Sunday, December 28, 2008

Government hand is harmful

Published in The Tennessean, December 28, 2008

Government hand is harmful

by Richard J. Grant, Ph.D.

Civilization advances with people learning to achieve more with less work. For any item that we now purchase, we spend less time working to earn it than our parents and grandparents did.

Our economic advancement necessarily meant changing how we did things. But it did not require us to change our values, the essentials of respect for people and their property. Not even when the going got tough. Why now is our government telling us to reverse that — to change our values and to keep doing the same jobs we did before?

When they tell us that "markets don't work anymore," they are telling us that we need government to tell us what to do. They are telling us that they know better than we do what to do with our property. They will take our property from us to "create jobs," create work for us.

Past promises unfulfilled

Do you believe them? Did the government invent cars? Did the government invent health care, or banking, or money? No; and if we had waited for them to do so, we would still be waiting. We gave the government a monopoly over our money. Result? Inflationary booms followed by busts. We let them regulate and even partake in banking. Result? A false sense of security, thoughtless lending and distorted financial markets. We let them regulate and pay for health care. Result? Government is now the biggest spender on medical services; it decides who can and cannot offer those services, and has created regulatory hurdles that hamper progress and drive up costs.

What does an auto-industry bailout imply? We will pay higher taxes to pay the interest on our exploding national debt in order to pay politically favored people to produce products that we chose not to pay for privately. In other words, we will be reversing economic history — we will be getting less for more.

Bailouts drain resources

Bailing out one industry drains resources from all others. We are less able to move our resources into new and better ways of doing things. As government involvement in our lives grows, we carry a heavier burden.

We are better off than our grandparents, but not nearly as well off as we could have been.
Whenever the government tries to give people something for nothing, whether by promoting subprime loans or by pumping up the money supply, the seeds of the next crisis are being sown. Market signals are distorted; mistakes are made. But the great virtue of private property and market freedom is that people will discover and act to correct mistakes and to preserve wealth.
Markets work. But some people can't handle that truth. They beg government to bail them out, and in so doing they put us all at risk.

By delaying necessary liquidations, they weaken our ability to take care of ourselves and those around us.

Did government invent charity? No; an entitlement mentality is the exact opposite.
Is $1 trillion too much for government bailouts? Yes, $1 is too much.

Richard J. Grant is professor of finance and economics at Lipscomb University.

Copyright © Richard J Grant 2008, 2009

Wednesday, November 26, 2008

Government has caused this panic

Published in The Tennessean, October 23, 2008

Government has caused this panic

By Richard J. Grant

Are you worried about your portfolio allocations? Are you worried about the value of your home? Then you should worry about the value of your home's home. If you live near me, that means the USA.

It seems fairly easy to teach people how to handle their portfolios. But many still panic when the markets turn down, and they suffer for it. By contrast, it is far more difficult to teach people how to take care of their country. But when they panic at election time, we all suffer.

Too many people believe all the current nonsense about "market failure" or the "failure of capitalism." Educational failure would be closer to the mark. The cause of the current financial panic is the many years of government interference in our businesses and private lives. At best, when government takes our resources, it gives us services worth about half what the private sector would have given us. What government takes from us is no longer available for investment, production, innovation or charity. Every such loss puts us further behind. Opportunities slip away — forever.

Congress abuses power
Congressmen love to be photographed giving checks to local groups and projects. What never get photographed are all the lost opportunities, the wealth never produced, the lives not saved. All these are lost because of the excessive power of Congress to transfer wealth from those who produce it to those whom congressmen favor. Just as often, political favors take the form of regulations that give one group advantages over another. Markets are distorted by governments, not by nature.

When we bring our products and services to market, we often succeed and sometimes fail. Either way, we learn something: what to keep doing, and what to stop doing. Both types of information are important to guide us in the stewardship of our resources. Through free interaction in the market, we are able to discover information about the reality around us that we could never otherwise learn. Government has no such discovery mechanism. That is why countries with more interventionist governments are much poorer. Markets correct themselves; governments compound their own errors and then blame the market.

The current financial mess is the result of erratic monetary policy, perverse tax laws and a complex network of regulations that is both excessive and actively distorting. Even in the face of this, markets are self-correcting. Of government failure, markets are merely the messenger. Will we now shoot the messenger?

In our panic, will we now run to Mommy, to bigger government? Will we do the political equivalent of buy high and sell low? The worst investment decision that most Americans will make this year is to vote for Obama. With their presidential and congressional votes, Americans now seem likely to increase the numbers and powers of the same people who really got us into this mess. So much for truth, justice, and … whatever.

Richard J. Grant is professor of finance and economics at Lipscomb University.

Copyright © Richard J Grant 2008


Government handouts cost more in long run

Published in The Tennessean, September 23, 2008

Government handouts cost more in long run


In every country where government has tried to run the economy, the results have been poverty and oppression. Do our political leaders believe they can do better?

