Pragmatocracy

Logic and history demonstrate that wealth tends to flow toward the political class, not because of its productive contributions to society, but due to its institutionally privileged position. Between taxes and regulatory impetus, 60 to 70% of the economic resources within U.S. borders are directed by some level of government, even if they are nominally privately owned. Even more importantly, the most potent example of central planning in America today is the Federal Reserve system.

If the housing asset bubble created by the Fed from the late 90′s to the late 2000′s had been permitted to undergo a full correction, the ensuing deflation would not have brought all economic activity to a stand still. That’s patently ridiculous for numerous reasons that I’ll spare you. Rather, it would have caused a precipitous fall in the incomes of those in the artificially bloated financial sector, with a corresponding increase in the purchasing power of those earning wages performing jobs that benefit people. Effectively, if capitalism had been legal, the trend toward greater inequality would have reversed rather than advanced over the past five years. But since our economic system runs on the words of Bernanke instead of consumer valuations, inequality has only deepened.

The Fed took the path of perpetuating an unsustainable, artificial, financial asset bubble – which it itself created – by debasing the earnings of the common man and the ability of economic actors to increase real productivity. Decentralized market action is the only means of producing meaningful signals on which entrepreneurs, managers, employees and consumers can act rationally, that is, having accurate information on the comparative value or scarcity of particular goods to use resources most appropriately. The fundamental nature of central planning ensures its failure on this point, as has been thoroughly understood since the 1920′s. Yet here we are.

The most devious aspect of central planning is that it does not have to actually satisfy anyone’s demands, so long as its proposed “solutions” look good politically. In fact, because political action takes place behind the scenes, only the actions of private actors remain as the visible result (hiring, firing, buying, selling, pricing, etc). Where the political class can defer responsibility for bad policy to the economic class, there is further political incentive to continue doing things that are ineffective or even damaging solely because they make enough sense at face value to be popular. Such includes the regressive forms of wealth redistribution known as “stimulus” spending and capital-wrecking artificially low interest rates. The concept of “unseen” opportunity costs that reveals the aforementioned to be atrocious policies – if the goal truly is economic growth – was discovered in the mid-1800′s. Yet here we are.

Unfortunately, it often requires rigorous deductive logic to expose the fallaciousness of these types of policies. But what is great for the political class – including everyone in the financial sector who benefits from the perpetuation of these ridiculous policies – is what I’m going to call perception dualism. If things go really bad, the political class can always blame capitalism and people will generally buy it. If, miraculously and contrary to every logical conception derivable in the field of economics, the policy works or more likely coincides with real recovery in spite of the “stimulus”, they can take credit – and the masses will buy that load as well.

The narrator’s leading comment regarding “scary” socialism could not have offered a more incorrect implication. This is where I have to say something about the nature of social inequality. In a true market, in which individual choice and voluntary interaction are the primary forms of social structure, inequalities are the product of the different abilities individuals have to perform some function that ultimately benefits others. The more value one is able to add to others’ lives through her activities, the more others are willing to trade with her. There is no sense of income distribution in such a society because there is no stream from which resources flow and no central authority determines who will get what.

In a decentralized society, it is literally the will of the people through their actions that determines how resources are best used through their choice to pay more than cost to enjoy the product of wise uses and to abstain from buying at cost which imposes losses on foolish uses. Any type of redistribution, including the tacit forms of money printing and extra-market low interest rates, is fundamentally anti-democratic. It is to say that the many cooperating consumers and producers have chosen incorrectly, so that a central authority might inject mass consumption according to the preferences of a minority political class, without having been justified by its own past or future productive activities.

Moreover, the whole concept of a centrally determined “ideal” distribution is inconceivable, arbitrary and only perpetuates the theme of central planning and social engineering in this country. In the words of Aristotle, there is no worse inequality than to make unequal things equal. Yet here we are, with more people advocating more re-redistribution to treat the symptom of a disease they’ve been taught to revere.