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Wednesday, May 13, 2009

How Government Does Business: Planned Economy vs the Unplanned Economy

Like the Great Depression, the recent economic crisis has given Democrats the chance to foist a planned economy on America.

But putting aside politics for a moment, is a planned economy even a good idea? A planned economy provides control and security. It's certainly less chaotic but also much less productive. The reason for that is much the same reason why government enterprises tend to lose money even when they have a sure thing and virtually no expenses.

And what could be a better demonstration than what happens when the government gets into a business that an idiot couldn't even lose money running?

New York's Off Track Betting is a great test case of how government can take an industry that otherwise makes a killing, and actually lose money doing it. Giuliani called New York's OTB "world's only money-losing bookmaker" and that's exactly what it is. Gambling would seem to be a no brains required way to make money without even trying, especially given a government monopoly on it. But that's without accounting for how government does business.

The New York Sun summed it up best

The OTB is a classic product of 1960s New York liberalism, whose proponents most certainly did not trust the people to make their own decisions about their own financial lives. Its purpose was to remove an important stream of income for the mob while raising money for the city and the state.


The details of the OTB pretty much sum up the problems with most government run enterprises.

There are the multiple layers of bureaucracy, six layers of government, six Presidents, multiple Vice Presidents and other officials all drawing six figure salaries, often by way of nepotism. Where actual businesses have to make money, government run enterprises have to provide jobs for the idiot son in laws of campaign contributors and fellow politicians.

And of course for the ever present unions. With 1,800 union jobs, it's virtually impossible to actually reform the OTB. That's because like most government enterprises, the OTB does not exist to make money... but to make jobs.

And that is a fair summary of Obama's New Economic Plan. Nationalization in the name of making jobs, saving businesses from the consequences of their own failures and keeping them alive to maintain the investments and jobs of his supporters.

Like all planned economies, Obama's is supposed to take risk and consequences off the table. Make bad investments, make bad cars and bad choices... and the government will still bail you out. Of course what this really does is absolve entire industries of the need to make good investments, good cars and good choices. Why bother when failure just means a government bailout?

When the Nanny State sticks business in the cradle, it gets a developmentally disabled economy. That's something even Communist China has figured out, even as the US is marching to the beat of a drummer in a red scarf.

What a planned economy does is eliminate the need for success, by eliminating the possibility of failure. Government enterprises simply draw on the taxpayer to fund their operations. This creates a cycle of impoverishment as government industries suck money out of the system to maintain themselves, without actually creating wealth.

Government enterprises can create a set number of jobs funded by the very people working those jobs. Without being able to create new wealth, government enterprises can only provide a higher standard of living to a few, at the expense of the many.

Without consequences, not only failure but corruption becomes omnipresent. When combined with entitlement, you get factories that make substandard products, management that exists only through nepotism and whatever profits are generated are siphoned off through corruption and graft.

By contrast an unplanned economy is far less secure, but far more promising. The free market comes with more bumps and bruises. Bad things happen. Markets crash. The tidal flood of wealth can begin going the other way. Wrong choices have consequences. And the economy itself learns and grows from those mistakes.

While leftists insist that American wealth is the product of ruthless imperialism, it is in fact the product of having a boisterous free market economy, with all the attendant ups and downs. Even the harshest critics of America would have to admit that there are plenty of countries far more ruthless and imperialistic. If American wealth comes from imperialism, then why wasn't the USSR twice as rich? If Imperialism is the answer, why is post-war Japan wealthier than pre-war Japan?

The answer of course lies in the free market economy which is a living evolving organism, when compared to the dead trunk of a planned economy.

In a free market economy, each failure opens the door to a success. A bad strategy creates an opportunity for a good strategy. A company or an entire industry can collapse, but this gives new companies and new industries the chance to be born. The risk is great, but so is the reward. And the entire process generates new techniques, new technologies, new jobs and new wealth.

Prosperity in a planned economy is finite. Prosperity in an unplanned economy is infinite.

A planned economy harnesses the power of bureaucracy to foul up anything it touches. An unplanned economy harnesses the creative and initiative of individuals to compete in the marketplace, and the entire process of competition is itself evolutionary.

If the free economy is a lion, the planned economy is a turtle. It's safe enough inside its shell, but never does anything or goes anywhere or accomplishes anything. If it stays in its shell long enough, it starves to death.

Government run enterprises exist because governments don't trust people to make decisions about their own lives. Nanny states don't trust people, and government run enterprises are the best demonstration of why people shouldn't trust governments.

Obama's supporters talk a great deal about the failure of capitalism, yet it is the planned economies that time and time again are associated with failure and decline. Former Communist nations have reached for capitalism, even as formerly free nations embrace socialism, and having failed to learn the lessons of the recent past are doomed to repeat their failures.

By contrast the United States has always thrived on freedom. Freedom of ideas, freedom of ownership and freedom of initiative-- which when combined together form the Free Market. No amount of government oversight and committees can hope to match the force of individuals making their own decisions. That is the principle that America was built on. That is the principle that it will survive or fall on.

3 comments:

Keli Ata said...

State-sponsored gambling is never a good idea. Morally questionable--engaging in something that is illegal for organized crime but legal for the government? Morally and ethically questionable.

An unplanned economy is superior. Perfect? No, but as you wrote, it doesn't add layers upon layers of added red tape to an already fat government not to mention expenses. Just as incest can result in physical deformities and disabilities so, too, can nepotism and the inevitable incompetence of hiring unqualified friends of contributors or relatives cause major and costly government SNFUs.

Provided the private sector cares for the less fortunate and there's a government safety net for the poor and working poor unplanned economy is the way to go.

CBS's 60 Minutes did a show a while back about a study that showed people in Denmark are the happiest people in the world. Sounds great and it's a Socialist European country.

The trouble is, they're happy because the government provides everything and they have low expectations.

Low expectations isn't American. It never will be or should be.

Wonderful article.

Lemon said...

Greed for money makes people nasty and evil.
It is called a root of evil and it doesn't stop with individuals.
Big government runs on greed of the bureaucrats who work in it.

Yochana said...

keli: "state sponsored gambling" ....hmmm...I keep hearing Brando doing his godfather impression. A government godfather would be like letting loose the hound from hell.

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