Thursday, August 21, 2014

A Government is Not a Household

In 1996, economist Paul Krugman wrote an article titled “A Country is Not a Company.”  The article argued that many people don’t seem to understand that the macroeconomic issues facing a nation are often distinct from the issues facing companies—so different, Krugman contended, that “business leaders who have been promoted to economic advisers are no more likely to be great economists than military experts.” 

By the same token, many people don’t seem to understand that a government is not a household, and it’s common for politicians to take advantage of this fact: “Government needs to tighten its belt,” we’re told, “just like families sitting around the kitchen table have to do to put food on the table.”  But does the U.S. government, operationally speaking, really have to either tax or borrow before it can spend, just like any household has to have enough income or borrow money before it can purchase goods and services?  The answer, perhaps surprisingly, is no, because the government is the monopoly issuer of the currency.

What do I mean by that?

Wednesday, August 13, 2014

The Equality Illusion

In The Quest for Cosmic Justice, Thomas Sowell raises questions concerning “equality” scarcely considered in our time: How is “equality” defined, and what are the costs of pursuing it?

“Equality” may be easy to define for concepts like numbers, as they have “only one dimension, magnitude (2 + 3 = 5),” Sowell notes. The same is not true for people. A confluence of various and often unquantifiable factors—intelligence, ability, beauty, geographic location, economic status, luck, among many others—forms multidimensional human beings.  Striving to level one human dimension—say, the economic—invariably results in the inequality of another dimension—the political—by transferring political power into the hands of those anointed to pursue economic equalizing. Determining how much economic inequality to trade for political inequality is arbitrary. “Equality,” it turns out, is an illusion.