That’s how George Mason University economist Russell Roberts describes the logic—rather, illogic—of the economic “stimulus” proposals that everyone and his uncle have been proposing.

If we needed further demonstration of the folly that is the American political-economic system, there it is. The leaders of the interventionist state and the candidates who aspire to command it will continue to produce this inanity until people see it for the balderdash it is and resoundingly reject it.

The problem is that most people don’t see it for what it is. When told economic activity is slowing down, they demand that their “leaders” and candidates assure them there is a Plan to keep them safe. The politicians are more than happy to oblige. Details don’t matter much.

The economic-stimulus theory is plainly incoherent. Besides the swimming-pool analogy already quoted, Russell Roberts showed the futility of what’s being proposed in another vivid way. Noting that politicians love to talk about “injecting” money into the economy, like a doctor giving a patient a transfusion, Roberts writes, “But where does the economic injection come from? It has to come from inside the system. It’s not an outside stimulus like . . . the transfusion. It means taking money from someone or somewhere inside the system and giving it to someone else.”

If the government uses fiscal means to goose the economy, the money has to come from somewhere. The politicians do not propose to cut spending—quite the contrary. So, since the budget is already in deficit, any tax “rebates” and new government spending will have to come from borrowing. But government debt doesn’t create wealth; it only transfers it. The lenders won’t be able to spend or invest the money. And the new debt will have to be repaid with interest through taxation in the future, suppressing economic activity then. Likewise, if taxes are raised to provide the stimulus—well, you can finish the thought.

If the government increases some people’s ability to spend by decreasing other people’s ability to spend, where’s the stimulus? Maybe these measures aren’t really intended to stimulate anything but a candidate’s popularity with appropriate constituencies. The underlying rationale for stimulus is that consumption is insufficient. While the purpose of production is indeed consumption, it doesn’t follow that the government can create economic growth by stimulating consumption. You can’t consume what hasn’t been produced.

Thus giving people money and urging them to spend it won’t improve their economic prospects. As usual, what looks like a political favor to low-income people is just a cruel hoax. Their well-being depends on genuine and sustained economic growth, which would maximize job opportunities and lower prices. But that requires a radical freeing of the economy—which politicians are not wont to favor.

The most objectionable side of the stimulus frenzy is the assumption that government can and should run the economy. The reports of the death of Keynesianism were apparently exaggerated. Most people still believe the economy is a vehicle and the government the driver, precisely adjusting the gas pedal and brake as needed. But really there is no “economy.” There are only people pursuing ends and the property they use and exchange in the process. If the government tries to “run the economy” it has to run us. It is a dangerous mistake to think the would-be driver can know what he’s doing. He can’t possibly know. The system is too complex, the necessary information—much of which is never articulated—scattered too far and wide. In contrast, the market process solves the problem of how to coordinate the productive activities of countless people in order to satisfy consumers.

Those who are biased against freedom will proclaim that our economic problems show that the free market has failed. What free market? Do they mean the “free” market that for ages and in myriad ways the government has straitjacketed and skewed on behalf of favored interests?

We are in our present position because government has burdened us with taxes, spending, debt, regulations, subsidies, guarantees (to banks, for example), trade restrictions, fiat money, and other impositions. Between the endless domestic schemes and war, we are being crushed by the weight of the state. We don’t need a stimulus. We need the weight lifted. We need freedom.

* * *

We’ve all seen those signs in stores bragging that only “fair trade” coffee is sold or served on the premises. Is this a worthy cause for advocates of freedom? Gene Callahan has the scoop.

It’s now uncomfortably common to see reports about abuse of innocent people by police forces resembling military units. Steven Greenhut examines this ominous development.

Condemnation of the profit motive is routine. But as Steven Horwitz explains, the profit motive is ubiquitous. What makes it beneficial or harmful is the institutional setting.

When a government official harms someone and the victim wins a lawsuit, it’s usually the taxpayers, not the offender, who pay the price. Is that justice? Ridgway Foley says no.

Some environmentalists think outer space should be preserved in its pristine state, free from human pollution. Are they kidding? J. H. Huebert and Walter Block ask.

The word “efficiency” is thrown around far too casually in discussions of government policy. It might be good to know what the word means. Gary Galles takes a look.

