How Capitalism Will Save Us Read Online Free Page A
Author: Steve Forbes
than they reflect the broad-based needs of people.
REAL WORLD LESSON
Markets are people voting with their money
.
In many ways, a market is an ecosystem. There is no way to know all the forces and factors that propel it forward. Just as no one person can fully fathom all the people and processes that go into making a pencil, noone individual—including the smartest policy wonks and bureaucrats—can have complete knowledge of why a market for any product works as it does.
We are not the first to point out that if government were charged with creating a pencil, bureaucrats at the Department of Pencils would probably order up too many logs in order to please their lumber-industry constituents. (Or they might order too few because of demands from environmentalists.) The graphite miners would be overpaid as a result of political pressures. People involved in the manufacture of pencils would have to comply with an assortment of government rules and regulations, some sensible but many arbitrary. They’d have to spend hours filling out forms to show compliance. Costs would spiral out of control, as they do on so many government projects. Pencils would be priced to reflect those spiraling costs. No one would be able to afford them. You’d have a surplus. Or maybe pencils would be priced too low by the Department of Pencils. Demand would be excessive and there’d be a shortage. 13
As this book will show, efforts by politicians to manage markets have consistently produced similar consequences. You see this in the government-dominated economies of nations such as Venezuela, North Korea, Cuba, and, years ago, the Soviet Union—as well as in heavily regulated sectors of our own economy, such as health care. Bureaucrats and politicians don’t realize that the market has already allocated resources in the most broadly beneficial way possible, based on existing conditions of supply and demand. Thus, their attempts to make markets work according to how people think they should work generally never succeed.
Hugo Chávez, the increasingly dictatorial president of Venezuela, a socialist and ardent believer in the Rap, imposed price controls on hundreds of goods to make food and other essentials more affordable for low-income people—an admirable goal and one that has endeared him to some critics of capitalism in the United States. But what he didn’t understand is that the price of a product reflects the costs of the countless transactions and processes required to make it. The prices that he imposed may have pleased his political constituencies and won him votes, but they did not reflect the Real World costs of making those products. As a result, they threw the markets for these products, and his nation’s economy, out of whack.
The only place where many food staples can be obtained in Venezuelatoday is on the black market—where they are now many times more expensive than before price controls. That’s typical of the economic solutions devised by people who dislike free markets. They almost never remedy perceived problems or, to use the economists’ lingo, the “market failure” they were supposed to correct. Instead they create even worse market failure.
A friend who emigrated from Bulgaria to the United States recently described government-controlled health care in his former country: “Health care is free,” he said. “But you can’t get it.”
As we will see throughout this book, government intervention rarely solves economic problems, because it
politicizes
them. The solutions it imposes to promote fairness are designed primarily to satisfy the desires of those in power, not the Real World needs of people in a market.
What could be a better illustration of this than the Detroit bailout and government’s takeover of GM? We discuss in chapter 2 that GM would probably have been able to cut its staggering labor costs and plot out a recovery strategy had the Obama administration allowed the
REAL WORLD LESSON
Markets are people voting with their money
.
In many ways, a market is an ecosystem. There is no way to know all the forces and factors that propel it forward. Just as no one person can fully fathom all the people and processes that go into making a pencil, noone individual—including the smartest policy wonks and bureaucrats—can have complete knowledge of why a market for any product works as it does.
We are not the first to point out that if government were charged with creating a pencil, bureaucrats at the Department of Pencils would probably order up too many logs in order to please their lumber-industry constituents. (Or they might order too few because of demands from environmentalists.) The graphite miners would be overpaid as a result of political pressures. People involved in the manufacture of pencils would have to comply with an assortment of government rules and regulations, some sensible but many arbitrary. They’d have to spend hours filling out forms to show compliance. Costs would spiral out of control, as they do on so many government projects. Pencils would be priced to reflect those spiraling costs. No one would be able to afford them. You’d have a surplus. Or maybe pencils would be priced too low by the Department of Pencils. Demand would be excessive and there’d be a shortage. 13
As this book will show, efforts by politicians to manage markets have consistently produced similar consequences. You see this in the government-dominated economies of nations such as Venezuela, North Korea, Cuba, and, years ago, the Soviet Union—as well as in heavily regulated sectors of our own economy, such as health care. Bureaucrats and politicians don’t realize that the market has already allocated resources in the most broadly beneficial way possible, based on existing conditions of supply and demand. Thus, their attempts to make markets work according to how people think they should work generally never succeed.
Hugo Chávez, the increasingly dictatorial president of Venezuela, a socialist and ardent believer in the Rap, imposed price controls on hundreds of goods to make food and other essentials more affordable for low-income people—an admirable goal and one that has endeared him to some critics of capitalism in the United States. But what he didn’t understand is that the price of a product reflects the costs of the countless transactions and processes required to make it. The prices that he imposed may have pleased his political constituencies and won him votes, but they did not reflect the Real World costs of making those products. As a result, they threw the markets for these products, and his nation’s economy, out of whack.
The only place where many food staples can be obtained in Venezuelatoday is on the black market—where they are now many times more expensive than before price controls. That’s typical of the economic solutions devised by people who dislike free markets. They almost never remedy perceived problems or, to use the economists’ lingo, the “market failure” they were supposed to correct. Instead they create even worse market failure.
A friend who emigrated from Bulgaria to the United States recently described government-controlled health care in his former country: “Health care is free,” he said. “But you can’t get it.”
As we will see throughout this book, government intervention rarely solves economic problems, because it
politicizes
them. The solutions it imposes to promote fairness are designed primarily to satisfy the desires of those in power, not the Real World needs of people in a market.
What could be a better illustration of this than the Detroit bailout and government’s takeover of GM? We discuss in chapter 2 that GM would probably have been able to cut its staggering labor costs and plot out a recovery strategy had the Obama administration allowed the
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