They have done many dumb things on our behalf and, as a result, we are poorer and less free than we could, and should, be. By world standards, we are still the biggest and most powerful. But that is to damn ourselves with faint praise.

The world can overtake us if we forget who we are. Many Americans have forgotten, or never learned, that U.S. prosperity grew in a historic oasis of economic freedom, constitutionally preserved by the Founding Fathers. And prosperity will fade away when our freedoms are taken away.

When politicians pander to the most gullible among us by offering "bailouts" and "stimulus" packages, we must know that the deal is rigged against us. In seeking something for nothing, we have mindlessly taxed ourselves and our descendants. We can still prosper, but will always bear the burden of past choices. We have made government bigger. We have traded away part of our future freedom and prosperity for present comfort; and in so doing, we have traded away some of the virtue that has made America unique.

Less intervention is best stimulus
The only stimulus that Americans have ever needed is freedom. Stimulus does not come from government programs. America's genius was to place limits on those who would use the powers of government for their own purposes. The Constitution was designed to keep the government small and focused on doing only those few things that it is capable of doing well.

The Constitution has protected us from aggression so that we could get on with our lives in a civil manner. But a constitution is only as good as those who interpret it. That is what Benjamin Franklin was warning of when he said, "a republic if you can keep it." A republic is sold off one vote at a time, one entitlement program at a time, one freedom at a time.

When we should have been saving capital, the government gave us the first "stimulus checks" and told us to go forth and spend. Spend on what? On anything: Just spend it, we were told. And from where did the government get the money? It borrowed the money and put it on our tab. We'll be paying the interest on that one forever.

When our government regulates, spends, borrows, taxes and inflates, it changes how we live and do business. Then, when things go wrong, the less observant among us blame "the market." They cry for more of what set up the problems in the first place: more government.
Now, the majority in the House of Representatives is angling to buy our votes with promises of a second "stimulus program." It will sound nice to voters in swing districts, but will consist of make-work projects and various subsidies.

It will also push the budget deficit up to record heights. But that's OK — we'll blame the president.

Richard J. Grant is professor of finance and economics at Lipscomb University.

Copyright © Richard J Grant 2008

Monday, May 05, 2008

Excessive government created vicious cycle

Published in The Tennessean, April 25, 2008

Excessive government created vicious cycle


The current "global food crisis" is not a crisis in its own right. It is a symptom of a broader intellectual crisis that has spawned a vicious cycle of increasing government intervention, here and abroad.

Excessive and poorly conceived government regulations, taxes and subsidies have created a cluster of crises, and now the fluctuating prices will be used as an excuse to increase government meddling even further.

We could start by looking at extreme cases, such as Zimbabwe, where Robert Mugabe has liberated his country from the status of net agricultural exporter and turned it into an aid-dependent exporter of hungry people. That's what you can do with just the right mix of bad economic policies and corrupt political practices. Third World governance begat and maintains our current portfolio of Third World countries.

With a little more effort we, too, could achieve that status. It will take awhile, but we do have some talented folks in Washington who are hard at work on it. Through the wonders of pseudo-science, they have converted most of us to the worship of the green goddess of global warming, which now explains all things. Who needs science when we have "consensus"? Those of us who actually understand something about mathematical models remain skeptical about their use in forecasting complex phenomena such as climate change and future economic conditions. But such "deniers" risk conversion by the sword or, worse, a loss of research funding.

Ethanol hinders progress

The green goddess now demands burnt offerings: We call it "ethanol." To ensure that we all practice what they preach, the pious folks in Washington have made our participation mandatory. The production of ethanol and other biofuels is promoted through subsidies, tax credits, grants, loans and import restrictions — burdens cheerfully borne by consumers and taxpayers. Corn producers are appropriately thankful, and vote predictably.

We are told ethanol will help us achieve energy independence and reduce the emission of unpopular gases. But it actually hinders both objectives. Further, ethanol is harmful to internal combustion engines and corrodes fuel-handling systems, including underground storage tanks. It is an expensive and wasteful energy source, so the government has to force us to use it in our gasoline.

This drives us back to the food crisis. With predictions that, within 10 years, ethanol production could consume as much as one-third of the corn crop, we should not be surprised that corn prices are shooting up. Resources are being drawn away from other uses, thereby driving up prices in other markets, particularly other foods. Elsewhere, people starve; but in America, we have enough food that we can distill it to fuel our cars.

Our premature adoption of the use of biofuels in America is wasteful and retards our technological development. Along with other government projects, it draws resources away from more highly valued products such as food, shelter and health care.

We were told that using ethanol would save us money, but like so many other "green" ideas, it's all moonshine.

Richard J. Grant is professor of finance and economics at Lipscomb University.

Copyright © Richard J Grant 2008