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Coercion Is Bad Economics

July 27, 2015 in Economics

By Chris Edwards

Chris Edwards

A common feature of Obama administration economic policies is the use of government coercion. The Obamacare health law mandated that individuals buy insurance. The administration’s tax increases grabbed more earnings from millions of people. And federal agencies are imposing an increasing pile of labor, environmental, and financial regulations on businesses.

Pro-market policy experts point out the negative effects of each intervention, but the administration keeps dreaming up with new ways to take our money, restrict what we do, and manipulate the economy. 

Liberals or progressives seem to have no inkling of why free economies work better than economies based on central authority. They favor using centralized force apparently because they think that it creates practical benefits.

But coercion is not a practical way to help the economy—regulations and taxes rarely make us better off. Some people may gain, but the vast majority of people lose. Coercion tends to destroy value, not create it.

There are at least four fundamental reasons why.

Free markets generate value, deliver diversity, and spur better ways of doing things.”

First, because the government uses coercion, its actions are based on guesswork. Regulations are top-down commands, not efforts at finding common agreement. Spending relies on compulsory taxation, not voluntary customer revenue. So government actions generate no feedback regarding whether or not they generate any net value.

Compare that to markets. We know markets generate value because they are based on voluntary and mutually beneficial exchanges. Decisionmaking in markets is a reality-based system guided by individual preferences.

Consider the purchase of aircraft. In the private sector, an airline chooses the number to buy based on the demand for air travel, which is aggregated through the price system from choices made in the marketplace. By contrast, when the Pentagon buys aircraft, it has no price system or measured demand to guide it, so its decisions are made flying blind.

Second, government actions often destroy value because they create winners and losers. Regulations squelch personal choices and impose one-size-fits-all rules. The amount of federal spending on each program is chosen for the whole nation, and thus differs from the amount that would be favored by each individual. 

In markets, people choose the amount of each item they purchase, and they can pursue a vast array of different interests, lifestyles, and careers. “The great advantage of the market,” Milton Friedman said, “is that it permits wide diversity,” while “the characteristic feature of action through …read more

Source: OP-EDS

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