Justin talks about the unintended consequences of government policies. The possibly good intentions government laws and regulations may have, always lead to the American people being worse off. And those who are suppose to be helped by the new government policies are always the ones hurt the most. Read more for the full transcript.
The Unintended Consequences of Government
This is Justin Mohr, and for this podcast I want to tell you why I decided to make these podcast. It is because I have run into way too many people who have absolutely no understanding of economics. They just fall for the government propaganda and the politicians who act like they are the most selfless individuals out there and that they care more about you than you care about yourself. If you think about it, that’s not possible. We all have a self interest. I do, you do, politicians do, and so does the government.
So many people assume the government is some unbiased third party that sets the rules and oversees and makes sure everybody is playing by the same set of rules. Well that’s actually not possible because you got the lobbyist, the special interests, and the campaign donors with a lot of money. These are the guys that set the rules. The big businesses and a lot of these politicians like to say, “Oh, well see that’s Capitalism.” No, that is not Capitalism. That is crony Capitalism which is actually a form of fascism.
The way the game is set up is always played against the little guy, even though it’s the politicians out there who support the little guy. They always are the ones who say that they’re looking out for the little guy. So the next time that you are in a crowded room, or a classroom, or a town hall meeting. Whatever it is I want you to ask, “How many of you consider yourself to be poor? How many people think they are middle class? How many of you think you are rich?” What you will find from this simple little experiment is that the vast, vast, majority of people will raise their hand and say that they are middle class. So why do you think politicians always pander and use the word middle class in their campaign speeches? It’s because that’s where the most votes are at. That’s where the vast majority of people think they are. Whether they are actually a little on the poorer side they will still say they are middle class, even the ones that are a little more on the rich side, they will still think that they’re middle class. So that’s how they capture the vast majority of people which is the voting base.
Next I want to give you just a few examples of government policies and their unintended consequences. So you have these politicians out there who are the environmentalist types and they push forward their green initiatives. They’re looking to help the environment; they are looking out for your kids and your grandkids. They’re looking out for the future of everybody. They seem like they’re really selfless and concerned about everything but themselves and their own political career. But that’s actually not true. For example, before Obama became president, there was an audio clip that came out of Obama saying that under his cap and trade system, electricity rates would necessarily skyrocket. So these green politicians, these environmentalist types, they pushed to increases these regulations on electricity or the low flush toilets and all these sort of things that supposedly make the environment better and use less resources. They actually increase the cost of the end product which is therefore hurting the poor.
Let me just give you one example of one of these regulations. It’s CAFÉ standards, which are government regulations imposed on the automobile industry that force car companies to increase their miles per gallon on their car and truck fleets. They all have certain standards they have to meet. If you look at this from the outside it sounds like a good idea. “Well yeah, I want a car that gets more miles per gallon because that means I can drive more and the amount of money I pay to gas up goes farther so it actually makes me better off, right?” Well then, why is it that if something sounds like such a great idea, why does the government have to impose it? Why wouldn’t a car company do it on their own? Well, the politicians say it’s because they are greedy and that they really don’t care about the environment. They are just about cutting cost and selling their vehicle. But really, if you want to sell a car, a good marketing point is a car that gets 40 miles per gallon. A lot of people want a car with 40 miles per gallon, but then they ask the question, at what cost?
That’s the question that politicians never seem to really care about. Why don’t politicians care about “at what cost?” Well, because they have checks that they write with an unlimited amount and these checks are paid for by you, the taxpayer. The government has no profit motive; they don’t care how much things cost. All they care about is getting your votes. So when a consumer asks, “At what costs?” They are like, okay, yes I would like a car to get 40 miles per gallon but is it really worth paying $10,000 or $15,000 more for that? A lot of people will say no. And that’s actually why our miles per gallon haven’t increased all that much despite the government intervention. A lot of people are still saying they would rather have a safer car or they would rather have one with more luxuries or a larger car like an SUV so that they can haul a family of 8 in one car instead of 2 smart cars, or three smart cars for that matter. If you look at it that way, the SUV could actually be very efficient. If you could fit a family of 8 in there and it takes two to three smart cars to take your entire family, well then the SUV is actually a good way to go.
