“No statist lies are safe from his scrutiny,” writes Lew Rockwell about economist Thomas J. DiLorenzo’s latest book. What follows is my conversation with professor DiLorenzo aboutOrganized Crime: The Unvarnished Truth About Government, and the timeless economic truths to which it speaks.
1. ILANA MERCER: A microscopic decrease in the increase in government spending has sent our overlords in DC into apoplexy. A cut in oink-sector spending, they’re claiming, will destroy the chances of an economic recovery. It is the exact opposite. You point this out in the chapter on “The Myth of Government Job Creation”: “Government spending increases unemployment because it crowds out so much private sector job creation” (p. 202). Explain with reference to the zero-sum nature of government spending – the cost of a government job, and Bastiat’s “What-Is-Seen-and-What-Is-Not-Seen” principle.
THOMAS DILORENZO: Every dollar that the government spends is a dollar that is not spent (or saved) by individuals, families, businesses, and entrepreneurs. Therefore, whenever government grows, private enterprise – the sole source of real job creation – shrinks and unemployment there rises. Each government job destroys several genuine, private sector jobs because of all the bureaucracy and red tape. For example, government may spend $200,000 to give one person a $30,000/year job. And government “jobs” are usually involved in doing something that no one but a few politicians ever voiced a preference for. Private sector jobs, by contrast, cannot survive unless they are part of an enterprise that succeeds in satisfying genuine consumer wants. By contrast, Keynesians like Paul Krugman would have us believe that prosperity is created whenever government takes money out of our bank accounts (with the threat of forcing us to live in a cage for years if we do not pay) and letting government bureaucrats squander the money instead. Part of the Keynesian mantra is that such spending could and should be on “anything” – it doesn’t matter, as long as it is government that is doing the spending. The biggest year of private sector economic growth in American economic history was 1946 when the nation was in the middle of a two-thirds reduction in federal government spending as the military was demobilized from World War II. This proves that the Keyensians were always dead wrong, but of course they and their political patrons ignore this reality.
2. MERCER: You quip: “In Washingtonese, if one proposes a $100 billion spending increase, and actual spending increases by ‘only’ $90 billion, they call it a $10 billion budget cut.” We’re in the grip of exactly this kind of a paradox. How is the “Washington Monument Syndrome” playing out in its “sequesteria” version?
DILORENZO: The “Washington Monument Syndrome” is an old bureaucratic trick that is so named because the head of the National Park Service closed down the Washington Monument – the most popular tourist attraction in Washington, D.C. – in the 1960s after Congress refused to fully fund his pie-in-the-sky spending wish list. Tourists from every state, on their annual vacations, called their congressmen to complain, forcing them to give the Park Service bureaucrat all the money he wanted. State and local governments routinely use this sleazy gimmick by immediately threatening to shut down police protection, garbage collection, ambulance service, school buses, and whatever else would impose the maximum pain on the public whenever there is talk of fiscal responsibility. The Obama administration has taken this to buffoonish extremes by threatening to close down airports, etc., were government spending to increase by about one percentage point less than they wish over the next ten years. No one in Washington has proposed cutting a single cent out of the federal budget despite the fact that the surest route to economic recovery would be to chop federal spending in half, and then in half again next year.
3. MERCER: Like tax havens, tax loopholes are ethical and efficient. Your point about efficiencies is especially good: “The time spent by citizens trying to legally avoid taxes is in fact a good investment of their time.” Decode the Orwellian Doublespeak of phrases like, “simplifying the tax laws ” and “revenue neutrality.”
DILORENZO: Politicians and statist economists intentionally confuse the public when they refer to proposed tax increases as “tax reform” and to tax cuts as “wasteful” or “unnecessarily complicated.” I have long agreed with Milton Friedman’s dictum that the cause of freedom and prosperity is always served by any tax cut, of any kind, at any time. One has to realize that the purpose of government is for those who run it to plunder those who do not. Depriving political parasites of revenue is always and everywhere a good idea. The rhetoric of “revenue neutrality” really means that under no circumstances should government – unlike everyone else in society – ever, ever spend a penny less next year than this year. Any tax reform should therefore never, ever, end up putting more money in the pockets of the public at the expense of the political parasite class.
4. MERCER: Expect the “compassion of the IRS and the efficiency of the post office” from Obama’s health care plan, you forewarn. But as Obama’s army of harpies at CNN would argue, his politburo of proctologists has involved itself in the insurance industry merely to enhance markets. Or, to “bring down costs.” Dispense with this idiotic notion.
