PostHeaderIcon An Alignment Problem

To get started, let us observe a few facts about economic activity in a free market economy:

Fact 1: In a truly free economy, free individuals make economic decisions, such where to invest their capital, based on their own perceived self-interest.

Fact 2: Free economies thrive best when capital is invested such that it produces the most wealth and prosperity for the most people.

Facts 1 and 2, taken together, suggest that economies do best when individual, self-interested investment decisions are in general alignment with the conditions that produce overall prosperity. We know this because, such a system created the win/win situation that propelled the United States from undeveloped status up to the wealthiest economy known to history in a very short period of time.

In a word, the alignment of individual (self) and collective interests produces the most overall prosperity.

To an extent, socialists/progressives/Marxists/collectivists understand the basics of this alignment principle while totally misunderstanding the motivating power of self-interested behavior. So, they try to FORCE the desired alignment through centralized control, excessive and unequal taxation, excessive regulation and myriad other government intrusions into the free marketplace.

The result of this is always the same, although the lesson never seems to be learned. That lesson is, when a central power seeks to force an economic result, no matter how noble the intent, the individuals involved lose their sense of self-interest and, along with it they lose the self-incentive to expand (or even maintain) production, including making the capital investments that enable production. Inevitably, wealth and prosperity decline rather than expand.

The challenge then is to encourage, rather than attempt to force, the alignment of private and public interests. This is best done by minimizing government intrusion into the marketplace, which, in turn, means minimum taxation, minimum regulation, and NO government ownership of the means of production. What government can do to help is contribute to stability and predictability – by enforcing a few rules of fair play, by providing a sound currency, then by otherwise staying out of the way.

Today, we have just the opposite. Our currency is based on the guess du jour at the FED, our federal government has unreliable plans that serve only to frighten investors, and government intrusion into the marketplace is at an all-time high and includes partial government ownership of some of our biggest industrial concerns. Further, the government colludes with many other industries that it does not own outright through “crony capitalism” (favoritism expressed through subsidies, tax breaks, bailouts, “sweetheart” contracts, etc.)

To further illustrate the point I seek to make, I will use my own circumstance. For years, I have supplemented my earned income by investing in corporate America. When I retired, I took my retirement benefit in a lump sum rather than a lifetime annuity. My reasoning was that I could generate about as much income by investing the lump sum myself as would be paid by the annuity with the added benefit that, upon my death, my estate would still own the capital investments. (Had I taken the normal annuity, upon my death the retirement fund would keep the capital that had produced that annuity.)

During the years while we still had a fairly stable economy, my investments were split between securities traded on the major exchanges and investments in the exploration and production of crude oil and natural gas. In both cases, these investments provided capital that helped expand productivity in our economy. However, since the Obama administration has started its program of reining in the free marketplace and replacing it with a socialist economy, my investment strategy has changed. Today, at least half of my investment capital is in the form of precious metals. While such an investment is calculated to provide a sort of insurance for me or my heirs, such an investment does little or nothing to meet the overall needs of the economy since precious metal investment is actually a form of hoarding which does nothing to fuel overall economic growth or productivity.

I doubt I am unique in this situation where my own perceived self-interest is out of alignment with the needs of the national economy. I submit that this misalignment is doing much to prolong our economic misery, and that the only real cure is a return to free markets.

Think about it.

Troy L Robinson

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