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Monday, November 23, 2009

Social Security?

The root of the 20th and 21st Century economic discourse... so far the communist's economic system collapsed just like Freidrich August von Hayek said it would and the mercantilist economic theories were put to death by Adam Smith and Ricardo. So far the right is winning over the left.
The collapse of communism is attributed to the lack of a price system which, as Ludwig von Mises put it, deprives the participants of the economy important information such as overproduction or underproduction- also known as the economic calculation problem.
Mercantilism, as Adam Smith and Ricardo put it, is not necessarily an economic system, rather, it is a selfish growth system that uses tax payers to favor a certain clique of people to make money. It usually is about using state resources to favor this clique and protectionism is usually the name of the game... but the resources used to sustain this game are usually more than the benefits that accrue from it.
Now there are only three economic systems worth looking at... the Keynesians, the monetarists and the Austrians. The first two are not really distinguishable in that both have some degree of central planning in them though the Monetarists are not necessarily in favor of government spending.
Austrians on the other hand seek for market based economic systems with minimum government involvement.
The current debate on what caused the Global Economic Crisis and therefore solutions are actually a debate on which system caused it (nb. it cannot be Austrian therefore it is not supposed to be examined but because it is about free markets, it gets dragged in).
The central question in this debate is, "Is it the freedom in the markets that caused the GEC or was it government intervention that caused it?
It is, more and more, becoming clear that there was overcapacity in the economy in various sectors brought on by easy credit. The credit became 'easy' due to manipulation of the interest rates by the fed. It is this same low rates that make the financial engineering that went on possible- classic business cycle as described by Hayek and Von Mises.
What does this have to do with Welfare and Taxes one may ask? The need for social justice, whatever that means, is what drives the government to central planning... you will remember the communist dictum 'to each according to his need, from each according to his ability'. This need for government to control and to reduce 'inequality' leads to a taxation system that can both support welfare ventures that can support 'the needy' and at the same time reduce income inequality. What the government ends up with ultimately is an economy of lazy people and the lack of productivity ultimately leads to a collapse of the economy.
This was von Mises prediction of a communist country, and one that is not communist will get hit time and again by violent business cycles. That's what von Hayek predicts for Kenya should we adopt that clause in the bill of rights.

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