Market processes rely on prices, which are not established by a government decree or by the randomness of the human mind but are instead determined by supply and demand. The consumer’s wants and needs are signaled through prices, which are in turn satisfied by the producers, who want to make a profit. Despite the success of this process, many still believe that government intervention is necessary to help the poor and to provide services that may not be available in the market.
So, throughout the world, many nations adopted a mixed economy model. While private property and private ownership exist, government intervention in the economy is still necessary in order to achieve social aims such as providing services to the poor and unemployed and intervening in industry, all of which is funded by the taxpayer. But Ludwig von Mises saw through the smoke and mirrors of this noble talk in his book Omnipotent Government:
A mixture of capitalist and socialist principles is not feasible. The enterprises owned and operated by the state or by municipalities do not alter the characteristics of the market economy. They must fit themselves, as buyers of raw materials, of equipment and of labor, and as sellers of goods and services into the scheme of the market economy. They must strive for profits, or, at least to avoid losses. When the government tries to eliminate or to mitigate this dependence by covering the losses of its plants and shops by drawing on the public funds, the only result is that this dependence is shifted to another field. The means for covering losses must be raised by the imposition of taxes. But this taxation has its effect on the market.
The intervention undertaken by governments to provide social services and production, whether provided in hopes of reelection or just by their good nature, produces consequences harmful to the common person.
Taxation and Opportunity Cost
Taxation is theft; any person or organization that takes your money or belongings using coercion is committing theft. There are multiple forms of taxation the government undertakes: The income tax takes from the wages and salary you earned that year. Inflation takes the purchasing power from your dollars. And of course, the government may tax an item such as soda.
All of these things influence the economy. The fall of Detroit can be traced back to the introduction of the municipal income tax in 1962. Professor Harry Veryser of Detroit Mercy University spoke about the downfall of Detroit in an interview with ReasonTV. He marked the beginning of the end with Mayor Jerome Cavanagh, saying:
Cavanagh brought in the Detroit city income tax, and as soon as you have an income tax, immediately you have pressure from companies to move out. AAA was the first one to move out across an eight-mile road; all they had to do was move eight miles where there was no income tax.
Businesses and people will face an opportunity cost as the government introduces or increases any kind of tax. American Automobile Association (AAA) decided it would be more beneficial to move their company rather than staying in Detroit. Taxation forces both businesses and the general population to make decisions they would otherwise not have to make if there was no taxation. Connecticut, for example, introduced a highway use fee; more accurately, it is a mileage tax. Vehicles weighing twenty-six to twenty-eight thousand pounds will have to pay 2.5 cents every mile they travel on the highway. This forces construction companies with heavy vehicles and tractor trailers to make difficult decisions: finding new routes, dumping weight off the trucks, or leaving the state altogether.
Nationalization and Lobbying
In 1922, Vladimir Lenin addressed the communist convention. During the speech, he assured state control over the commanding heights of the economy. To Lenin, the commanding heights were essential economic industries such as mining, transportation, and manufacturing that needed to be under complete government control. Under this system, a central planning board would be in charge of distributing goods and services to the people of the nation; this is an impossible task. Ludwig von Mises, in his essay “Economic Calculation in the Socialist Commonwealth,” outlines the relationship between private producers and the marketplace:
The owner of production goods, who has manufactured consumption goods and thus becomes their owner, now has the choice of either consuming them himself or of having them consumed by others. But where the community becomes the owner of consumption goods, which it has acquired in production, such a choice will no longer be obtained. It cannot itself consume; it has perforce to allow others to do so. Who is to do the consuming and what is to be consumed by each is the crux of the problem of socialist distribution.
Rational economic decision-making becomes impossible under a centrally planned economy. It is the private exchange in the marketplace that determines the prices of goods and services. The United States is not yet under such an oppressive system, but aspects of central planning exist. The Department of Agriculture, through infallible ignorance, produces price controls through its subsidies to farmers. In 2021, it spent $28.5 billion in subsidies to farmers in order to maintain farming income. However, further analysis reveals that 60 percent of subsidies from programs such as crop insurance go to the wealthiest 10 percent of farming households. This money is then used in the production of crops. Author James Bovard points out the effects these subsidies have on agricultural prices in his essay “The Federal Agricultural Swamp”:
The fundamental tool of agricultural policy is the price support. The government sets a price per bushel or pound it will pay for a commodity. Since the government guarantees to buy unlimited quantities of a crop at the price support level, farmers will not sell the crop on the market at a price lower than they can sell to the government, and the support price thereby becomes the minimum price for any sales of the crop in the United States.
Free markets benefit the general population most of all, not large businesses. The policies that are advocated by interest groups claiming to represent farmers—groups such as the National Corn Growers Association and the National Association of Wheat Growers—led to an increase in the price of farming produce across America. The taxpayer, who ultimately flips the bill for these subsidies, loses out completely, while the lobbyists, politicians, and the wealthiest farmers walk away rich.
Welfare’s Effect on the Economy
Welfare subsidizes bad behavior. Inherent flaws in the policy create a situation where people rely on the government and have no reason to exit the system. Professor Casey Mulligan from the Committee to Unleash Prosperity released a study called “Paying Americans Not to Work.” The study presents multiple findings:
Even with existing unemployment benefits and the dramatic recent expansion of ObamaCare subsidies, a spouse would have to earn more than $80,000 a year from a 40 hour a week job to have the same after-tax income as certain families with two unemployed spouses receiving government benefits. In these states, working 40 hours a week and earning $20 an hour would mean a slight REDUCTION in income compared to two parents receiving unemployment benefits and health care subsidies.
Why would these recipients bother getting off welfare if they see they’re better off? It’s in their self-interest to remain in the system. All of this will be at the taxpayer’s expense; businesses that seek to employ new workers will have fewer applications, meaning social cooperation breaks down in society. A skilled construction worker with laborers can get more productive tasks done since the other tasks have been distributed to the laborers. Because of this, the construction worker produces greater value. But if the laborer decides that collecting unemployment is in his best interest, construction time and cost will increase as skilled labor is put to more menial tasks.
A mixed economy model has often been said to “combine the best of both socialism and capitalism,” but as we have seen, policies made by politicians and bureaucrats have interrupted the private economy. Taxation has caused people and businesses to pick up and move out of their cities and states, lobbying has given unfair advantages to large businesses by shutting out competition, and welfare has strangled the division of labor in the United States. There is no good side to socialist economics or leviathan government. We must realize that the best government is that which governs least.