Unfortunately the government never looks at things through that lens. It’s the consumer, they are the ones who analyzed cost; they look at opportunity cost. They ask is this really worth it? Is it worth paying this much to get that? It’s very sad that these CAFÉ standards imposed by government actually have unintended consequences. The fastest way for a car company to increase their miles per gallon for their car and truck fleets, is to make them lighter. And when a car is lighter and smaller it’s actually a lot more dangerous, and it’s a lot more deadly too because when that car comes into contact and hits a deer or a tree or a semi, that car is gonna look like a pop can. It’s not going to survive like the older cars will and would. So that is one example of an unintended consequence of a government policy. Even though it sounds good on the surface, it’s actually a very bad policy and actually makes the consumer worse off.
Let me give you another example, the 787 billion dollar economic stimulus plan that was passed and that was supposed to help stimulate job growth after our housing crisis we encountered in 2008. Well, after the stimulus plan was passed, it actually did not stimulate job growth at all. Actually, most of the money went to fund existing jobs in state and local government. Well there you go. Talk about the government having no interest in being efficient because it has no profit motive. Also keep in mind, when the government is spending 787 billion dollars, that’s money that has to be taken from the private sector first. So now the private sector can’t spend that money. It instead is replaced by government spending, and if the government is a lot more inefficient than the private sector is, well then really that money was wasted.
Let me give you another example, about the Patient Protection and the Affordable Care Act which is also known as Obamacare. The 2,700 page bill makes health care less affordable and the vast majority of Americans have actually seen their health care premiums skyrocket. The main thing with Obamacare is that it done nothing to address the cost of health care. Now that the healthcare industry has now been taken over by the government, guess what? Who pays for government? Oh, it’s you and me, it’s the taxpayers. So we are still paying for it even though we don’t see it. Our taxes have increased to help pay for it but we still haven’t seen the end of that yet. You can’t see where your money is going but they always like to spout out all the benefits they give to you. You’re paying the bill but you never do specifically see where the money is going.
On top of that, younger people who generally would pay less for health care under a free market system now have to pay more under this Obamacare system because young people are subsidizing the elderly. Of course the younger people under the free market are going to have cheaper healthcare premiums because why? Well, because they are healthier, they don’t go to the doctor as often, they don’t get sick as often, they most likely don’t have cancer and all these other sort of treatments that cost a lot of money. And so with government, these younger folks who have just graduated from college or are still in college, just starting a family, or just trying to get their career going. There are now facing higher healthcare premiums which are really stunting their growth and their way into the job market. There’s yet another unintended consequence of the government getting involved in our healthcare. While Obamacare was being passed, a lot of these politicians were spouting out the benefits of socialized medicine.
Well, I’m just going to give you a quote here from the former president of the Canadian Medical Association. His name is Dr. Brian Day, and he said, “This is a country in which dogs can get a hip replacement in under a week and in which humans can wait 2 to 3 years.” So just like with everything that government touches, quality always decreases. Things get worse. How about in Europe where government healthcare originated? There have been fewer new drugs and treatments available because of the government run system. It keeps companies from making the profits needed to fund research and development. Guess who creates the vast majority of new drugs that the world benefits from? Well, it’s the United States. Compared to a lot of other socialized countries, we have at least a little more of a free market than those other countries. But still, it’s nowhere close to a free market. But, even in the United States, it still takes 10 years and 1 billion dollars for a new drug to hit the market. And why is that? Well, guess what? Because of government regulation.
Now, I’d like to address one more issue. There is plenty more that I could talk about but for the sake of this podcast, I’ll limit it to these few. Now, it’s the minimum wage. You hear a lot of politicians talking about how they want to help the poor and that if they can pass a minimum wage, it will help give the poor a livable wage. Well, as good as that sounds, that’s far from the truth because when you increase the minimum wage, just like when you increase rent control, or any other government price control, what does it do? It creates shortages. It makes it so unskilled labor can’t get jobs. It also makes it so there’s a higher unemployment among the poor which is who these politicians say that they’re trying to help. On top of everything else, it destroys their future prospects for jobs because of their lack of job skill and their employable skills. You see, the vast majority of people who actually are getting paid the minimum wage, they are only on the minimum wage for a short period of time. For most of those people, they make minimum wage on their first job. Your first job is when you obtain those needed job skills so that you can get your second job. For those people who are on minimum wage, the vast majority of them are still in high school and they’re still living under their parent’s roof. So they actually have very little in expenses so the minimum wage actually works perfectly well for them.
