This essay was written by guest-author Will Porter.

Continued from Part 2

From the preceding discussion, we’ve commenced to show how society takes shape largely as determined by state-intervention. When government tries to eradicate crime, it ends up creating it instead. They assert a problem, incite a public reaction, and act to “solve” it using ham-fisted laws which go completely contrary to their purpose. A common theme of this essay will be to ask what is more important, the intentions of a law/program, or its actual effects. The best of intentions cannot transform a bad law into a good one, and the same good intentions cannot reverse a law’s destructive effects.

Because economic destitution is a primary motivator for crime, it may be said that it is really poverty that is at the root of the crime epidemic. This brings us to our second statist mythology: the Welfare-State. The state’s welfare system is made up of many agencies and programs, each slightly varying in form and function, but none escaping the blunders of welfarism.

Welfare-State1

The common claim is that without government welfare programs, the lower classes would suffer and starve. From the implementation of FDR’s New Deal, to Lyndon Johnson’s Great Society, the government’s “War on Poverty” has been waged for the greater part of the 20th century, and is still going strong at the dawn of the 21st. Are these programs really working, or do we have yet another case of a corrupt, incompetent, and utterly bungling government creating precisely the problems it claims to solve?

In 2005, almost 500 billion dollars was devoted toward 50 or so different welfare programs in the U.S., amounting to about $13,000 for every poor man, woman, and child. Since the days of the Great Society, about 9 trillion dollars in total has been thrown toward government welfare, and yet poverty numbers remain in the millions, despairingly close to rates before LBJ stepped in with his helping hand.[i]

Part of the reason why welfare funds can never fully reach their destination is that all along the way, thousands of bureaucrats must be employed to manage and disburse the money and resources.

It costs millions of dollars just to keep the lights on in every bureaucrat’s office, not to mention the near-lavish benefits received by various government workers and officials.

And while the significant inefficiency and ineffectiveness of the Welfare State is indeed a contributor to poverty, this is hardly the tip of the iceberg. For it is not only unnecessary welfare-bureaucrats alone who must be employed and their offices kept running, but every government employee and office. Millions of people live parasitically off of private society, diverting many billions of dollars out of the hands of productive people and business owners who might employ the poor, into the wasteful hands of bureaucrats and politicians. Even ignoring the waste which might come from the specific activities of the Welfare-State, it is implicitly wasteful in that it inserts an additional middle-man into the equation.

For a loose analogy, imagine if the government were to mandate that employers had to pay their employees through a 3rd party bureaucracy. Instead of just paying their workers, the employer must send the money through a system of government officials, all of whom must themselves be paid a salary and their offices kept running. It is easy to see how wasteful such a law would be and this same issue plagues all government programs. It might not be so bad if state-welfare actually met its goals, but they instead have the opposite effect.

Welfare programs keep people dependent and incentivize unproductivity. On a simple cost-benefit analysis, it should be obvious why many people prefer to stay on welfare. If the options are “don’t work, get paid”, and “work, get paid a little more” the former seems to be the attractive choice.

This is not to say that everybody on the dole is abusing the system, but the very nature of the Welfare-State—free money—will always attract unproductive people who wish for a free-ride. Unlike the above example of free riding in regard to police, free riders of the welfare system are literally living off of stolen funds. “Voluntary unemployment” is a real thing, and it further contributes to the burden on society that the state fosters and allows to continue.

Along with the Welfare-State’s immense waste, we can add the Police-State’s waste as well, as discussed above, resulting in inconceivable sums of economic turmoil. Just imagine what society might look like if all of these resources were put to productive use. Again, this cannot be stressed enough. Even in the hands of average citizens, all of the money otherwise devoted toward taxation could be saved in banks, allowing interest rates to (naturally) fall, and for cheaper loans to be made for startup businesses. The indirect effects of government waste are incalculable and poverty would certainly be much less of a problem were it not for the state’s reckless abandon in their use of stolen tax-dollars.

Furthermore, to add to the basic blunders of welfare, some of the specific guidelines enforced have also been majorly destructive. For example, in many cases the conditions for welfare-housing were that no males were allowed to live in the home. This had particular impact on the black family,[ii] and its effects can now be seen with the widespread single-motherhood so common to inner-city populations and the black demographic in particular. The black family survived slavery, yet it could not endure the crushing effects of the U.S. Welfare-State.[iii] This only piles on top of the endless list of travesties which have plagued the inner-city underclasses, predominately black and Latino, and only adds gasoline to the fire in regard to the rampant urban crime considered at length above.

