THE INTERACTION OF POLITICS AND THE ECONOMY IS NOT.
LEAVE THE FREE MARKET ALONE!
After days of struggling with how to address this seemingly simple topic, I realized that my efforts to consider every aspect of the issues from a bottom-up approach would produce a long and maybe even a boring multipage macroeconomic quagmire of words. At first, the top two lines of the title stood alone, but as I added paragraph after paragraph, I found myself revisiting the dominant theme that underlies most of my writing, the basic tenet of economic theory – the free market as the primary driver of economic wellbeing. (see georgeeconomics.com for relevant articles). In the following discussion, I will seek to keep the message simple and focused. The best way to achieve future economic wellbeing and global stability is to staunchly defend the free market and individual rights. That focus led to the third line of the Title – “Leave the Free Market Alone”. The greatest threat to the overall success of the domestic and global economies is the negative effects of political agendas on the free market. From my viewpoint as an independent, small government, fiscal conservative, it is apparent that the political right’s economic position is to maintain the existing free market economic structure that has been an unprecedented success. The political left’s goal is to, as quickly as possible, replace the free market with ever expanding government control over the production and distribution of goods and services (aka Marxism – Socialism and its close sibling Communism).
Macroeconomics, in a nutshell, is based on the balance of supply and demand over all industries over time and the stability of prices and economic growth. There is no debate that the most efficient market structure that maximizes total social welfare is the pure competitive model, where there are numerous free market players in any given industry and a small government that acts as a referee. This referee is assumed to enter the free-market fray when well-crafted actions in the form of Federal Reserve monetary actions coupled with appropriate federal fiscal policy are needed to nudge demand and supply back toward a balanced state. The least efficient market structures fall into the monopoly/oligopoly category where one or a few entities control a specific industry. On a national level the purest form of monopoly encompassing all industrial categories is where central decision making determines the entire basket of goods and services to consumers which defines either of the Marxist siblings, socialism or communism.
Due to the existence of only two dominant political parties in the United States at any given point in time, (historically and at the present time), the two parties between them inevitably include individual ideologies that span the entire range of economic structures from a mostly untethered free market structure to a Marxist government domination of the distribution of goods and services. Looking primarily at the Democrat party, it has moved ideologically to the left to such an extent that many of their party members identify as democratic socialists, which is socialism adjusted to sound more like democracy and less like Marxism (socialism or communism). The actions of the Biden administration present a stark example of how political agendas can be devastating to an economy (especially for middle- and lower-income individuals and families). Keep in mind, as the following examples of how politics can upend a healthy economy are presented, that the ultimate goal of socialism or communism is to replace the free market and individual rights with central decision making and government control (in one form or another) of the distribution of goods and services. The only constraint that limits the political left’s attack upon the free market is the political fallout when their agenda driven policies wreck the economy, and severely hurt younger new entrants into the workforce and existing middle- and lower-income individuals who have voted them into office. The political left, being especially adroit at twisting definitions and making their agenda driven policies sound soft and cuddly or crucial to prevent a perceived global catastrophe, have cobbled together different sub-movements to push the country in the direction of the Marxist model. Keep in mind that those that believe in and defend the free market also believe strongly in individual freedom over the dictates of the state. They tend to work in the private sector and, as a political entity, resemble an exercise in “herding cats.” In contrast, the political left, being a movement as discussed above, having one overriding goal, message as one, vote as one, tend to work in the government, and circle the wagons in all instances relating to their ultimate goal.
Some of these sub-movements of the political left that have been most damaging to the economy are as follows:
- A misdirected environmental movement that does not generate an optimal path to a zero-pollution target, including a war on fossil fuels through the oil and gas leasing and permitting process, the distortion of financial guidelines though the environmental and governance (ESG) restrictions and the subsidization of electrical vehicles that the working class cannot afford and the electric grid cannot and will not accommodate for the foreseeable future.
- The bloating of the federal government and a massive amount of deficit spending that pulls a staggering amount of capital out of the private sector over time, unbalances supply and demand creating a massive inflationary burden that falls primarily on lower- and middle-income wage earners and saddles the country with massive interest payments to service the national debt.
