The Central Economic Fallacy; S. Yates

Unfortunately, society's intellectual, polit ical, and economic "mainstream" still accepts what should be called the Central Economic Fallacy of the Twentieth Century. The "main stream" just doesn't get it. Thus, we continue to see a basic progression. First, government subsidizes x or regulates y to correct for some government-diagnosed problem z. Unwanted side effects result, and z, assuming it exists, often grows worse. Government intervenes again to fix the side effects and redouble its efforts to battle z. More undesirable side effects result. And the process continues, with government growing inexorably as interven tions accumulate. More and more of the economy is micromanaged through increas ing webs of subsidy, regulation, and quick fix. Dr. Yates is adjunct research fellow with the Acton Institute for the Study ofReligion and Liberty and the author of Civil Wrongs: What Went Wrong with Affirmative Action (San Francisco: ICS Press, 1994).

The logical end result, as Ludwig von Mises has shown in great detail, is socialism. Economic micromanagement has been de veloping at a steadily increasing pace since the Progressive Era, which initiated the social activist view of governmentthat only gov ernment can effectively address social prob lems like poverty. Progressivism began a new round of interventions in an economy in which major industries were already well subsidized. Federal Reserve manipulation of the currency-namely massive credit expan sion followed by deflation-caused the stock market crash of 1929 and the Great Depres sion. Then Franklin Delano Roosevelt's in terventionist policies deepened rather than relieved the economic crisis. (See, for in stance, Rothbard's America's Great Depres sion.) World War II gave an entire generation of young men and women something to do when there were few jobs at home. But what would veterans do when they returned home? The federal government quick-fixed the problem with the G.1. Bill, creating a new national myth: everyone should go to college. Colleges, rearmed with massive quantities of federal and state dollars, became universities and opened their doors to more and more people.

The supply of college graduates in the labor market soared. Soon advanced degrees began to decline in value. Here we see perhaps the worst feature of the Central Economic Fallacy: massive over652 production in certain areas and equally sig nificant shortages in others. (The Soviet econ omy was only the extreme case of this phenomenon.) In the United States, the growth of university graduate programs has led to a glut of Ph.D's, many of whom are unable to find desired academic employment. This situation has now spread to the hard sciences and includes people such as Alan Hale, co-discovererof the much-watchedHale Bopp comet. On the other hand, labor short ages have developed in a varietyof occupations not requiring a college degree: carpentry, ma sonry, and other skilled trades best learned through the apprenticeship and therefore not amenable to the assembly-lineapproach taken by government-supported schools.

The welfare system is another consequence of the Central Economic Fallacy. The War on Poverty, one of the mainstays of the 1960s,has failed. It left an entire generation with a sense of entitlement and destroyed families by mak ing fathers superfluous. Overall, the system rewarded a range of irresponsible conduct and encouraged dependency, reducing recip ients' need to mature, set goals, and become productive members of society.Sons, in partic ular, lacked responsible role models. An unful filled sense of entitlement helped generate resentment and encouraged criminal violence. Dimly aware that something is wrong, the federal government is now desperately ma neuvering to cut at least some of its depen dents loose through "welfare reform." Thus 653 far, these efforts do not question the Central Economic Fallacy. For government needs to end, not reorganize welfare, and at the same time dismantle the subsidies and regulations making jobs so hard to come by.

The Central Economic Fallacy has given the country a soaring national debt and myr iad job-destroying regulations, diminished the value of higher education, inflamed racial turmoil and other social divisions, pushed taxes upward, devalued the currency ("infla tion"), increased the population of chronic dependents, and worsened crime. In fact, as documented by James Bovard in Lost Rights, the federal government now undertakes many activities more worthy of a police state than a free society. At the same time, our nation faces serious moral and cultural crises, threat ening its very foundations. For decades, critics of the Central Eco nomic Fallacy have been ignored or dismissed out of hand. But so disastrous have been its consequences that even fans of expanded government have a difficulttime denying that the Central Economic Fallacy has run its course. That anything as complex, intricate, and constantly changing as the American economy in the 1990s can be micromanaged from a central point is the overwhelming folly of our time. We have no alternative but to get rid of it. And we have to do so while recog nizing that many leaders in academia, busi ness, the media, and politics may never get it. D THE DURELL INSTITUTE is pleased to offer The Contributions of Murray Rothbard to Monetary Economics edited by Clifford F. Thies featuring the seven papers presented at our October 1995 Rothbard conference paperback $5.95 "The conference's wide-ranging and open-minded consideration of Murray's work is a fitting tribute to his own unbridled search for the truth. "

-u.S. Congressman Ron Paul, MD Durell Institute, Shenandoah University 1460 University Dr., Winchester, VA 22601 THEFREEMAN IDEAS ON LIBERTY Aid to Owners of Dependent Enterprises by Charles W. Baird T here is widespread support for ending welfare, and for nudging, or pushing, welfare recipients into self-sufficiency through employment. Congress even voted to end Aid to Families with Dependent Children (AFDC) , though President Clinton and the Republican Congress have since backped aled. However, there has been no similar attempt to eliminate what might be called Aid to Owners of Dependent Enterprises (AODE). All three levels of government-federal, state, and local-are in the game. The federal government currently spends more than $65 billion a year on what both Representative John Kasich and Ralph Nader call "corporate welfare." State and local governments spend billions more under the euphemism of "in dustrial development incentives."