In conjunction with outright welfare programs, other “labor laws” such as minimum wage legislation[iv] also contribute to the economic oppression of the lower classes.[v] Exactly the same as the Police and Welfare-State, minimum wage laws hurt the same people they are alleged to help!

When the price of anything, including labor, is made artificially more expensive, its demand will fall. When an unskilled worker can only contribute 5$/hr of productivity to a company, forcing an employer to pay him 7$/hr will do the worker no favor. Instead of lifting the unskilled up, as if on a platform, minimum wage laws set up hurdles for laborers.[vi] The government can force employers to pay higher wages, but they can’t stop them from simply hiring less people, and this is precisely what happens.

If the state set a minimum price for, say, bananas, higher than the prevailing market price, it would be no surprise at all when fewer bananas were purchased. Why is this simple economic logic so difficult to grasp when assessing the minimum wage?

Highly-skilled union laborers are typically in favor of minimum wage legislation[vii] precisely because it has the effect of blocking out the unskilled competition, who willingly works for lower wages due to their current-lack of expertise or proficiency in some given trade. Labor unions, backed by government power, have been constant enemies of progress and the alleviation of poverty. Their consistent push for artificially-higher wages, less innovation and technological advancement, tariffs, as well as “featherbedding” practices have added to the skewed structure of production and pricing-mechanism which result from state-intervention.

When unions use government to enforce ostensibly “pro-labor” legislation, the result is always to the detriment of both the workers at-large, as well as the same people in their capacity as consumers.[viii] A union can divert resources to benefit a single firm or industry, but these are resources necessarily forced out of other areas of the economy.
This will take its form in higher prices for goods, bloated and inefficient industries—utilizing resources that more economically-appropriate for other lines of production—as well as an overall reduction in the material welfare of society and technological/entrepreneurial innovation.

Unions often take credit for the creation of the middle class, as well as the reduction of child labor and poor working conditions, but this is a false attribution.[ix] Wealth in society cannot be created by passing laws, but only through market processes and increased production. When a capitalist invests profits back into his business—for example by purchasing new machines—he increases worker-productivity, which is a direct determinant for wages.

When an hour of labor becomes more productive, due to new technology or capital equipment, labor-services become more valuable. When capital accumulation takes place, wages rise, and the material ware-withal of society to produce more stuff is amplified. This has historically led to the enrichment of the common man and the emergence of an affluent middle class.

As the income of the average worker was boosted, families no longer had to send children off to work; a household could now be supported by only one or two people. Working conditions are also made more acceptable as entrepreneurs re-invest back into their own firms. By the time unions and government stepped in with legislation, both child labor and dangerous working conditions were well on their way to being eliminated by the market.[x]

Capitalists do not have to do any of this out of their own kindness or generosity, but only out a purely selfish motivation for more profit. Adam Smith talked of the “invisible hand”[xi] which guides society toward general prosperity through market mechanisms and profit incentives, rather than out of the beneficent disposition of entrepreneurs. Whether we assume extreme greed as human nature or not, this has no relevance in the way social progress occurs based on the workings of the market economy.

Ceteris paribus (all other things equal), both naturally-raised wages and a generally intensified capacity for production lead to financially better-off consumers whose dollars command ever-more resources in the economy. As goods become increasingly abundant, many of them decrease in cost, allowing the consumer’s money to buy them more. So long as people use sound money, this process enriches the lower and middle classes. In a genuine capitalist society, even many of the poor enjoy luxuries that kings of pre-industrial antiquity couldn’t have dreamed of.

If the general claim is that labor laws help the workers with the least skill and experience, this is blatantly false. Wage legislation helps only the firmly-entrenched labor unions as it outlaws competition from the unskilled, whose only competitive edge is to work for less pay than their skilled counterparts. If the labor unionist’s contention is rather that such legislation prevents all of the workers from exploitation, there is no need for theoretical insights, as empirical experience clearly proves otherwise.

