Why Free Money Prevents Recovery 2

The first article in this series explained how low interest rates are damaging our economy.  With money so cheap, people aren't as concerned about spending it wisely.  As a result, we're making a lot of really unproductive "investments," many of which turn out to be gifts to our politicians' friends.

Former Enron adviser and current political hack Paul Krugman recently used his column in the New York Times to argue that low interest rates are a good thing.  He suggested that we should borrow as much money as we can and invest it in highways and other infrastructure that will lead to future increases in productivity.

That would be a good idea except for the unfortunate fact that our government has lost the ability to make productive investments.  Instead of going into useful improvements, the money is used to help out favored groups such as the UAW members who helped elect Mr. Obama to the Presidency.

Education Is No Panacea

Comes the shout, what about investment in education?  Aren't better-educated workers more productive?  We're laying off teachers and slashing school budgets, isn't that going to hurt our productivity because our kids won't be as well educated?

Well, cutting education certainly would harm productivity if the vast sums of money we were spending on education were buying us anything worthwhile.  But they're not.

Compare school budgets of today to those of the 1950s.  We are spending, in both absolute and relative terms, far more now than we did then.  Would anyone seriously argue that our education is of better quality, or that students are emerging better prepared for the world of work?

Then there's college.  College tuition fees have famously risen faster than inflation for many decades, and again, nobody would even suggest our modern college graduates are better equipped than those of days gone by.  We've been spending more and more and getting less and less for it.

How is this possible?  Because government has subsidized the cost of education, making money apparently free to the student.  It isn't really, but to a kid who's been told that college is the key to a good career and is already badly educated, borrowing any amount in order to get a sheepskin looks like a no-brainer.

The end result is what we have today: thousands of graduates with useless degrees who can't find jobs.  All that money has been spent, drained out of society and the unfortunate students' lives, for nothing.

What would be a better solution?  How about trying what worked for hundreds of years: if you wanted to go to college, you had to pay for it yourself or find some bank or individual who was willing to loan you the money!

When you're spending your own money, you're going to be a lot more careful with it.  That means you'll be looking more at the bottom line and less at the prowess of the university football team.

When you borrow the money, any non-government lender is going to take a long hard look at how you intend to spend it.  What lender is going to loan to someone pursuing a degree in social work when graduate social workers earn less than people with high school diplomas?  Same goes for any number of phony sheepskins like History of Art and Chicano Studies.

We need useful education like engineering and science.  Those degrees pay off handsomely as an investment.

Why don't we have more people studying for them then?  Because, thanks to "cheap" government loans, the true cost of the investment is hidden from the student, allowing them to make bad choices and waste everyone's money.

Markets, Whether You Like Them Or Not

The history of socialism can be described as a rebellion against Adam Smith's principle of the Invisible Hand of the market.  Socialists hate the fact that not everyone can afford everything they want or even need; they believe that a well-intentioned elite can do a better job of allocating wealth than the market can.

World history over the past century proves this totally false.  The stronger the bureaucracy and weaker the market, the less there is of anything to be allocated.  If people don't get material rewards for hard work, they won't bother to work hard, and there will be less of everything to go around.

The way markets signal a need for more of something is by a higher price.  The higher the price for anything, the harder individuals will work to provide it or to come up with a cheaper, better way of providing it.

Success brings riches for the entrepreneur, of course, which is anathema to a socialist.  What the socialist forgets is that business success also brings a better life for everyone by providing jobs and something new, better, and/or cheaper.

The harder our government tries to destroy market pricing signals for anything, from education to health care to money itself, the more crippled our economy will become.  For while destroying markets can indeed bring about equality, it's the equality of poverty, degradation, and tyranny, except for the governing elites who live off the rest of us.