate the production and sale of certain items that would not normally be bought, just like in the old USSR.

Like the infomercials, wait there is more! Obama's and Bush's economic policies were also flawed for another fundamental reason.  Note that virtually all the incentives are going to businesses to encourage them to do something. It may appear reasonable, but it neglects that the free-market is based on the consumer voting with their dollars. By voting with their dollars they determine what is produced.  Companies then respond by hiring people to full fill that consumption need. Therefore, if we are to have an operational free market, incentives which allow the consumer to retain more money - such as the elimination of payroll withholding - would be the appropriate form of incentivizing the economy.  (Please note that I am opposed to any subsidies and that this type of activity could be considered a subsidy.)

The  US economy is now planned similar to the old USSR.  One of the criticisms of a planned economy is that it overproduces certain items, underproduces other items, and does not really respond to consumer needs. Obama's so-called "stimulus" effort does nothing to encourage the consumer to go out and vote with their dollars.

No comments: