Government intervention in a nation’s economy often leads to more harm than good. Despite this, governments consistently engage in various forms of meddling, whether motivated by good intentions or otherwise.
From taxes and transfer payments to subsidies, tariffs, and social programs, the methods of intervention are vast—far broader than the Pacific Ocean. The U.S. government, alongside numerous state and local authorities, enthusiastically embraces these interventions.
Over time, these layers of federal, state, and local bureaucracy have accumulated like grime on a kitchen window, tainting the economy with corruption and inefficiency. Each facet of daily life—from visiting a barber to ordering coffee—now involves government oversight.
For instance, has your barber secured the necessary license? Is your barista’s equipment up to health standards? Does the paper cup meet recycling regulations? Furthermore, did you pay the appropriate taxes on your coffee?
In more complex situations, where avenues for exploitation widen, interventions have drastically inflated costs. For example, the expense of cardiac bypass surgery in the United States is over five times higher than in Mexico. Is the quality of care truly five times greater in Los Estados Unidos?
Little Gain, Much Pain
We are not revealing anything new: governments have intervened in commerce since the dawn of civilization. Many citizens now view this interference as essential for a better quality of life, believing that without it, the economy would be on a swift path to disaster.
However, interventions such as price controls and wage regulations can create significant complications. Prices, wages, and resources have intrinsic dynamics that cannot be altered by legislation. When governments impose price ceilings that fall below market value, they inadvertently lead to scarcity and shortages. For example, if bread prices are mandated below the cost of wheat, bakers will cease production.
Fiscal stimulus is another area of intervention commonly agreed upon by both major political parties. Both Democrats and Republicans favor spending but differ significantly regarding priorities. Democrats advocate for green initiatives and public transportation, while Republicans tend to favor infrastructure related to oil and gas.
In the 2023 fiscal year, the U.S. government allocated $821 billion toward national defense, contributing to a staggering $1.7 trillion deficit. Were taxpayers rewarded with value for their spending?
The reality is that the anticipated productivity gains from such fiscal expenditures often materialize as dead weight. Deficit-fueled spending frequently leads to malinvestment—funneling capital toward inefficient outcomes.
Stumbling in the Dark
We might also be focusing too narrowly. Perhaps some types of economic interventions yield better results than others. Unlike direct transfer payments, infrastructure and defense spending can produce tangible assets, or so it seems.
After all, having tanks and bridges should justify the expenditure, right?
Yet often, such spending culminates in fruitless endeavors. Economist Murray N. Rothbard noted that without a free price mechanism to guide investments, government can only flounder, “blindly ‘investing’ without being able to invest properly in the right fields, the right products, or the right places.” Well-intentioned projects often emerge, but they are mismatched against genuine market needs, resulting in surplus in one area and shortages in another.
Occasionally, even luck can strike, but generally, without market signals, investment success is more about guesswork than strategy. The most successful central planners often end up leaving their mark on new train stations or airports, rather than providing real economic growth.
The short-lived economic growth attributed to fiscal stimulus eventually fizzles out. An increasing dependence on debt and deficit spending is required merely to preserve the illusion of prosperity.
For the average person, the benefits typically evaporate. Any job creation serves merely as a distraction from productive endeavors, while the inflation provoked by such spending neutralizes any resultant economic growth. The burden of debt remains, however.
The Empty Promises of Government Intervention
In essence, spending beyond one’s means, like engaging in unhealthy habits, can prove detrimental. Governments that operate at a deficit without plans for repayment are essentially robbing future generations.
Furthermore, by accumulating unsustainable debt with the intention of inflating it away, they inflict harm on citizens. Such policies not only strip people of their wealth but also the time and effort they invest to earn it, ultimately eroding quality of life.
As per the U.S. government’s inflation calculator, the dollar has lost 88 percent of its value since Neil Armstrong’s historic moon landing. Today, a dollar buys what just 12 cents could purchase back in 1969. Wages have not kept up with inflation, leading to various negative outcomes.
Through large-scale money debasement, the government has diminished not just the dollar’s value but also the middle class itself. The decline of this social class is visible in the deteriorating infrastructure of cities across the nation.
Indicators of this erosion are plentiful: rising suicide rates, increasing rates of substance abuse, and urban decay marked by graffiti and dereliction all suggest a troubling trend stemming from decades of extreme intervention. With a national debt now at $33.9 trillion, the consequences are stark.
In conclusion, government-led economic intervention, including fiscal stimulus, is not a remedy; it is part of the ongoing problem. Unfortunately, more interventions are on the horizon, courtesy of our elected officials in Washington.
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Sincerely,
MN Gordon
for Economic Prism
Return from The Hollow Returns of Government Intervention to Economic Prism
