Economics, Gorillas, and Frying Pans

“If you walked into class every single day and a thousand pound gorilla hit you over the head with a hundred pound frying pan, would you keep walking through that door?”

—John Paquet, high school physics teacher

I heard this query often during my high school years. I now offer it to anyone curious as to the cause of our current economic situation. The entire world is in the midst of an economic meltdown. In similar times of economic crisis, history has shown that not only Americans, but people of all nations turn to their governments as the answer to economic problems. Meanwhile, they ignore the ever surmounting evidence that the government and its intervention is the problem itself. It is, in fact, the cause and they are content with closing their eyes to the truth, pretending the last set of regulations and restrictive agencies never happened. It’s time we grasp reality and accept that they have, and that our worsening economic state degrades proportionally with government involvement in it.
Throughout the history of American enterprise, it has been said by our friends and our enemies that we are a capitalist nation. The truth is, however, that the American economy has never been truly free. Even as our conception when the ideas of personal freedom were strongest, the government could and did intervene with business affairs. That being said, we can still see the times of greatest industrial growth in our nation came when government was least involved—in the 19th century, more specifically its latter half. It was this period of time that American enterprises expanded to massive and productive scale (we should appreciate these men, not scorn them, as is tradition, since our school’s namesake was one of them). Similarly, these corporations were cut down and piecemealed by antitrust laws of the latter part of that century and the early part of the 20th century because they were efficient and because they were productive. For a modern example of this occurrence, ask yourself what field of industry has increased the most in the last three decades? Then ask yourself which industry has had the least government regulation in that time. It is no coincidence that the computer industry has expanded at an exponential rate since the 1980’s. It is also no coincidence that since the enactment of antitrust laws against Microsoft, it has increasingly produced inferior products, i.e. Windows Vista.
Every time the economy begins to fail, its failure is blamed on the free market (which we’ve never had) and more government policies go into effect, as if there weren’t any before. Our current debacle is a result of such cycles. In the years of the Great Depression, the era of the single greatest increase in the power of the American government over its people and their economic lives, FDR created Fannie Mae to aid Americans in obtaining loans to buy homes. During the Vietnam era, the second greatest expansion of government power in our history, Lyndon B. Johnson created Freddie Mac with the intention that it compete against Fannie Mae and between the two of them, low income American families would be able to secure well founded loans to obtain new homes. Despite the obvious government connections with these entities, they were always said to be “private.” Their ultimate failure (and then official nationalization) in 2008 came as a result of more than ten years of pressure from politicians for the two companies to drastically cut interest rates so that every American family could have a home. When millions of Americans defaulted on loans they never would have qualified for under free market conditions, Fannie Mae and Freddie Mac failed and dragged down with them every financial institution that had invested in these loans in form of credit default swaps as well. Instead of allowing these companies to deal with the consequences of years of faulty financial logic and letting them fail, a new term was coined in the American economic scene, “too big to fail.” This term, though undefined and relative, has since been applied to other companies than just financial institutions. To prop up these institutions, the government has bought up the stock no one else would logically invest in, making it the majority shareholder in many cases. Many of these companies, such as GM, have been operating at a deficit for years, producing products that are inferior to their competitors and at a greater cost. In a free capitalist market, no company doing so would survive even a decade, but government involvement acted as a crutch and now GM is being supported by the government so it can continue to make vehicles that do not sell instead of being forced to adapt to changing economic conditions and increase efficiency to beat out competitors. The proposed solution to all this: the Bush/Obama “stimulus package,” many proponents of which point to the temporary halting of a plummeting stock market as signs of its success. The situation is distorted by the belief that a country’s wealth and capital are based on the currency it has to spend. People believe that spending excess of hundreds of billions of dollars will jumpstart our economy. Meanwhile, who stops to ask where that money comes from? The American government has either found some mystical source of capital we’ve never heard of, or else they are merely printing more currency. Accepting the unlikelihood of the former, the latter is not equivalent to having wealth. A country’s wealth is only a consequence of its production. The fact that production in America decreases almost daily demonstrates that we cannot be accumulating more wealth realistically. Therefore, the money from this “stimulus” only creates a greater and greater illusion of money in the economy, in the same way the speculation on the stock market created an illusion of capital in the 1920’s. History shows us that illusions of economy did not work then and, similarly, they will not work now.

Blake Green
Class of 2013
College of Arts & Science

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