- A distortion of the education system, at the primary and university level that misdirects the body of students, imposes ideological biases disguised as socially necessary curriculum, saddles many of them with massive debt and does not give enough of them the knowledge and tools to be productive in the workplace.
- The policy of “open borders” allows millions of undocumented/illegal immigrants to enter the United States and enables the Mexican Cartels to smuggle an immense amount of lethal illegal drugs into the United States.
All of the above sub-movements have been crafted by the socialist left to amplify the footprint of the Federal government and replace free market activity with government spending at as fast a pace as possible. The economic cost of all these sub-movements has been staggering.
The first sub-movement has seen the most significant action taken by the Biden Administration that negatively impacted the health and stability of the American economy directly and almost immediately. If the voters allow this war on fossil fuel to persist, the long-term impact on the economy will be devastating. The war on fossil fuels started to gain traction during the earlier Democrat (Obama) administration, and virtually all of its growth has occurred during Democrat administrations. In the case of the present administration, the agenda driven policies that severely restricted oil and gas production in the United States through the regulatory process raised the price of energy not only in the United States but also in the global market. Prior to that self-inflected wound on the American economy made by the Biden Administration, the United States had become the swing producer of oil and gas on the world market and, therefore, was the price maker on the margin. The American oil and gas industry was highly competitive at that time with many players operating in the Permian Basin and other highly efficient areas of production. The price of oil in 2019 fluctuated primarily between fifty and sixty dollars per barrel due to the ability of American producers to rapidly increase production in reaction to increasing prices.
The abrupt change in energy policy by the Biden Administration at the start of his administration, which severely constricted American oil and gas production, increased global energy prices by radically altering the existing competitive supply/supply relationship in a manner that moved domestic and global energy pricing closer to monopolistic levels. In effect, the Biden Administration handed over the setting the global price of oil on the margin to OPEC, and OPEC has done what cartels do – they have raised and maintained global prices as close as possible to monopoly levels. With American oil producers unable to substantially increase production in reaction to OPEC’s production cuts and consequential price increases, OPEC has had its way, to the detriment of both the domestic and global economies. The prices of both crude oil and gasoline have increased over 40% since the Biden Administration took its first action to handcuff American oil and gas production, and the price of electricity has increased over 20%. This is one example of how the political agenda of the political left, aimed to undoing the free market, has severely damaged the domestic and global economies. Until the United States unleashes the American producers to regain their production dominance (ability to be the swing producer), the only time when oil and gas prices will significantly decrease is when economic downturns depress demand beyond what OPEC can counter with production cuts. The global cost of the Bidens’s energy policies in terms of human lives is just as staggering as the economic damage. The multiple wars that are being waged in Ukraine and Gaza are directly attributable to the high price of oil that has filled the war coffers of Russia and Iran (this has been discussed in greater detail in a number of papers posted in georgeeconomics.com).
The deception behind the war on fossil fuels foisted on the American public by the political left is the false narrative that their actions to ban all fossil fuels at a breakneck pace in the United States will generate the optimal path to a net-zero climate footprint. Their actions actually will not, in fact, generate the optimal path to net-zero, because any properly designed plan of action over time must consider not only the objective function (which is to reach net-Zero), but also such obvious constraints as the existing infrastructure (which they completely ignore). Nobody in the left’s hysterical environmental movement is familiar with the basics of operations research and optimization.
The second sub-movement, much like the first, has both short term and long-term damaging effects on the free market and the economy. Regardless of the proposed purpose of the deficit spending by the Biden Administration (much of which was earmarked for misguided environmental subsidies), the immediate result has been the worst inflation in many decades, forcing the Federal Reserve to rapidly increase the benchmark overnight lending rate to rein in inflation via demand destruction. The long run effect of any deficit spending is the cost of financing Federal debt (which is now becoming a significant drag on the economy). The Biden Administration’s radical agenda spending effectively has and will continue to move decision making regarding the distribution of goods and services from the free market to government bureaucrats.
