As most political commentators devote their attention this week to the fiscal cliff, George Leef shares with PJMedia.com readers his thoughts about the deeper problems plaguing the federal government and the economy.
The fact is that no matter what the politicians do about tax rates and the size of the deficit, it won’t have any effect on the roots of our economic trouble. As long as the federal government’s mammoth size and appetite for wealth are suffocating the economy, growth will remain slow and unemployment high.
To understand why, we need to get down to some economic fundamentals.
Goods and services that we want do not miraculously appear. They have to be produced. How much we can produce depends on how well we use the limited resources available to us — land, labor, capital. Robinson Crusoe on his island had to figure out how to best allocate his time and energy, how best to use the land, and how best to employ the tools he managed to salvage. He knew that if he wasted his time, made bad use of the land, or let his tools rust away, he would suffer the consequences by having less to eat, less to wear, less shelter, less security, and so on.
Thus, his standard of living depended on making the optimal use of his limited resources.
Things are no different when we are talking about a collection of people, even a huge nation. The standard of living depends on how well or how poorly the people use the resources available to them. In countries where the people are left free to decide on the best uses of their resources, they will prosper. Hong Kong is a good current example. America of the 19th century was another. Government absorbed and directed very little of the resources. It interfered hardly at all with people’s incentives to produce.