If the claim is, without a legal minimum, employers would pay only third-world wages, why is it the case that they have always paid over double the legal minimum wage, on average, even with those laws in place?[xii] There is nobody forcing them to pay more than 7-8$/hr today, yet they do almost universally. This has much to do with the fact that employers are not the only side of the labor-contract; they have to make their job positions attractive, and through the competitive process labor’s price can be bid even higher than it would be due to increased-productivity alone.

minimumwageprotest

Finally, if government-backed unions are alleged to be the beacon of equality and worker’s rights, why do the anomalies of government labor unions exist? If we are supposed to seek refuge from the evils of the private sector within the state, why would government employees need protection from government exploitation?

Government is supposed to be fair and equal, a nobler system that escapes the salacious spell of the “profit-motive”. If government can’t even prevent its own workers from feeling exploited, it is hard to grasp how anyone can think the state is the effective remedy to all inequality in other areas of society.

The institution of the government-backed union, with its corollary wage and labor laws, adds a giant impediment to the economy, creating unemployment, a skewed price system, and incentivizes the un-productivity of labor. There is absolutely a place for labor unions in society, as the individual worker is in a worse bargaining position than is his employer, and he may not have access to all of the relevant knowledge regarding the prevailing wages for a given industry.

But when coupled with state-power, unions become tools for cartelizing the labor force of various industries. From there, they can only help themselves at the expense of all others.

The Labor Union-State is often said to be in direct opposition to the Corporate-State, but in reality each of them both have similar motivations to harm the consumer at-large. Like the union, the large corporation has perverse incentives to lobby for government privilege as well.

The Corporate-State is bolstered by an enormous apparatus of regulations, tariffs, exclusive contracts, tax subsidies/impositions, guaranteed credit, grants, price-fixing, as well as bail-outs and nationalizations. We may add the cartels established by “intellectual property” laws like patent, trademark, and copyright, as well as the cartels resulting from licensing, permits, and certifications—all of these serve to help the wealthy corporate class, at the utter expense of everyone else.

The dizzying array of collusion between business and state found in the modern American economy has transformed a once fairly-free market into a quasi-fascist corporate-state. Fascism has many characteristics, including nationalism and other cultural values, but politico-economically, fascism is essentially the joint-rule of society by government and corporations.

Each of the government-measures just listed above gives an artificial benefit to some politically well-connected firm (primarily on Wall Street) or, conversely, puts restrictions on and hampers smaller competitors who have not curried political-favor. The cumulative effect is to centralize wealth into the ruling class of corporate-statists, always extracting money from the lower and middle classes and entrenching it into the network of monolith state-backed firms.

Many of these corporations actually have government officials as shareholders, or have them sitting on their boards of directors. This is known as the infamous “revolving door” between business and state, most prominent within the FDA and the military-industrial-complex.[xiii] Corporate welfare[xiv] is yet another cog in the machine of the state.

Strong outrage toward corporatism has been voiced by the likes of the Occupy Wall Street movement, yet the hue and cry is almost exclusively directed toward the private sector, when in reality government is the primary reason any of this is ever allowed to happen. Corporations are often blamed for “buying state-power”, but if there were no power for sale in the first place, none of this could possibly occur.

Nobody else but the politician is in a position to grant special privilege to corporations and banks. It must therefore be reasoned that government is the primary culprit here, not business. If corporations are allowed—indeed, encouraged—to pander to the state to change the rules of the game, why would anybody expect them not to exploit this? The Occupy crowd call for “more regulations”—which are actually harmful—but even assuming the best of scenarios where they could accomplish what they claim to, does anybody actually believe the government and the corporations who it sells its power to are going to heed any sort of laws or regulations?

If the easiest way to succeed in the establishment-corporate world is to lobby to the state, and if all of the big competitors are doing the same thing, it creates a runaway-train phenomenon where the only way to get a leg-up is to use political aggression to help yourself or harm your adversaries.

But the corruption in regard to corporations is completely dwarfed by the outright wickedness of the state-banking system. The American central banking cartel, the Federal Reserve, is possibly the most destructive institution on the face of the planet.[xv]

93246029-evil-federal

The legislation that would create the Fed was devised by a group of bankers, in secret, on Jekyll Island,[xvi] Georgia. So secret was this meeting that the conspirators traveled in a special passenger car and used fake names to avoid attention. Apparently these men thought that what they were doing was in some way criminal or corrupt, and if so, they were right.

