In the realm of business and economics, a win-win deal represents a mutually beneficial arrangement where both parties reap rewards. Typically, this implies that each participant walks away with profit. Here’s a straightforward illustration of how this works…
An entrepreneur devises a lucrative business idea—let’s say, an automatic car wash station. He strategizes, crunches the numbers, evaluates overhead expenses against expected revenue, and identifies a promising profit potential. To kickstart the venture, he then seeks a loan from his local credit union.
If he’s a savvy businessperson, the arrangement will be advantageous for both him and the bank. He’ll manage to cover his costs while taking home a substantial profit, and the credit union will benefit from a performing loan in its portfolio. Conversely, should the business fail, the credit union would incur a loss, and the aspiring entrepreneur would need to seek employment to recover from this setback and potentially explore new, hopefully more viable, business ideas.
In the world of private enterprise, such win-win situations are commonplace and contribute positively to wealth generation. However, in the realm of public policy—where political maneuvering takes precedence—these deals often fall short of benefiting anyone. In fact, they can erode wealth instead.
A Government-Facilitated Lose-Lose Scenario
Currently, student loan debt exceeds $1 trillion, much of which is subsidized by the U.S. Department of Education, effectively placing the financial burden on taxpayers.
The original aim was to create a win-win scenario: government loans would enable students to access higher education, thereby preparing them for lucrative careers and allowing them to pay off their loans as they advance financially.
Unfortunately, this initiative has devolved into a significant lose-lose situation. The consequences include soaring tuition fees and a generation facing overwhelming debt before their careers even begin. Additionally, this growing debt burden threatens to further strain the economy, ultimately requiring taxpayer support.
Even if only 10% of these loans default, that translates to $100 billion in losses. The situation could be even direr. According to the U.S. Department of Labor, the unemployment rate for individuals under 24 was a staggering 16.4 percent as of July, nearly double the national average of 8.3 percent.
Graduates holding degrees in less sought-after fields, such as English literature or anthropology, may find themselves relegated to low-paying jobs, falling short of making substantial loan repayments. Sadly, this trend suggests that a significant portion of student loans will likely default in the coming years.
Meanwhile, what was envisioned as a policy success is instead leading to widespread hunger across the globe.
Mandates and Confusion: Distorting Reality
According to Reuters, the Environmental Protection Agency’s Renewable Fuel Standards mandate that U.S. fuel companies ensure that 9 percent of their gasoline consists of ethanol this year, which necessitates allocating about 40 percent of the corn crop for biofuel production. Initially, corn ethanol appeared to be a win-win, promising to mitigate global warming while boosting demand for corn farmers.
However, at a time when global food supplies are critical, we find ourselves mandated to convert corn—an essential food source—into fuel. Why? Because the law dictates it.
Legislators often pass misguided laws, and bureaucratic agencies enforce them, regardless of their sensibility. This process results in a convoluted reality marked by lose-lose scenarios.
The absurdity of such government interventions might seem humorous if they weren’t so damaging. As history has shown, when food prices spiked in 2008 and 2011, unrest erupted from Mexico to Egypt, Tunisia, and India. This time, it might be U.S. beneficiaries of EBT cards facing similar frustrations when their funds run out before the month ends.
Yet, there is always an opportunity for government solutions to complicate problems further. Before long, an oblivious politician could propose legislation making hunger illegal, aiming to eradicate food shortages entirely.
Subsequently, a new agency would arise to enforce this misguided war on starvation, perhaps distributing unlimited EBT cards worldwide. This initiative would likely lead billions to rely on government provisions for sustenance, supported only by new tax deductions from paychecks. Ultimately, the initiative would likely plunge into deficit within one business cycle.
Regrettably, we’re not being facetious, as history bears witness to similar failures.
Sincerely,
MN Gordon
for Economic Prism
Return from Mandates and Morons: Twisting the World into a Madhouse to Economic Prism
