Our government and those of other countries distort financial markets and market forces through intentional manipulation, regulations, and policy decisions. Market Interventions frequently serve seemingly noble purposes, all too frequently with disastrous or costly results. Let’s start with a general statement to get everyone on the same page.
From Investopedia: To free-market purists, market distortion is any situation in which prices are determined by anything except the unfettered forces of supply and demand. By that definition, truly free markets are scarce. Market distortion also means any interference that significantly affects prices and, in some cases, risk-taking and asset allocation. Governments are the source of most market distortions, including regulation, subsidies, taxes, and tariffs.
Adam Smith, the great Scottish Economist, and Philosopher who created the Invisible Hand theory that gave us our most important theories of self-interest would be positively aghast at what we’ve done to his economic theories. Why? Because no system can be ultimately successful if we remove the ability to fail or which requires the rationing of goods and services for the sake of individual needs.
Pure capitalism is both incredibly efficient and brutally uncompassionate. It is because of the latter that the government swoops in to save people, mostly the poor from the worst ravages of capitalism out of a sense of altruism, perceived fairness, and too often for political reasons. In modern times, Roosevelt’s New Deal is the perfect starting point to explain how we wound up where we are today. To Democrats, the New Deal seems to make their case for government intrusion into everyday life. Glorious and frequently untrue stories of how people were saved from starvation, were lifted out of poverty, and that the New Deal led us out of the excesses that flowed from the Stock Market crash of 1929. Instead of being the success believed today by almost all, The New Deal lengthened the hardship and slowed our exit from the Depression. Only in the run-up to the Second World War began the process of revitalizing our country and the return to more aggressive Capitalism. Capitalism and its selfish avarice encouraged people to take the risks that our country needed to fight and win a war.
President Johnson was the next Democrat to give up on Capitalism in an attempt to improve the lot of all Americans. Johnson’s Great Society Programs ostensibly were about raising our poor out of poverty and into the mainstream. The Great Society framework was “an ambitious series of policy initiatives, legislation, and programs to end poverty, reduce crime, abolish inequality, and improve the environment.” Despite the expenditure of trillions of dollars, many aspects of the program were a flop. Roosevelt’s, and then Johnson’s good intentions destroyed black farmers, black families, and millions of others through the disincentive to work, invest and maintain the nuclear family. Subsidies change behavior.
Now, Democrats have latched on to a new priority…Climate Change. In past installments, we’ve discussed the near-religious doctrine of Climate Change. But, unlike religion, there is no diversity of thought any longer. It is with the force of law that no one shall stand in the way of our Climate Warriors. Ballyhooed from on high is that Climate Change is not only going to save the Earth but, in the process, create economic opportunities the world has never seen before.
Is it slowly dawning on you that there is nothing about our current system that won’t be remade in a headlong rush to ostensibly save the planet? That is, saving the planet is the stated reason. And, the government, with its seemingly unlimited purse and a legion of true believers, many of the most liberal, nee socialists, stand in the bleachers cheering on not just Climate Change, but the necessary Social Change that is part and parcel of that same thinking.
But the problem is that whoever is running this train has no idea what our destination will be. What is going on at present is the Left’s metaphorical Hail Mary!
The degree of subsidization required to accomplish this dream is breathtaking. There is not a single element of their ideas for fixing Climate Change or Social Changes that doesn’t require the economic subsidization of every element:
- Transportation—the change from fossil fuels to Green Energy has the government subsidizing every element of the supply chain from end to end, permanently. But it never scales up enough to match the system we currently have in place which took a hundred years to get to today’s efficiency. From the manufacture of batteries, cars, EV charging stations, and jet fuel, to the power grid itself, everything is largely unknown, unpredictable, and incredibly expensive.