Also with the minimum wage, think about it in this way. It’s the government interfering with a voluntary contract between two people. The employer is offering to pay an employee X number of dollars for this job and the employee, future employee, is agreeing to that wage. The key with wage rates is productivity. So let’s just give a simple example here. Let’s say we have someone producing $6 worth of goods and services per hour. Now let’s assume that we have these benevolent politicians out there looking out for the little guy and they decide to raise the minimum wage to $10 per hour. Well now that guy who was producing $6 worth of goods and services per hour, his job is now lost. That business, if they tried to hire that person at the new minimum wage of $10, would be losing $4 per hour hiring the guy. You have to ask the question, is the business there to provide jobs for people or are they some sort of charity or are they there to make money? The obvious answer is that they are there to make money.
Just the person providing that job, him looking in his own self interest, he’s making that person better off because now they have that job. But now these politicians decide to raise the minimum wage. We now have one less job in the economy. Because the key principle is, you can’t pay someone more than they can produce. It’s that simple. So why is the government even involved in the first place? Well they shouldn’t, the government should be involved in the minimum wage whatsoever. There should be no minimum wage. It should be zero. The government mandated minimum wage makes the poor and makes people with little to no job skill worse off. As I was saying before, it stops them from getting that second job. They haven’t obtained the skills from that first job because they never got the first job.
What’s really sick on top of all of this, is that these same politicians who are pushing for a higher minimum wage looking to help the poor and looking so that they can get a livable wage. Well they’re the same ones that are pushing all these government programs, pushing this higher government spending, and how do you pay for the increase in this government spending? Well, there’s 3 ways to pay for it. You can either 1, you can raise taxes, or 2 you can borrow the money from other countries like China, or 3rd option is you can print money. Guess which one of these options politicians love to do the most? Yeah, you guessed it. It’s actually the 3rd option. It’s the printing money. Politicians love this option and because it’s actually a hidden tax.
Inflation, it’s a way to disguise an increase in the cost of living. It actually makes it look like it’s the businesses being greedy by raising the prices of their products. So these politicians who are looking to help the poor with an increase in the minimum wage, there also supporting inflation indirectly which makes the poor poorer. But as I said earlier, an increase in the goods and services that they buy doesn’t help. So let’s say you have an inflation rate of 10%. Let’s say that the minimum wage that passed help push up wages 3%. Well guess what? Because of the increase inflation in the system, those people making the new high minimum wage are still losing 7% of their purchasing power because of the increased cost of all the things that they buy. And to add insult to injury, the rich actually benefit from inflation. Their investments in the stock market, in real estate, in hard assets, all increase during inflation. They make off like bandits.
So it’s these same progressive, liberal politicians who look to help the poor and hurt the rich that do exactly the opposite as intended. They have, as I’ve shown, they’ve hurt the poor, they’ve made them worse off, and they made the rich richer. Here is yet another example of another government unintended consequence of their policies. So what I want you to gather from all this, is that government is looking out for itself, it’s just like you, it’s just like me. We are all trying to better ourselves. We all have interest, and the government is not that innocent 3rd party that’s just looking out for everybody. They have an interest just like everybody else and actually what they’re really out there for is power. The government has an insatiable appetite for power. So the more freedom and control and choices you let the government take from your life, the more power it has. And that makes us as individuals worse off because in the end you care about yourself more than some politician whose supposedly looking out for you in Washington DC.
Now what I gave to you in this podcast is only, as I said earlier, just a few examples of the unintended consequence of government intervention in the economy and how they actually hurt the people that they say they’re trying to help. In future podcasts, I will go through more about inflation and all these other things that government does. I thank you for listening and this is Justin Mohr, signing off.