Problems, as many perceive them, demand solutions. Broken shoelaces must be mended. Unfortunately, in today’s democracy, this translates to a situation where candidates who promise the most fixes—often in the form of incentives to the majority—tend to win elections.
Recently, a Gallup poll revealed that 18 percent of U.S. adults view the “economy in general” as the most significant issue facing the country. Following closely behind, 13 percent cited “dissatisfaction with government,” while 9 percent considered “unemployment and jobs” to be their prime concern.
Upon examination, it appears that these three responses are intrinsically linked. A thriving economy, marked by ample well-paying jobs, often shields the government from scrutiny. Conversely, when the economy falters and job opportunities dwindle, public discontent leads to a call for accountability.
Digging deeper for clarity, we question whether the Gallup poll has provided appropriate response options. How can “economy in general” qualify as a valid answer to the pivotal question of what the most important issue currently is?
An economy operates inherently as a system of resource allocation, production, exchange, and distribution, alongside institutional frameworks. Declaring the economy itself a problem is akin to labeling a forest ecosystem as such. While both economies and forests can encounter turmoil, the root issue often lies not with the systems themselves, but rather with the governmental interventions that strive to manage these dynamic systems as if they were static in nature.
Turning Recessions into Great Depressions
One major flaw among policymakers is their reliance on incomplete information. However, there is little they can do to rectify this, as it is impossible for bureaucracies to possess comprehensive understanding of complex systems.
Despite extensive studies, statistics, and graphs, the interactions within these systems remain erratic and constantly evolving. A causal relationship that seems clear at one moment may not hold true at another, creating confusion for policymakers.
The outcomes of their decisions often miss the intended mark, leading to disarray. Even seemingly rational policies can be undermined by interconnected variables that are neither fully grasped nor appreciated. Strategies designed to demonstrate sound management can yield multiple unforeseen repercussions.
For instance, a typical response to severe forest fires is to heighten fire suppression efforts. Initially, this strategy appears beneficial as it addresses immediate devastation. Yet, over the long term, such actions can prove highly detrimental and costly. By preventing nature from clearing excess fuel, conditions for even larger and more destructive fires are created, leading to ballooning budgets for fire suppression.
Recessions, akin to forest fires, are naturally occurring phenomena. They serve the vital purpose of eliminating bad debts—the dead wood—of the economic cycle, allowing prices to align with overall production and distribution of goods and services. Attempts to stave off this vital adjustment only result in an imbalanced economy and pave the way for future economic crises. In essence, governmental interference can transform a series of recessions into prolonged economic downturns.
How to Maximize Economic Potential
Determining the primary issue facing the country is subjective. However, we assert that citing the “economy in general” is not a valid choice. It seems the Gallup poll—renowned for its accuracy—missed this crucial insight entirely.
The fundamental challenge confronting today’s economy may very well be the blatant disregard by governments worldwide for the free exchange of goods and services, along with the private stewardship of property. While the intentions behind their varied fiscal and monetary policies might be unclear, the chaos spawned by modern economic policies is evident.
Engaging in any transaction typically involves navigating a maze of interventions that distort prices. Taxes, tariffs, regulatory approvals, wage laws, and subsidies all contribute to this complexity.
However, the primary factor influencing prices and trade is the central banks’ manipulation of money and credit markets. Continuous efforts to control the economy through these means deeply distort pricing across sectors, fostering unsustainable levels of public and private debt and exacerbating trade imbalances.
In contrast to today’s current crop of politicians, classical economists recognized that the economy is not a static system to be improved upon but a dynamic entity that flourishes under appropriate conditions—such as property rights, stable money supply, and minimal governmental interference, including free trade and low taxes.
With this understanding, economists should focus not on intervening to improve the world but on advocating for policies that less restrict market operations. Only then can individuals and businesses unlock their full economic potential.
Much like the Gallup poll, this pivotal distinction eludes many of today’s presidential candidates. Ted Cruz may have grasped some understanding of this, but his controversial nature perhaps prevents him from being elected, leaving us to wonder about the insights he might have shared.
Sincerely,
MN Gordon
for Economic Prism
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