- Power Generation—the older, more experienced power grid people are scared to death. California’s lack of power-generating capacity is terribly underplayed. People are being lied to about the reality of Green Energy. The internet has become so scrubbed that it is difficult to find anything that is not a glowing recommendation. Only nuclear and hydro constitute base load and Green and these people are anti-nuclear. Greenies distort science and plan to jump to a carbon-free future without the knowledge and requisite development time needed for such a monumental leap.
- Civilization—one reason that there is such a hue and cry for a complete realignment of our social systems by the Left is their own Green New Deal which requires a downward revision to how we live and work. Already you hear ideas like getting rid of beef and the family car in favor of vegetarianism and public transportation. We are told to change the thermometer in our homes and telecommute to eliminate the need to go to work, even if it’s not working, in practice. You will travel less, live shorter lives, and have materially less than your parents. You will be more reliant on the government for many day-to-day necessities. Is a meteor on course for an Extinction Level Event? I am left to assume that Climate Change is in effect an ELE. I do not agree.
- Religion and Family—our government sees religion and family as an impediment to the actions they are taking and will continue to believe so going forward. They want more control over what schools teach children about themselves and life in general. They demand compliance. The indoctrination belief is strong among these people. Beware opposing people with the power to take your children away from you.
I could go on. Every facet of what the government and its high priests and priestesses desire for our future requires spending on a massive scale, thus redirecting your money for their purposes. If you resist any of their demands, you become an enemy of the State.
Nothing they do makes economic sense. As an illustration, if all they were concerned with was the elimination of fossil fuels, they would go nuclear so they could make unlimited amounts of carbon-free electricity, crack water into Hydrogen and Oxygen and maintain the traditional economic system that has served us so well. Could it be that their intention was never to make sensible decisions; just to reinvent, i.e., remake us socially? In whose image I ask?
God Bless America!
Allan J. Feifer
C’mon, I’m sure you can defend your ideas in response to this, let’s have a little discussion fun.
A pertinent current example is the Chips Act.
As someone who has had some involvement in semiconductor manufacturing it is pretty aggressive to make a conscious decision not to compete within international markets in order to maintain ideological purity. China, Taiwan and others made the decision to tilt the market scales in their favor with subsidies to this industry that they see as critical to their economies and their national security.
And it is working. US jobs and companies are disappearing here and reappearing there. The Chips Act seems to be working to stem that tide:
“Intel’s two new chip fabrication plants will span nearly 1,000 acres in Licking County — about 49 km outside Ohio’s state capital of Columbus.
The company said investment in the site could total as much as $100 billion over the next decade, making this one of the world’s largest semiconductor-manufacturing sites.
“China, Japan, South Korea, European Union — all these places are investing tens of billions of dollars to attract chip manufacturers to their countries, but industry leaders are choosing us, the United States,” said President Joe Biden at the groundbreaking ceremony after traveling to Ohio from Washington on Friday”
“The House voted 243-187 to pass the CHIPS Act, a $280 billion package that would provide more than $52 billion in grants and other incentives for the semiconductor industry as well as a 25% tax credit for those companies that invest in chip plants in the U.S. It also calls for increased spending on various research programs that would total about $200 billion over 10 years, according to the Congressional Budget Office.
Eight Ohio Republicans — Reps. Troy Balderson, Mike Carey, Steve Chabot, Bob Gibbs, Anthony Gonzalez, Bill Johnson, Dave Joyce and Mike Turner — joined Ohio’s four Democrats, Reps. Joyce Beatty, Shontel Brown, Marcy Kaptur and Tim Ryan, in voting for the measure. Four Republicans — Reps. Warren Davidson, Bob Latta, Jim Jordan and Brad Wenstrup — voted against it.”
Good Morning Keith:
I still don’t believe in subsidization, except in times of war. However, I do believe in incentives. My approach, whether chips or green energy is to define an outcome and reward deliverables. But, only when the need is very importantand the capital markets are not adequate to get there. I’m puzzled as to why Intel could not make this kind of investment on their own. Do you have some insight?