The government can’t help

Trump has pretty much endorsed socialism. Yes, socialism. He said he looked favorably on the idea of government buying “equity stakes” in companies (the companies the government has injured). So the plan is: we shut you down, you lose revenue, we steal from others to get cash to buy shares of your stock, thus partially nationalizing your business. (It typically takes only 10% stock ownership to have de facto control over business policy.)

I expected statist economics from Trump but not from supposedly right-wing TV commentators, like those on CNBC. (Is talk radio any better?)

Everyone seems to believe that the government has its own wealth and thus can “fix things” by supplying some of that wealth to those who most need it.

They’re going to send a trillion dollars in checks out to people. Where is the physical production that those checks draw upon? It’s not in lots of government warehouses stocked with the things you need to buy. It’s in Amazon’s warehouses, Walmart’s warehouses, the warehouses and shipping containers of all businesses and in the fields and storehouses of agribusiness.

Government can only transfer wealth. How, in a nationwide crisis, is it going to help to take the citizens’ goods, then give them back to them?

“Oh, we’ll take them from the rich and give them to the needy,” some people say. Really? What do you think the goods of the rich are? They are investments. They are capital. They are factories, machinery, land, and payments of wages and salaries. That’s where over 90% of the wealth of the rich is. How is turning that over to the needy going to help make up for lost production?

Suppose you thought the wealth of the rich was largely in their private yachts, corporate jets, mansions and jewels. Fine, take them and—do what with them?

Can you sell them so that Joe the Plumber can buy food at Walmart and pay his electric bill? You can only sell them if someone wants to buy them. And you’d have to divide the items among the poor. But you can’t chop up a yacht into rowboats. A limited amount of cutting up of jewelry is physically possible, but not enough to monetize it the way required, and the division would destroy much of a piece’s value. You could rent out rooms at the mansions. You can chop up the efficient super-farms into 1 acre plots.

But all those ideas destroy value compared to the intact good (and require time, labor, and resources). They are impractical. The actual idea is that some other wealthy person will buy the yacht or invest in the steel mill or buy the whole agribusiness.

So what does that accomplish? On one level, it simply takes the deeds for the capital and luxury items that the rich (as a group) have and gives that deed back to them. Well, the state doesn’t give it back: the rich have to buy back their own property. What do they pay with? Their remaining unlooted wealth? No, they can’t afford to buy all that wealth back a second time. And the wealth some of them sell to buy back their looted wealth—how would that wealth be divided and sold in turn?

The plan advocated is something even worse: fixing non-production by means of inflation. Creating new (phony) money, not a tax on the rich, is being taken as the solution, at least by everyone to the right of Bernie Sanders.

So people will be able to buy their food and pay their rent with government-created new money and credit. Which means people don’t actually pay anything for that part of the loot. How, then, is production supposed to continue? There is no money—no real money—to replace capital and equipment. How is Amazon going to survive giving away products for free? How are investors going to fund the new businesses to replace the normal percent of business failures (let alone crisis-level of failures) when investors’ real wealth has been looted by the inflation?

The cleaner solution (being used in some places) is to impose a moratorium on rent and mortgage payments. Coupling that with an increase in food stamps is slightly less bad than destroying the price system, which is what inflation does.

Inflation is government counterfeiting of the money supply. That perpetrates a fraud on the entire economy. Fraud is an indirect form of force. Inflation is thus equivalent to the direct force of taxation. Because it disrupts the price system’s coordination of all economic activity, inflation is the worst kind of taxation.

It’s evil to have the government rob Peter to pay Paul. But it’s evil and crazy to have the government rob Peter and Paul to pay Peter and Paul.