By Zach Foster. A response to an email letter. This article originally appeared on The Political Spectrum blog.
Dear [friend], thank you so much for writing to me with your concerns. I happen to share your deep concern for the fate of working class America, especially since the recession (which I justifiably call the Second Great Depression) has fallen the hardest on the backs of the working poor and the middle classes.
I’m also concerned with the fact that so many of our products come from China and other overseas producers. Unfortunately, this is not necessarily the fault of American producers but rather that of government intervention in the economy.
What I’m about to say to you might seem a little crazy, but I urge you to bear with me.
The Myth of Protecting American Industry
Buying American products alone will do nothing to restore our economy, nor will it bring production and jobs back to the country. Instead, what this does is actually raise prices and diminish the quality of domestic products, since producers now know that they have American buyers captive and no longer need to make the best products; they know that the law is on their side.
When I say that I’m all for free market capitalism, it means that the market needs to be truly free and unrestrained in order for consumer sovereignty to take place. By consumer sovereignty, I refer to the old notion that “the consumer is king” or “the customer is always right”, and according to this ideology, producers who want to get rich know that the only HONEST way to do this is to produce the BEST QUALITY goods at the LOWEST COST and sell them at the lowest possible price. This is how hard-working Americans have been getting rich for centuries.
Unfortunately, there are those who have found easy ways to get rich through the evils of government intervention. I’ll explain this momentarily.
There have been periods in American history where there were high tariffs on imported goods (and some of these taxes still exist) which were meant to improve conditions for American businesses and consumers, but instead made things worse. The free market is all about competition, and tariffs are essentially meant to kill competition. Not only do tariffs on imports cause many American producers to lose their incentive to produce high quality goods at low prices (because without the competition they know they have their consumers by the throat), but often times foreign countries retaliate. Because our high taxes make it harder for them to sell their countries’ products in America, they in turn set super high tariffs to punish American producers. Therefore, the quality of goods produced at home goes down, the prices of those low-quality goods goes up, and the quality of foreign goods which are often good quality is now super high.
This happened during the Great Depression, and both the Hoover and Roosevelt administrations have blood on their hands. Both administrations, among many other anti-free market crimes, dramatically raised tariffs on foreign goods under the myth that it would boost American industry. They also set minimum wage laws that were meant to protect incomes. Well, guess what the tariffs DIDN’T do for our economy and job creation, and guess how foreign countries reacted to them. Regarding the minimum wage laws, they made production more expensive and unmaintainable for producers, so instead of only having some pay cuts, they ended up having to lay off workers or just went under completely, resulting in the laying off of all workers. Furthermore, small and medium-sized employers were no longer able to afford to hire people because they couldn’t pay X dollars per hour as required by law. Removing the regulations and interventionist measures that strangle industry will ultimately make it less expensive to create jobs in America, and jobs will migrate back from the third world.
Because of the government stepping in to be the hero, business growth is stunted, and that stunted growth also stunts job creation, and things are more expensive for everyone. Many big businesses will send lobbyists to the federal government because most of this is EXACTLY what they want. They want to be able to charge higher prices for cheaply produced goods, and they want no foreign competition, especially not from foreigners who are probably making things better and selling them cheaper. The one thing these greedy businesses DON’T see is that, while they’ll make a profit from their captive consumers in the short run, everyone gets poor in the long run and these businesses fail and end up having to be bailed out by the federal government. This is not what the free market ever intended.
For more on the evils of regulation, you can check out Frederic Bastiat’s book The Law, which talks about how government intervention and regulation empowers the two main forms of plunder: stupid greed and false philanthropy. The producers getting lazy on the quality of their products because people can only afford to buy American falls under stupid greed. The regulations and minimum wage laws and “job creation” bills, “consumer protection” bills, etc., fall under false philanthropy. You can also see chapter 18 of Jeffery Tucker’s book Bourbon For Breakfast (chapter titled “How Free is the Free Market?”). I also HIGHLY recommend chapters 1 and 2 of Kel Kelly’s book The Case For Legalizing Capitalism, which fully explain the consequences of government intervention on stateside producers as well as international trade (and this book is a lot of fun to read and easy to understand). All three books can be downloaded in full and for free at Mises.org/books.
This gets me to the subject of bailouts. The big bailouts that took place in 2008 and 2009 completely outraged the majority of the American people. These bailouts were also a crime against the free market and against capitalism. The whole concept of pure, untainted free market capitalism is that a business has to work hard to compete with other businesses and provide its goods and services at the best quality and lowest price. This is one reason why McDonalds and Taco Bell, who have very low-priced value menus with a wide variety of choices, have done a lot better than other higher-priced fast food chains who have had to close down many locations. This is also why Borders, who didn’t cater to the consumer demand for e-reader books (Kindle, Nook, iPad, etc.), is going out of business, whereas Barnes and Noble, who did cater to that demand, is still in business, and why Honda and Toyota’s low-priced, superior quality cars are outselling Ford while General Motors had to be bailed out.
