The Economy - We Need "Root Canal" Not "Novocaine"

If it weren’t such a serious matter, listening to all the media types expressing “surprise” at the “unexpected” bad economic news would be almost laughable. Because none of what is happening is unexpected to anyone with a basic understanding of economics. Whenever government interferes with the private sector, the result is almost always ultimately disastrous.

Take food prices. The main drivers of the increase in food prices are:

Ethanol – by subsidizing the production of corn for fuel instead of food, corn prices have more than doubled. And since corn, and corn based products like corn starch and corn syrup, are used in so many of the food items Americans consume, the affect has been to drive up prices at the store. Beef and pork, which depend on corn feed for production have been hit especially hard – beef prices in particular have more than doubled in just two years.

“Quantitative Easing” – Government doublespeak for “the Fed printing money by the truckload,” which has the inevitable result that every dollar you have in your pocket is worth less, forcing you to pay more dollars for the same product you bought last month or last year. This is nothing more than a “stealth tax” which hits the poor the hardest.

Rising fuel costs – most of the American food supply is ultimately delivered by truck, so it doesn’t take a genius to figure out that the cost of getting food to the grocery store is going to be passed on to the consumer. And the primary reasons for rising fuel costs are the government’s stubborn refusal to allow drilling for oil, government restrictions that prevent the construction of new refineries, and the ridiculous number of expensive government mandated fuel “recipes” depending on what part of the country where gasoline and diesel fuels are sold. Then there are the taxes on fuel – government makes 5 TIMES as much on a gallon of gas as EXXON or BP do.

“Food Stamps” – We now have more than 40 million people using taxpayer dollars to compete for the same food supply, which unavoidably forces prices up even further. Whenever government subsidizes any product or service, it forces up prices. If you do not understand this fundamental economic reality, you are likely part of the problem.

Then there is the “housing crisis” – beginning with the “Community Reinvestment Act” of 1977, government forced banks and mortgage lending institutions to give loans to people who could not possibly afford them. The predictable result of this artificial increase in the number of buyers competing for the same houses was to drive prices up drastically.

Inevitably, substantial numbers of these “sub-prime” loans began to default, creating a huge increase in the number of homes on the market, causing plummeting prices. And as many home prices fell below the amount owed on the loan, people simply let the banks foreclose – they walked away, which drove prices even lower.

But did politicians recognize the error of their ways, and decide to let the housing market go through the painful, but necessary, process of correcting itself? Of course not. Instead, they interfered even more, demanding that lending institutions “forgive” substantial portions of the outstanding loans. While this artificially kept some people in their homes, the result was that lenders had less money to lend to genuinely qualified buyers, further depressing housing values.

Finally, there is probably no better example of the destructive result of government interference in free markets than the skyrocketing cost of health care. While politicians do their best to blame pharmaceutical manufacturers and insurance companies, the real culprits are stifling government regulations and the billions of dollars of government money injected into the market – almost half of all the money spent on health care comes from the government. This increases demand, driving up prices.

Naturally, those who advocate government run healthcare falsely claim that “the free markets have failed” – but the truth is just the opposite. The United States has not had a free market in health care since the 1960s, when Medicare and Medicaid injected massive federal money into the health care market. Once again, this caused a huge, and completely predictable, increase in costs.

No matter how good the intentions, whenever government interferes with the free market, the result is inevitably to distort it, and prevent the natural forces that keep prices in line from operating. Unfortunately, when this happens, the “solution” proposed by politicians is always the same, more government subsidies to “help” those “in need” – which simply exacerbates the problem by forcing prices even higher. Which leads to demands for more government “assistance” and on and on. When America needs “root canal,” politicians instead prescribe Novocaine.

But masking the symptoms will not solve the underlying problem. Unless and until we have the courage and fortitude to accept the inevitable pain and discomfort that comes from allowing free markets to function, we will continue on a path that can only lead to economic disaster, and the ultimately, further and further erosion of our personal freedoms.

John Caile