Here’s what our columnists are serving up this issue: Richard Ebeling dissects the “new happiness economics.” Lawrence Reed tells why a Continental was worth so little. Thomas Szasz points out that being drugged against one’s will is not treatment. Robert Higgs assays the effect of the New Deal on local government. John Stossel is glad that Third World nations are getting richer. Charles Baird documents how the government helps union leaders to plunder. And David Henderson, stunned by the assertion that medical care in the United States is worse than in other places, responds, “It Just Ain’t So!”

Books on democracy, market-based management, pharmaceutical regulation, and wealth-creation come under review.

—Sheldon Richman
srichman@fee.org

But Roberts’s argument implicitly assumes that government provides security. That assumption flies in the face of much evidence on the welfare/nanny state. It ignores the government’s sometimes-lethal iron fist that is only modestly hidden beneath its velvet glove. Government’s tragic track record shows that regulations and spending programs often make people less secure. And even when they provide security, they often do so by trading one risk for another, sometimes bigger risk. Consider three areas where this happens: drugs, education, and jobs.

Since 1962 the Food and Drug Administration (FDA) has required that any new drug be tested not just for safety but also for efficacy. Economists have estimated that the efficacy requirement has added many years to the time between a drug’s discovery and its sale. Let’s grant that the requirement for proof of safety reduces risk. But the regulation that requires proof of efficacy does little or nothing to decrease risk and necessarily increases risk, sometimes lethally. Imagine you have a terminal disease and, without a drug that is currently being tested for efficacy, you will die in six months. Unfortunately, the drug won’t be on the market until after that. Imagine there is a 30-percent probability that it would extend your life. Has the government reduced your risk by forcibly preventing you from taking it? This example is not hypothetical. Economist Daniel Klein estimates that withholding new effective drugs causes at least 50,000 premature deaths a year. (See “Economists Against the FDA,” The Freeman, September 2000.)

And think of other drugs that government regulators try to prevent you from taking—drugs like marijuana, cocaine, LSD, and heroin. Here the issue is a trade-off of risks. One could argue that if the government makes the penalties harsh enough, you will decide not to take these drugs and will therefore avoid the associated risks. But stopping the analysis there is to engage in single-entry bookkeeping. We need to examine the other side of the ledger: the risks that government creates. For those who decide to use the drugs anyway, their risk is much greater—and the higher risk is due to government regulation. They face two new risks they wouldn’t face if the drugs were legal. The first is the risk of getting an impure drug. When drugs are illegal, providers do not have the same incentive or ability to provide high quality and establish a good reputation that they would have if the drugs were legal. Many people who die from illegal drugs do so because they don’t know the potency of the drugs or what they are spiked with.

The second is the risk of going to jail. One of the few effective anti-drug ads run by the federal government was the one that showed a drug user running from the cops. But notice that this risk is entirely government-created: if drugs were legal, there would be no risk of going to prison just for using them. And the risk of going to prison is not one of those little risks. As the drug warriors correctly point out, going to prison could wreck your life.

One might argue—and many do—that we should not be sympathetic to those who take illegal drugs and go to jail. To this I have two answers. First, those who make the argument cannot also argue for drug laws on the basis of saving people from harm because they have revealed that they don’t care about those people being harmed. Second, when I ask even strongly anti-drug audiences what they would do if they found illegal drugs in their teenager’s room, they never say they would report their child to the police. So they do seem capable of being sympathetic to at least some people who risk going to prison.

My second example of where government creates risk is the schools. Most schools in the United States are government-run, and parents are forced by law to enroll their students at these schools, at private schools, or in home-schools. Government schooling is not cheap: it now costs about $7,200 per student, which is about $2,500 more than the average tuition at private schools. But because government gives it away “free,” only those who value private schooling very highly will choose it for their children. If private school tuition is $4,700, for example, you won’t buy it unless it’s worth $4,700 more than the value of what the government school provides.

What does this have to do with risk? When you drop your child off at the government school, you have little control over what happens to him or her. Within broad limits the government can do a lot to your kid: teach him things you’d rather he not know, such as how to put a condom on a banana; teach him things that are not true, such as the idea that the industrialists of the late nineteenth century were “robber barons”; and, in thousands of little ways, deaden your child’s inherent love of learning. I’d call that a pretty big risk. Of course, all this can and does happen in private schools. But with lots of private-school choices, which you would have if the government exited the business and cut taxes to reflect its lower spending, the risk would be much less.

