Tuesday, December 9, 2008

Divorcing Cause and Effect

David R. Henderson, (HT: Freedom is the Solution) in an article for Forbes.com, writes:
When the government subsidizes an activity, it gives people an incentive to do more of it. That's true also of unemployment benefits. To receive unemployment benefits, someone must be unemployed. The unemployment benefit system, in short, pays people to be unemployed.

The same holds true for every activity that is subsidized, either directly or indirectly, by the government. Government subsidies divorce cause and effect by distorting the price of goods and services.

All resources are finite, and demand always exceeds supply. Prices are the means by which scarce resources are rationed to those who value them most highly. The more scare the resource, the higher the price. Those who are willing and able to pay the price get the resource.

When the government subsidizes some product, it is essentially saying that that product exists in a higher quantity than it actually does. For example, filet mignon is more expensive than hamburger because there is less of it. However, if the government subsidized filet mignon so that the consumer only paid $2 a pound, consumers would react as if it existed in the same quantity as hamburger. Consumers who never buy filet mignon would be dining on it weekly. But the supply would not have changed--only the mechanism that rations that supply.

Subsidies alter the normal decision making process. They distort the relationship between supply and demand. They send false messages to consumers, who then alter their decisions based on this false information. Subsidized filet mignon would be virtually impossible to find, because the demand would soar. Subsidies essentially put the item on sale.

But that "sale" is paid for by taxpayers. That subsidy comes from the pocket of all taxpayers, and more specifically, all producers. And this is a further distortion of cause and effect.

The values required for human life-- from the most basic to pure luxuries-- require effort. They must be produced. Morally, the individual who produces has a right to the products of his labor. To deny him this right is to deny him the means of sustaining and improving his life. To make him work for the sustenance and enjoyment of others is to make him a slave.

Subsidies allow some to consume when they have not produced. And since the values they consume must be produced by someone, it means that some must work for the benefit of others. It means that some must work while others consume the products of their labor.

Tactically, this scheme is perpetrated gradually. If the government demanded complete and absolute servitude, there would be rebellion. But, if they demand servitude for 3 hours a day, or 4.2 months a year (the approximate amount of our work time that goes to taxes), the servitude is more easily accepted by the citizenry.

Strategically, this scheme is found on altruism--on the belief that service to others is the ideal of morality. An individual who believes that he must place the needs of others above his own values is morally disarmed. He cannot complain or argue when others demand that he act according to his moral principles. He must either reject altruism, or obediently comply.

Each individual has a moral right to take the actions necessary to sustain and enjoy his life, so long as he respects the mutual rights of others. He has a moral right to the products of his labor, which means, the right to the property that he creates and earns. His effort is the cause; his sustenance and enjoyment of life is the effect. He who enacts the cause has a moral right to the effect.

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