A word of caution to investors – 2024 is an election year and remember political bias exists everywhere, including the Federal Reserve Open Market Committee, where monetary policy is viewed through a Keynesian lens (without paying sufficient attention to the work of Milton Friedman). Be prepared for the target interest rate to be reduced a number of times during the year regardless of the current real interest rate level, without the Federal Reserve signaling the Federal government to curb spending (as was urged by Alan Greenspan in the past). For the first half of 2024 there is likely to be a period of slow to no economic growth and stock market contraction, as the lagged effect of the aggressive rate increases by the Federal Reserve and the realization of higher for longer rates weighs on the economy. The use of supply side fiscal policy to help balance supply and demand would take a lot of stress off the interest rate decision making by the Federal Reserve, but that would not be considered by the Keynesian economists in the Biden Administration and would be totally inacceptable for the socialist advisors who control Biden’s decision making.
The most frustrating and infuriating aspect of this situation is that the gurus who have generated the present economic problems facing the country are prognosticating a soft landing for the economy, without any apparent concern for the middle- and lower-income consumers, living from paycheck to paycheck. They have already endured a hard landing when the worst inflation in over forty years (within two years of Biden taking office) wrecked their lifestyle, which has not significantly improved since then. To add insult to injury the same gurus point toward lower inflation and say the situation has been addressed, again are ignoring the consumers who have suffered the most. The inflation that turned their lives inside out is only worsening at a slower rate. For them to realistically feel an improvement in the short run, deflation must occur, not just a lower inflation rate. In the medium to long term, their situation will only improve over time if their real income increases significantly (income adjusted for inflation) enough to count. Just as the economic wizards are projecting interest rates, their pain will be “higher for longer.” It is not wise to write off the possibility of an overall recession sometime in 2024 and to assume that interest rates will be stable and/or will decrease significantly early in the year.
The third sub-movement is a pernicious problem that has been festering for decades at all levels of education in the United States, where curriculum has been tilted away from basic knowledge needed to succeed in the workplace to all types of diversity issues that only foster divisive social attitudes. Until recently this problem has escaped the scrutiny of the liberal press that thrives on the left’s obsession with diversity, equity and inclusion issues that has not had the enhanced the university experience and is now being exposed as the type of divisive deception that fits within the guiderails established by Sal Alinsky in his book “Rules For Radicals”. The short run cost imposed on the economy is the time and money spent on the social programs and curriculum funded by the universities and paid overtime by graduates paying off their student loans, which have little to no benefit to many graduates when they enter the workforce. Unfortunately, this student loan burden will haunt them for many years. The worst aspect of the encroachment of the left, at all levels of education, is the embedding of ideological biases against the free market and individual freedom without understanding the consequences of replacing our present economic system with big government central decision making. The indoctrinated body of students will vote in favor of agendas that sound good but, without the economic knowledge to understand the consequences of their votes, will only become aware of the downside of their votes until they suffer the economic consequences. Unfortunately, this lesson must be relearned repeatedly, and the accumulated economic losses over time will continue to be significant and totally unnecessary.
The economic consequences of the fourth-sub movement are intuitively obvious. When open border policies allow over eight million illegal immigrants to enter the country over a three-year period, and border enforcement is abandoned to the point that the Mexican cartels can easily move vast amounts of illegal drugs into the United States, the staggering cost of this agenda driven border policy is not a debatable issue. The short run cost of the illegal immigration is spotlighted by daily headlines as the left-wing mayors of sanctuary cities moan under the load of a small percentage of the total number of undocumented immigrants allowed to stay in the country that have been transported to them by border states – who face the real onslaught. The sad cost of the flood of illegal drugs (specifically fentanyl) over the southern border, counted in the number of fentanyl related deaths, eclipsed 110,000 in 2023. The economic cost is difficult to accurately calculate, and any rough estimation will have to accumulate all the costs of tracking the drugs and drug dealers, the treating of overdoses, and finally will have to simulate the ultimate drag of the drug epidemic on productivity. Again, the total economic cost of the agenda driven policies of the socialist left (in this case open borders) is significantly high and unnecessary.
ELECTIONS HAVE CONSEQUENCES – THE 2024 PRESIDENTIAL ELCTION IS CRITICAL. THE RISK OF THE LOSING OF THE FREE MARKET AND INDIVIDUAL FREEDOM IS REAL. THE GOLDEN GOOSE – THE FREE MARKET – MUST BE PRESERVED FOR OUR FUTURE. SOCIALISM IS OK IF YOU DON’T MIND POVERTY AND LESS INDIVIDUAL FREEDOM