08 April 2013

The Slippery Slope

Government subsidies of gasoline, electricity and other energy sources amount to about $1.9 trillion a year and should be ended or offset with taxes used to battle climate change and pay for social programs, the International Monetary Fund said Wednesday in a major foray into the global warming debate.
From top energy users such as the United States and China to the poorest of the poor, the fund said countries should be more aggressive in developing energy tax and pricing policies that reflect the true cost of fossil fuel use, including such “externalities” as pollution and the steps needed to mitigate the effects of a warming climate.
For the United States, the IMF estimated that would require a $1.40 levy per gallon of gas and other fees totaling more than $1,400 per person each year — around $500 billion in total, or more than 3 percent of the country’s annual economic output.  [Emphasis added.]

Bob Murphy has already show why the IMF proposals fail on their own terms, so I won’t rehash that now.  Instead, I’m interested in at looking how governments use market problems to gain power.

As is well known, it is foolish for politicians to let a crisis go to waste.  The corollary to this would be that it is stupid for politicians to not exploit suboptimal market outcomes for political gain.

In this light, the IMF’s policy recommendations, once translated from paternal-esque statist jargon into plain English, are really, “we would like to have more power and control over more people.”  Yes, the IMF acknowledges ending government subsidies as a potential option for dealing with market imbalances, but the bulk of their policy recommendations concern gathering more power to the IMF.  Thus, they merely pay lip service to the free market, and use their lip service to introduce more statism.

This is how governments gain power.  They identify and politicize a problem.  Generally, they are correct when identifying a problem (in this case, market inefficiencies brought about by government subsidy), and will often cite a market ideal that bears quite a bit of resemblance to the free market.  And then they propose an alternative solution that, while not ideal, is more feasible to implement and, coincidentally, gives the government more power.

What’s intriguing, though, is how people fall for this charade.  What happens is that a market outcome is less than desirable, or perhaps even inconvenient for a couple of people.  This inconvenience is generally not permanent, and few people who find themselves inconvenienced by some market outcome will find themselves staying that way for long simply because the market, like reality itself, is dynamic.  However, these short-sighted, narcissistic fools get caught up in their own minor, short-lived problems, and demand that government solve their problems for them.

Most of the time, solving these sorts of problems is simply a matter of waiting.  The clamorous fools who are currently being inconvenienced, though, are stupid and impatient, and demand that something be done right away.  In a monarchy, a wise king would simply dismiss these complaints as the ravings of small-minded lunatics, and possibly have them beheaded (we can only hope).  In a representative democracy, though, these people have personal advocates who can try to solve their constituents’ problems.  Oftentimes, then, representatives collude together to solve the petty problems of petty people with sweeping policies, which coincidentally give the government more power.

For a short time, the small problems of the petty tyrants are solved.  In time, though, the solution breeds new problems for a now-larger number of people.  Whereas before, say, six people were inconvenienced by a temporary market outcome, now twelve people are inconvenienced by a market outcome.  These twelve beg their representatives to alleviate the problem.  Now, the government could correct its mistake by revoking its prior policy.  But that would give the government less power, and so there will definitely be none of that.  Thus, the government proposes yet another intervention to solve the twelve’s problem.  The solution works temporarily, but inconveniences an even larger group of people who demand a solution, which the representatives then enact, only to create a larger problem that harms more people, who in turn demand a solution, and so on ad infinitum.

Ultimately, we end up with the current situation, where a global government group is trying to solve a $1.9 trillion dollar market problem with more taxes, more regulation, and more wealth redistribution.  Sadly, the best solution to the problem—ending the subsidies—is mentioned then essentially dismissed out of hand.
The lessons to be learned from this, assuming any exist, are twofold. First, it is unwise to trust any government, particularly one that purports to be democratic, with solving any problems.

Second, it is unwise to allow foolish and short-sighted people to have any say in deciding government policy.  The lack of patience on the part of fools is what does them in every time.  This doesn’t make them bad (read: immoral) people, but it does make them unfit to lead a group of people, to say nothing of leading a nation, or even the world.  True wisdom is knowing which problems are important and which problems are transient, and ignoring the latter.  Most people are not wise, and therefore the evil seduce the foolish into trading their freedom for the illusion of a solution to their insignificant and transient problems.