Businesses that fail need to be allowed to fail once and for all, which weeds out the bad elements of industry and allows room for new contenders (small and medium-sized businesses or new entrepreneurs) to try their luck at meeting the un-met consumer demands. When big businesses fail and lay off their workers, these new contenders will be the ones to hire the laid off working people, and if the new blood meets consumer demand, then they will succeed.
Thomas Woods, the author of The Politically Incorrect Guide to American History, wrote a fantastic book called Meltdown, which analyzes the Great Depression, the current recession, and vindicates free market capitalism from the lies of the statists and interventionists. The truth is that when the federal government bailed out all those failed banks in 08-09, as well as parts of the auto and housing industry, they gave these failed businesses a “second chance” which will only postpone another inevitable collapse. This is like an angry and heartbroken wife, whose husband was cheating on her, giving that husband a “second chance” in which he doesn’t have to shape up but instead can keep cheating on her until he gets caught again.
These bailouts, which only punished the American people and the big and small businesses who were doing the right thing, and rewarded the failure of the businesses who were doing the wrong thing. These bailouts were financed by the Federal Reserve System, which is a quasi-government organization that is basically in charge of big banks (Wells Fargo, Chase, Citibank, etc.) and financial organizations (AIG, Fannie Mae and Freddie Mac, etc.). Banks are businesses, not storage lockers for money, and rather than letting these businesses try to figure out how to meet the demands of their clients, the Federal Reserve tells them how much to hold in the vaults, how much to lend, and how much to invest. The Federal Reserve also has the power to print as much money as it wants, which is obviously bad because the more money that is being printed means inflation goes up.
Before the Federal Reserve, there was a U.S. Central bank which was on a gold standard. The gold standard means that every paper dollar printed needs to have an actual gold dollar that exists somewhere in a bank. Gold is real money and paper is just an I.O.U. This was alright though, because with real gold backing up the I.O.U., people had faith in the paper, and they used it for everyday buying and selling. Even if the central bank used a fractional gold reserve (for every gold dollar there is, they print two or three or four), there was at least SOMETHING partially backing up the paper money. Nowadays more and more paper money is printed with nothing to back it up other than the “good credit of the United States.”
When the Federal Reserve was created in 1913 by J.P. Morgan, John Rockefeller, and a few government employees and politicians that were in their pockets, it was created with the intent to expand the money supply (inflation) and bail out particular businesses and industries which Morgan and Rockefeller were conveniently invested in. The Fed essentially became the new central bank and began to coerce banks into doing whatever it ordered. It also began printing more and more money to pay for expensive and Unconstitutional government grants, loans, bailouts, and other programs. It is because of the evils of the Fed that inflation is so high (prices are so high) and the dollar is almost worthless. The gold standard has been abandoned and the Fed will continue to manipulate banks and financial institutions and kill our dollar. The only way to reverse this is to reinstate the Gold Standard and abolish the Federal Reserve.
To sum up the above points I made: 1) Government interventions, including those in the form of tariffs, are very bad for business, workers, and the whole economy. 2) The free market is about competition and consumer sovereignty. Don’t necessarily buy American—buy what’s best. 3) Bailouts are anti-capitalistic and the only way to stop this is to bring back the Gold Standard and end the fed.
Finally, in your email to me you mentioned that in all your readings, you found no one with real solutions or sufficient character and a backbone. I can honestly say to you that there is a hardworking group of people who are engaged in a grass roots effort to support an honest and hardworking man who is painfully aware not only of the REAL problems that are hurting the working class, but of real solutions to those problems. This man of course is Ron Paul, who is an outspoken Austrian school economist who has been able to pinpoint problems and their remedies. He is the only Republican contender who has tackled these issues, regardless of how unpopular the truth was, and remained unwavering in his position. If you’ve heard of him but have found cause to distrust him, I beg you to reconsider and see what he has to say.
He has three very popular books out (among many others he’s written) which have changed the minds of many Americans. There is The Revolution: A Manifesto, in which he outlines his political platform and uses the Constitution, American and world history, and the guidance of the Founding Fathers to back up his platform. In the book End the Fed he makes the case and the plan for abolishing the Federal Reserve System and reviving the value of our hard-earned money. In his latest book, Liberty Defined, he provides ideas for Constitutional solutions to various political, fiscal, and social ills that are plaguing our society. I certainly hope my short explanation provided you with some meaningful answers, or at least provoked your thinking and ore beliefs. I truly hope you also take into consideration the reading I recommended to you, which surely changed my thinking and strengthened my beliefs. God be with you, my friend.
Both images use in this article are in the public domain and were obtained from Wikimedia Commons.