Government-Error Cycles Are Driven by Government People Overriding Free Customers
Progressives increase the quantity of fiat money, misleading producers and customers.
July 23, 2021
Business activity is seen to wax and wane cyclically, so this gets misleadingly labelled the business cycle. Progressives step in and say they’re the solution.
Actually, the root problem has always been government people, especially their control of money. Government-controlled money, in the USA and most everywhere else, has never been backed by 100% reserves. This has always let government people borrow and spend money they haven’t had.
Altogether, government control of money, government spending, and government regulations have always gotten in the way of customers being in control of producers, and have always gotten in the way of producers making the investments that optimally add value for customers.
At their root, so-called business cycles really are cycles of errors by government people that cause rational responses by producers and customers.
Progressives Increase the Quantity of Fiat Money
Progressive elected representatives see that certain actions have advantages for them in the short term because these actions will be seen favorably by voters in the short term. They may or may not see that these actions have advantages for them in the long term, since these actions will bring crises that they can use to ratchet up their power. In any case they also see that they don’t face insurmountable political competition. So they empower Progressive central bankers and Progressive regulators.
Progressive central bankers increase the quantity of fiat money that customers and producers are able to pay the interest charges on. This increases the economic action that is observed in the short term, which adds votes for Progressive elected representatives.
Misled Producers Invest Unsustainably More
Producers’ decisionmakers may or may not know that consumers and producers haven’t saved more and therefore won’t purchase more in the future, which will cause more producers to become less profitable or unprofitable, eventually. But in the meantime, producers’ decisionmakers also know that their competitors now can invest more cheaply to create improved products or increase efficiency, and this can place producers’ decisionmakers at a relative disadvantage soon if they themselves don’t also invest more cheaply to create improved products or increase efficiency. It’s a game of chicken, and the things that producers’ decisionmakers know more about in the short term, they weigh more heavily than the things that producers’ decisionmakers know less about in the longer term.
Producers increase efficiency by investing money to improve various steps in the production of final products. Producers don’t get returns from these investments until they pay people to create designs, build plants, and produce, distribute, and sell products. That is, before producers get returns from these investments, first there’s a delay; and the amount of delay before the results of a change are seen is the process characteristic that makes a process hardest to control accurately . To make these investments, producers invest some of their current profits, and producers also invest some funds they borrow from banks—the funds that have been made available in increased quantities by Progressive central bankers.
Importantly, producers can improve production by adding a specialized step. It may be a step that improves the quality of the products, or it may be a step that is more efficient than the processing currently done by the integrated incumbent producers. Such improvements increase the number of steps it takes to produce a given final product. This increased number of steps makes it increasingly challenging for the various producers in the chain of production of various products to coordinate their activities well enough to continue to earn profits even as the producers are affected by various changes in the actions of customers, government people, other producers, and the producers’ own people.
Misled Customers Buy Unsustainably More
Customers see that they would earn less by saving in savings accounts or by buying bonds. Many customers aren’t confident that they would earn much by saving by buying equities. And customers see high employment rates, see their incomes rising in nominal dollars, and see the cost of debt service lowered. The things that customers know more about in the short term, they weigh more heavily than the possible equity returns that they know less about in the longer term. Customers buy fewer investments, borrow more money, and buy more products they can use.
Information Flow Is Delayed
Government people, either by conscious choice or as a result of their having been chosen in sufficient part through natural selection, favor taking actions that produce results that look good in the short term, and that produce results that, although bad in the long term, are concealed from most voters.
Voluntary economic cooperation inherently conceals many of its dynamics from its participants. Each producer’s decisionmakers have direct information only about the products they buy (including labor) and the products they sell. Each customer has direct information only about the compensation they earn and the products they buy. The network of interactions is vast, so each change reaches some producers and customers first, and its impact doesn’t reach the next interlinked producers and customers until both the customers and the producers at their respective given nodes in the network decide what different actions to take—whether to buy at a given nominal price, whether to keep producing at the same rate, whether to change the nominal price, whether to modify the product. And there are many, many such interlinked nodes in the network.
On top of the delays that are inherent in voluntary economic cooperation, government action superimposes built-in larger delays and other errors. Government people have very-little access to customers’ and producers’ knowledge of what matters to each of them. Even if government people had such information, such a store of information would be much-too complex for government people to assimilate and then use to choose actions that would prove anywhere near optimal. Further, government people tend to take actions only after long delays for fundraising, vacations, constituent “services” provision, lobbyist consultations, committee meetings, positioning, repositioning, elections, voting, rulemaking, interviews, notice and commenting, public hearings, and implementation. Also, the actions tend to have consequences that end up considerably different than the titles of bills or regulations say were intended.
Information Flow Is Severed
Progressive central bankers sever the information flow about the volume of future purchases, information that would otherwise naturally be conveyed by the prices of interest on debts. Progressive regulators reduce the power of the natural supervisory control that customers aggregately exercise on producers, and reduce the power of the natural internal self-regulation that each producers’ people individually exercise on each producer.
Regulators Add More Error
Progressive regulators also take away from customers some of customers’ control over the actions of producers, and substitute laws called regulations that force producers to take actions that most-importantly also add votes for Progressive elected representatives.
Customers and Producers Would Add Value, but Instead Government People Add Votes
Overriding the natural information flow and natural control of the system of voluntary economic cooperation introduces serious transient errors which would otherwise not be present in the system. Since it is customers’ actions that naturally are in supervisory control of producers’ actions, it is customers whose actions are overridden by government people. Since government people’s actions are coarse and large and also greatly-hide crucial information, large errors result. Errors by the people involved in the system of voluntary economic cooperation don’t continue forever—customers take corrective actions; producers’ assets come under the control of better decisionmakers—so the effects of government errors on customers and producers are observed to wax and wane cyclically.
The basic effect of government people is to take the naturally-intricate system of voluntary interactions, whose intricacy is naturally increasing, and impose on it three added challenges—first, extraction and destruction of sizable fractions of the value added in the system; second, severance of the flow of true information and substitution of a stream of deceptive information about customers’ capacities for future buying; third, unnatural, delayed, abrupt, coarse, destructive changes in control.
The control by which customers obtain what they economically value the most is consequentially replaced with the control by which Progressive elected representatives obtain what they politically value the most.
James Anthony is the author of The Constitution Needs a Good Party and rConstitution Papers and has written in The Federalist, Foundation for Economic Education, American Thinker, American Greatness, and rConstitution.us. Mr. Anthony is an experienced chemical engineer with a master’s in mechanical engineering.