A Sixth Way to Wreck a Recovery

Amity Shlaes' editorial in the Washington Post ("Five Ways to Wreck a Recovery" Washington Post, 08/18/08, A11) lists (obviously) five ways to make certain that economic recovery is as slow and inefficient as possible. We agree with all of them — but add one that she did not consider.

The surest way to destroy an economy (or a country) is to make certain as many people as possible have no economic voice, and no significant stake of income-generating assets — the same thing, really. "Power," as Daniel Webster pointed out nearly two centuries ago, "naturally and necessarily follows property." If you want to run an economy and a country into the ground, concentrate ownership of the means of production in a small private elite (capitalism, "institutionalized greed"), or in a small public elite (socialism, "institutionalized envy"). The advantage that socialism has over capitalism in wrecking an economy is that it accomplishes the task faster and more efficiently (the only area, aside from regular violations of natural rights, in which socialism is superior to capitalism . . . which isn't saying all that much). A Capital Homesteading program would restore the strength of the U.S. economy at no one's expense, except (possibly) those skilled at profiting from the misery of others.

1. Giving in to protectionism. Capital Homesteading relies on free and open markets, which includes free and full access of everyone to the market, as well as elimination of all trade barriers, except for those dictated by legitimate national security and safety (e.g., illegal drugs, nuclear weapons).

2. Blaming the messenger. Ms. Shlaes credits the diversionary "search for the guilty" in 1929 with slowing the recovery. We agree. Frankly, we can't afford to waste time hunting for a possibly non-existent conspiracy. We need to get to work fixing things. The hunt for fugitive Nazis didn't begin until the war was won.

3. Increasing taxes in a downturn. Call it a "smooth move" with pardonable snarkiness. Taxes are an increase in the costs of doing business. What do you do when cost increases have caused an economic downturn? Increase taxes, and thus costs, thereby causing more of a downturn . . . right. We can include in this general category the artificial manipulation of the interest rate by the Federal Reserve. The philosophy seems to be, forestall inflation by raising prices! . . . except that inflation means a rise in the price level! Why not promote sound, "green" growth to increase the tax base and revenues while lowering the tax rate?

4. Assuming bigger government will bring back growth. The only "growth" that bigger government will bring back is the kind it takes a surgeon to remove from your brain, evidently the kind that causes this kind of thinking. A limited economic role for the State, in which proper authority lifts barriers to participation and polices abuses is the only viable course.

5. Ignoring the cost of inconsistency. The inconsistency Ms. Shlaes doesn't mention is possibly the most important: you cannot long survive as a nation or an economy when you combine economic plutocracy with political democracy.

To this we add:

6. Concentrated ownership of the means of production. At the most basic level, why should I make sacrifices just so you can get rich at my expense? Capital Homesteading provides a way to spread out the benefits of economic recovery and growth, so that everyone has the opportunity to share equitably in the results of production, both through direct ownership and by contributing labor.

Ms. Shlaes makes one error, but it is a critical one. She defines economics as "competition for scarce capital," presumably financial capital. This is incorrect. Financial capital is the easiest capital in the world to create. With a properly designed and run commercial banking system and central bank, people can create exactly as much financial capital (asset-backed instead of debt-backed money) as they need to finance a recovery. This is, in fact, what the Federal Reserve was designed to do, not finance government operations. I recommend that Ms. Shlaes read "A New Look at Prices and Money" on the CESJ web site for some useful analysis of the role of money and credit in an economy. You might want to take a look at it as well.