DILORENZO: Government intervention always causes costs to rise and quality to decline. This has always been true; it has especially been true in the field of health care in places like Canada and Great Britain where healthcare was nationalized long ago. There is no reason to believe that the socialists in the Obama administration are better at socialism than were the Soviets, the Eastern Europeans, the Chinese, the Cuban government, or anyone else. The absence of a market feedback mechanism based on profits and losses guarantees government failure. Public choice economists refer to a “bureaucratic rule of two” with regard to governmental provision of any type of service, based on hundreds of empirical articles that show that, on average, a government takeover of any function will double the per-unit cost of providing the product or service.
5. MERCER: You write: “At the heart of the U.S. government’s continued takeover of the health care sector of the economy was a law passed during the Obama administration that would eventually drive the private health insurance industry out of business and transform it into a de facto nationalized industry.” Elaborate. Since, as you repeatedly warn, the natural laws of economics cannot be repealed, what will these health care exchanges achieve? How will they invariably be funded? What will be the cost to business? To the millions who’re losing coverage? Who will ultimately fork out for the per-head fee imposed on medical plans?
DILORENZO: The Obama version of health-care socialism forces insurance companies to cover people with expensive diseases without charging them higher rates to compensate for the additional risk. This effectively will force the insurance companies to pay out billions in health care costs, and then the Obammunists will impose price controls on the industry because that’s what socialists always do once they intervene in a market by forcing businesses to offer something for nothing, thereby driving demand through the roof. The price controls will cause massive bankruptcy, at which point the argument will be made that what is needed is “single-payer healthcare,” a euphemism for health-care socialism or government-run monopoly. In the meantime, they seem to be imposing hundreds of relatively small, hidden taxes to come up with the revenue to keep the scheme going.
6. MERCER: The Obamacare Survival Guide is a best-seller on Amazon. The market is producing survivalist literature to help Americans navigate the treacherous shoals of this law. What does it tell you? Like me, you must know plenty of Obama-heads (doctors too) who shrugged off the idea that further centralizing health care – a modest healthcare expansion totaling $2 trillion, I believe – would cost them anything at all. As The Lancetrecently confirmed, in the UK’s National Health Service funding is inversely related to patient outcomes. You speak of “inputs” and “outputs.”
DILORENZO: I cited a study by the late Milton Friedman entitled “Inputs and Outputs in Medical Care,” published by the Hoover Institution some twenty years ago. In it the Nobel laureate economist showed that, historically, as government became more and more involved in health care by taking over hospitals and funding Medicare and Medicaid, inputs – in terms of money spent – skyrocketed while “output” in terms of patients served declined. He spoke of something called “Gammon’s Law,” named after a British physician named Max Gammon, who noticed that with healthcare socialism in England, increased “inputs” in the form of massive amounts of money spent always seemed to disappear “as though through a black hole” with little or nothing to show for it in terms of health care.
7. MERCER: You touch briefly on the “private component of GDP.” Free-market thinkers get that the private economy alone produces wealth. But no. GDP is a political construct, defined, tracked and manipulated by the D.C. political machine. Unpack the GDP gambit for us, down to its deceptive components.
DILORENZO: Including government spending in the definition of GDP was a creation of John Maynard Keynes, who defined it as C (Private Consumption) + I (Private Investment) + G (Government Purchases) + X-M (Net Exports). In so doing, Keynesians concluded that the most prosperous year in American economic history – 1946 – was actually a year of revival of the Great Depression with a precipitous drop in economic activity because of the huge decline in federal government spending after World War II. Of course, this was NOT a year of depression but an explosion of private investment, consumption, and job creation.
8. MERCER: About that elusive economic recovery: My colleague Vox Day (who sadly called it a day on WND) argued that, “The Great Depression 2.0 will be worse than its predecessor.” Day chalked that up to today’s unprecedented levels of debt, consumption and credit, private and public. It’s a hunch. But I think you’ll disagree.
DILORENZO: No one can predict something like this, especially since today’s economy is vastly different from the 1930s. Capital markets are much more sophisticated, for one thing, although government regulators by the thousands do their best to destroy them – and with them what’s left of American capitalism. Predictions like this always ignore the resilience of entrepreneurs. As the Austrian Business Cycle theory of Mises and Hayek contends, it is the boom period where all the damage is done in the form of “malinvestment” – in the latest bust this was mostly in real estate. During the recession or depression is when entrepreneurs are forced to become more efficient, more inventive, more creative – or else. This is how the Japanese recovered from something much worse than a depression – long years of war and the dropping of atomic bombs on their country – in a little over a decade.