Harm from Forced Higher Wages

Finally, consider jobs. Government regulations give unions the power to force people to join or to at least have the union represent them in wage bargaining. Unions use that power to bargain for wages higher than they could have otherwise. At those higher wages new workers are less likely to find jobs and must settle for lower-paying jobs in nonunion sectors of the economy. When there’s a downturn in the economy, employers, facing unions that want to preserve higher-paying jobs for their more senior members, lay off the more-junior workers. Absent the unions’ legal monopoly, the employers and workers could have bargained for lower wages that preserved more jobs. So the loss in freedom due to government-granted union privileges goes hand in hand with a loss in security for younger, less-experienced workers.

Big government is a big lottery, and as in all lotteries, your expected winnings (which equal the probability of winning multiplied by the prize) are substantially less than the price of the ticket. But there is a fundamental difference between the big-government lottery and the typical game of chance. In the latter, the participants choose to play; in the big-government lottery everyone is forced to play.

Benjamin Franklin once said that those who are willing to trade liberty for security deserve neither. They’ll also get neither. If my major goal were security, I would want, even more than I do, freedom from government.

With the student’s comment still fresh on my mind, I was pleased to see Russell Roberts’s new book, The Invisible Heart. For in this lively novel, Roberts offers up a debate about the morality of capitalism via the romantic sparring of protagonist, Sam Gordon, and his love interest, Laura Silver. Sam is a free-market economics teacher at Washington’s elite Edwards School. In contrast, Laura, who teaches English, takes a more favorable view of government regulation than of markets. Roberts uses Sam and Laura’s repartee to debunk common caricatures of free-market economics and economists.

Among the shibboleths slain are that economists are concerned only with money, that markets favor firms over consumers, and that market advocates are heartless individuals with no compassion for others. From a pedagogical perspective, Sam and Laura prove to be a successful vehicle for debating the virtues of markets and government regulation. Though it will come as no surprise to readers of his columns in this magazine that Roberts is more sympathetic to Sam’s promarket viewpoint, Laura is no shrinking violet. She suggests, for example, that “capitalism created the poverty we’re trying to fix” and she proclaims that the failure of private charity is “why the government had to get involved during the Great Depression.”

Although Roberts’s primary purpose is illuminating the invisible heart of capitalism, he presents, as Milton Friedman blurbs, “an impressive amount of good economics.” Included are excellent discussions of cartels, “underpayment” of teachers, and the importance of property rights. Perhaps most memorable is Sam’s analogy of so-called exhaustible resources such as oil to a room full of pistachio nuts in which people stop looking for nuts before all nuts are found because it gets too time-consuming to locate nuts among discarded shells. Of course, many readers of this magazine will recognize the similarity between Sam’s discussion of how “a thousand unseen people” help prepare Laura’s bagels and Leonard Read’s essay “I, Pencil.”

As for the obligatory quibbles, I have two minor ones. First, The Invisible Heart is billed as an “economic romance.” I think that is only half-right since it reads more like a mystery. Will Sam, the free-market economist, successfully woo Laura, the English teacher, with warm views of government regulation? Why is Sam’s teaching job in jeopardy and will he use some incriminating documents to blackmail his persecutor into allowing him to keep a job that he likes? What about the subplot involving a dishonest CEO and the Orwellian Office of Corporate Responsibility? I’ll obey the rules of reviewing etiquette and leave the answers to these questions for the reader.

My second quibble concerns Friedman’s blurb. I have nothing against impressive amounts of good economics, something this society is definitely lacking. My quibble however arises from a pedagogical perspective. Since the topics included are wide ranging but necessarily selective, The Invisible Heart is somewhat difficult to integrate into a course. This is a challenge shared by other pedagogical novels, but one that is easily outweighed by the rewarding payoff from Roberts’s superb book.

If you are a reader seeking an enjoyable dose of market-friendly economics or an instructor looking for a way to enliven your classes and break away from turgid textbooks, you must have The Invisible Heart.