2 Kinds of Sabotage; R. Anderson

Robert G. Anderson 2KINDS OF SABOTAGE THE newspaper headline read, Dam Destroyed,-Damages In Millions. The copy relates the horrifying de tails: ~~A group of terrorists an nounced responsibility for the de struction of the hydroelectric dam ... A bomb exploding deep in the dam fractured the superstructure ... The collapsing dam released a huge wall of water into the valley below ... Within hours the lake was drained completely . . . Power generation was cut off instantly." The stunned reader can clearly recognize the devastation inflicted on life and property from such an evil event. Bombs in the hand of saboteurs can wreak havoc. The damage, both seen and unseen, is apparent to all. The physical destruction of the dam, the leveling of properties from Mr. Anderson Is Executive Secretary of The Founda tion for Economic Education. the onslaught of water below the dam, the loss of both electrical power and the lake itself are im mediately discernible. Also recog nized are the losses of future recrea tional activities from the lake, irri gation water for agriculture, and a low-cost source of electrical energy.

The impact of the saboteur's bomb in terms of capital destruction and a lower material well being for many people angers all who read or hear of such a violent act. A public debate on the merits of blowing up the dam would be a dis cussion reserved for madmen. The harm from such sabotage is directly related to the exploding bomb. A uni versal condemnation of ter rorism inevitably results because the devastation is so clearly recog nized. There is, however, another kind of sabotage. Unlike the exploding 131 132 THE FREEMAN March bomb at the dam, the damage from this sabotage is not as readily per ceived. This second kind of sabotage is the tttime bomb" of government interference in the marketplace. And unlike madmen· debating the merits of blowing up dams, practi cally everyone participates in this forum of economic sabotage by polit ical manipulation. The problem arises not from an abandonment of common sense in such debates, but instead from a fail ure to grasp the destructive con sequences that this government tttime bomb" can impose on life and property. If the economic conse quences of government intervention could be as clear and direct as the damage from an exploding bomb, no problem would exist. The great tragedy, however, is that the effects of this latter bomb are rarely that clear.

Windfall Profits Tax a Time Bomb An excellent demonstration of this government tttime bomb" sabotaging the productivity of the market has been witnessed in the public debates over the ttwindfall profits tax." Political rhetoric seri ously argued that the ttsolution" to the energy crisis was yet another tax. It was argued that such a tax would ttsol ve " the problem of economic waste, while at the same time lead us to greater socialjustice. But what is argued and what is true are rarely the same in politics today. The ttwindfall profits tax" is a classic example of sabotage with a government tttime bomb." And whether this sabotage is an act of evil or ignorance is irrelevant, for it in no way alters the outcome. The result of sabotage, intentional or misguided, is always the same devastation of life and property. The Hwindfall profits tax" is a wedge driven between consumers and suppliers of a scarce and valu:..

able resource. It deprives the suppliers of a part of the price con sumers will pay for additional oil or other forms of energy. So it is a cost of production that will have to be covered by higher prices if the addi tional production is to be undertak en. Gasoline prices and cigarette prices have consistently demon strated this principle in the past whenever new taxes were imposed upon them. It is, of course, this very result of increasing product price that has led to the advocating of a ttwindfall prof its tax" as a means of curtailing energy consumption. At least there seems to be an understanding that less of a good will be consumed at higher prices than at lower prices. But it's the other things that are not seen, and their harm to life and property, that is the force of sabo tage to the marketplace. It must never be forgotten that 1980 TWO KINDS OF SABOTAGE 133 the advancement of human welfare is accomplished by increasing the abundance of goods and services in society. A curtailment of consump tion by taxation can only discourage production and therefore lead to a worsening of economic conditions.

Such taxation, therefore, is a direct undermining of our economic well being as it increases energy costs and makes energy ever more scarce. The Function of Price A distinction between rIsIng prices generated by increased taxes and rising prices resulting from market forces must be made. Rising prices generated by the market forces of supply and demand perform a valuable economic function. The higher market price makes con sumption more costly and thereby consumers will demand less. Cor respondingly, producers receiving these higher prices are motivated to supply more of the good. These higher prices, when market deter mined, encourage more efficient use by consumers and greater produc tive output by producers. This in creased efficiency in the use of the higher priced good by the consumer and the increased incentive to pro duce more of the good by producers brings about an ultimate improve ment in total welfare.

When higher prices are generated by taxation, however, the market process is sabotaged. The signal gets short-circuited. The demand by con sumers falls in response to the higher price, but the ~~tax wedge" prevents the signal from reaching the producers. The result is a trans fer of wealth, equal to the tax, from the consumers to the tax collector. The public expenditure of the wealth collected by the tax invari ably leads to the destruction of that wealth. Either through its consump tion in wasteful activities (synfuel plants) or its employment in gov ernment regulation of future pro duction (an energy department) the wealth collected by the tax is lost. The final result is a lower standard of living as the cost of living in creases and productive activity de clines. The devastation to life and prop erty from the destruction of the dam was visible to all. The evil of such sabotage could be clearly seen. But the sabotage by government taxa tion is never so visible. The unseen destruction of future prosperity by the political consumption of this wealth is every bit as devastating to our lives and property as the ter rorist's bomb. But to see it requires an understanding of the economic forces in the marketplace that direct our lives.

An understanding of all of the economic consequences, both seen and unseen, is vital if we are to guard ourselves from this second kind of sabotage. @ Scott W. Hahn 1"-"'_·' f " ,., 27i.,.·· ·8..:.·".·..·.. ~ "~N(J..W··T····'C"''''W" ;;r~:;;I:;; .•... 'eie,o t;;:;}(~{:>r OF THE " ...,.•....•~~ The moment you abandon the cardi nal principle of exacting from all individuals the same proportion of their income or of their property, you are at sea without rudder or com pass, and there is no amount of in justice and folly you may not commit -J. R. McCullough * * * MORE than a century ago, a young radical proposed the notion that the specter of communism would inevi tably rise up and conquer the world. However, several measures had to be taken before this proletarian utopia could be ushered in. Young Marx admitted that these necessary measures could not be brought about except by means of despotic inroads on the rights of property, and on the condi134 tions of bourgeois production; by means of measures, therefore, which appear economically insufficient and untenable, but which, in the course of the move ment, outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of en tirely revolutionizing the mode of pro duction.