Liberal theory, at least the modern brand of it practiced today, is mired in its own statist substrate. Its societal prescriptions are impractical, its ethics suspicious, and its economic policies would be laughable if the consequences were not so dire. Behind all of these dynamics lays an over-generalized, if not fallacious, assumption about the very nature of consequences, and the costs policy decisions have on the market and the individual’s quality of life. These assumptions are based on an economic tenet known as “externalities.” According to Paul M. Johnson, professor of political science at Auburn University, an externality exists “whenever one individual's actions affect the well-being of another individual -- whether for the better or for the worse -- in ways that need not be paid for according to the existing definition of property rights in the society.”
For example, global warming has led to onerous regulations of the oil, natural gas, and coal industries. The argument behind these regulations is based on the concept of an externality. In this case, logic dictates that each time we choose to keep our house cool, drive cross country in our SUV, or, God forbid, drill for oil, we are in due course, via carbon emissions, melting the polar ice caps, flooding an island, causing wide-spread drought, or the latest prevarication, that we are “killing children” with toxic emissions.
Okay, even if for the sake of argument we dispense with any rational thought and buy wholesale this spate of potential externalities, we are still left with a host of other government-induced externalities that are not only very real, but also very immediate and impactful. To illustrate, when we don’t build coal factories, the cost of electricity, by way of supply and demand, goes up. This means the consumers feel a direct impact in not only in their energy bills, but also indirectly at the grocery store, at restaurants, and any place that consumes energy, because these businesses pass their energy costs on to consumers in the form of higher prices. This means families struggling to make ends meet suffer, whether it be in delaying a medical procedure or a major appliance purchase, or simply being able to adequately feed and clothe their children. These decisions in turn lead to a plunge in aggregate demand, thus forcing business owners to cut back, leading to layoffs, delays in investments for the future, and ultimately, in a decrease in the standard of living for themselves and their families. And because they have less disposable income, they further suppress overall demand, consequently furthering the vicious economic cycle. The bottom line is that these are very real externalities that directly impact our health, well being, and our sense of security and happiness. They are not potential and futuristic; they are ever present and need to be a factor in any reasonable policy formulation.
Of course, those who regulate are typically immune to these externalities because they are congressmen or congresswomen who are, ironically, part of the evil and contemptuous “1%,” or have well-paying jobs in the bureaucracies that enforce these regulations. And this becomes overwhelmingly hypocritical when you consider the recent debacle about extending the payroll tax reduction. President Obama recently held a press conference, astride with handpicked representatives of the “common man,” in order to spin a series of narratives to illustrate the crushing externalities these individuals will pay without the continued tax break. From foregoing a night of pizza with the family, to a reduction of visits to grandma in the nursing home, to an inability of a family to buy oil to heat a chilly house, the President painted a grim procession of personal sacrifices, of impinging externalities that needed the power of the bully pulpit to be brought to light lest we fail to extend the tax breaks. And the President is correct in his assertions. These are the consequences, the hidden externalities, of inaction. Yet, if you can manage to get past the obvious rhetorical manipulation of emotions without choking on the saccharine sentimentality, you still run into a mountain of hypocrisy piled high with externalities created by the President and, until recently, a congress controlled by Democrats.
Take for example The Patient Protection and Affordable Care Act (PPACA), otherwise known as Obamacare. Although the PPACA is designed to “bend the cost curve” (something impossible without broadening competition) it has pushed the cost up from an average 7% yearly increase to a 9% increase. Leftist pundits decry this is only a 2% increase due to the legislation. But that is fuzzy math at best. A 2% increase is really a 22% rise in the cost. You don’t have to be an accountant, much less an economist, to see how this causes economic hardship even greater than reverting to the previous payroll tax, simply because the payroll tax break will eventually disappear, while the PPACA, like all other government revenue and taxations schemes, will escalate due to fraud and bureaucratic inefficiencies; witness the U.S. Post Office, Amtrak, Medicare and Medicaid as proof positive. Then, there is the 3.8% Medicare tax assessed on house sales that starts on 2013. True, this only applies to those with AGIs of $200,000 (individual) and $250,000 (married), but is there any sane argument for adding another stressor in a very stressed housing market? What if the gain from a sale was seed money for a business? What if that business would have employed five currently unemployed people? What is the total cost when you consider the company will not pay taxes, because it does not exist, and the would-be-employed, instead of contributing to the economy, continue to instead rely on unemployment funds, and that those funds are being financed with borrowed or printed money that causes price inflation, dollar deflation, and debt overhang? The externalities are incalculable, yet staggering in totality. And when you consider that the phrase “the secretary shall” occurs more than seven hundred times in the 2,700 page PPACA, can anyone really deny there will not be a host of negative externalities for the consumer beyond economic burdens? Such vagueness invites corruption, manipulation, and a myriad of unforeseen problems, more than offsetting any gains.
Which brings us to the greatest and most pernicious of externalities: the unprecedented size and scope of government itself. Logic dictates the bigger any system is, the more (un)intended externalities will beset it. We have reached the tipping point at which the expansion of the power of the federal government impinges on the freedoms of the individual. As the government rapaciously consumes resources, land, people, and money through taxation and inflation, the ability of the individual shrinks in response. Currently, national debt now stands at an astonishing 100% of GDP. We have faced this before after WW II. But that was arguably a price worth paying. However, destroying the Nazi regime, saving Europe from tyranny and brutality, and providing the support our soldiers needed to be integrated back into society and the American economy were well worth it. What do we have to show for two wars, 4,000 dead soldiers, and 16 trillion in debt? Has the Middle East really changed, and have we achieved economic revival anywhere close to what is needed to stop the suffering? We have more people on food stamps than any other time in history, and according to the Bureau of Labor Statistics, real unemployment, is 15.2%. What types of externalities face families whose parents are unemployed? Policy matters, and these people are paying a price that is painful and real. Talk about hurting children!
Ultimately, the true cost of this path of behavior will not be merely economic. We will eventually pay for our trespasses by sacrificing our liberties, by surrendering our gift of self-determination, by forfeiting our pursuit of happiness guaranteed by the Constitution. This is an intangible we cannot finance with time or credit; we cannot “bail out” the loss of autonomy or individualism. Ultimately, it is an externality that will be felt at our very core.
Gary
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