On top of fractional-reserve banking,[xvii] which allows for artificial expansionary credit booms, the Fed is also the federal state’s money-printer.[xviii] When the U.S. government decides it wants to debase the dollar, it calls up the Federal Reserve to do the deed. The Fed is often said to be “private”, but this is absurd. Truly private banks are not created by acts of Congress, nor are they bestowed with special rights and privileges which nobody in the private sector could ever hope to attain.

The nominally private nature of the Fed was originally intended to keep the central bank “independent” of government, a plan which has completely backfired. The Fed is highly politically-active, and rarely engages in behavior at variance with the interests of the American federal government.

On top of allowing the government to finance imperial wars of aggression, the money-printing engaged by the Fed spurs on the process of inflation.[xix] Inflation is socially-destructive because it dilutes the purchasing-power of a currency. When more units of money chase a relatively stable sum of material goods and services in the economy, prices rise. Staple goods, like milk and gasoline, skyrocket in price over the decades as the process of inflation is continued.

And because almost nobody in the general populace understands a thing about economics, the ravages of inflation cause an outcry for more welfare, higher wages, more regulation, etc. Instead of blaming the Fed for high prices and an inflated money supply, the common citizen aims his anger toward the small gas station and grocery store owner.

Continue to Part Four

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Note: Many of the references provided are simply to help illustrate the various points made in the essay and to direct the reader toward additional relevant information. It is always encouraged that the reader does their own research. Do not take these citations as themselves authoritative.

[i] Failures of the Welfare-State:
http://www.cato.org/publications/commentary/more-welfare-more-poverty
[ii] Effects of the Welfare-State on the black family:  http://www.discoverthenetworks.org/viewSubCategory.asp?id=1672
[iii] More on welfare and the black family:
http://www.lifesitenews.com/news/slavery-did-not-destroy-black-families.-welfare-did/
[iv] Mises on the minimum wage:
http://mises.org/daily/5865/MinimumWage-Rates
[v] Failures of minimum wage legislation:
A) http://mises.org/daily/6638/Welfare-Minimum-Wages-and-Unemployment
B) http://mises.org/daily/6097/
C) https://mises.org/daily/2130
D) http://tomwoods.com/blog/the-minimum-wage-in-one-paragraph/
[vi] Walter Block on the minimum wage & the “hurdles” it sets up for unskilled labor:
http://www.lewrockwell.com/2014/01/walter-e-block/want-to-stab-the-poor-and-help-labor-unions/
[vii] Economics in One Lesson  – Henry Hazlitt – Pg. 121 Chap. 19 “Do Unions Really Raise Wages?”:
http://mises.org/books/economics_in_one_lesson_hazlitt.pdf
[viii] Labor unions’ harmful effects:
https://mises.org/freemarket_detail.aspx?control=564
[ix] Labor unions taking undue credit:
https://mises.org/freemarket_detail.aspx?control=511
[x] Child labor & working conditions:
http://mises.org/daily/3446
[xi] Adam Smith’s “Invisible hand”:
http://en.wikipedia.org/wiki/Invisible_hand
[xii] Employers pay twice the minimum wage on average:

http://ycharts.com/indicators/average_hourly_earnings

[xiii] The “revolving door” between business and state:
A) http://people.howstuffworks.com/what-is-the-revolving-door.htm
B) http://www.opensecrets.org/revolving/
[xiv] Corporate welfare:
A) https://www.youtube.com/watch?v=Ez8I8VGLNUw
B) http://en.wikipedia.org/wiki/Corporate_welfare
[xv] The Federal Reserve & the case against it:
A) http://wiki.mises.org/wiki/Federal_Reserve_System
B) https://mises.org/daily/2870
C) https://mises.org/books/fed.pdf
[xvi] The Fed’s conspiratorial origins as told by G. Edward Griffin:
http://en.wikipedia.org/wiki/G._Edward_Griffin#The_Creature_from_Jekyll_Island
[xvii] Fractional reserve banking & economic instability:
https://mises.org/daily/6100/Fractional-Reserves-and-Economic-Instability
[xviii] The Fed & fiat currency:
A) http://mises.org/daily/4130
B) http://mises.org/daily/4684/The-Curse-of-Fiat-Money
C) http://mises.org/books/whathasgovernmentdone.pdf
[xix] The Fed & inflation:
A) http://mises.org/rothbard/agd/chapter5.asp
B) http://mises.org/rothbard/agd/chapter4.asp
C) http://mises.org/daily/6320/How-the-Fed-Rules-and-Inflates