Roads to Serfdom A tale of government intervention.by James Leroy Wilson
August 31, 2006
Once upon a time there was a man named Adam, who lived with his wife and children in the kingdom of Kleptopia. Adam ran a little shop that made and sold widgets. Of course, you need whatsits to make widgets, but Kleptopia's whatsit supply was sparse. But with some doing, and at no small expense, Adam had a secure supply of whatsits, as did the other widget shops in the town where Adam lived and worked. Adam had workers who assembled the widgets, and Adam paid them the a little more than what the other shops paid their workers. With more contented workers, Adam produced the best widgets in town, and made a decent living.
On the other side of the globe is the land of Plutopia. There are whatsits in abundance there, and that country had the capability to produce all the widgets everyone in the world would ever need for thousands of years. Widgets could be manufactured there at a fraction of what Adam had to pay.
The merchants and bankers of Kleptopia's port cities coveted those plentiful, and cheap, foreign widgets. But building the great ocean-worthy vessels to get them was expensive, and long voyages brought many risks. Also, there was no reason to import widgets if the merchants couldn't sell them all across the land. And Kleptopia's roads and bridges weren't in the best condition. While fine for normal travel, they had to be strengthened and upgraded to handle the steady stream of large widget shipments.
Because of the transportation costs, the price of an imported foreign widget in Kleptopia would be about the same as a locally-produced one, even though the production costs in Plutopia were much lower. To the wealthy merchants and bankers of the port cities, importing widgets wasn't worth the expense and risk. Like everyone else in the country, they stuck with domestically-produced widgets.
The King of Kleptopia loved his country and wanted it to be great in the eyes of the world. And he wanted to improve the lives of his people, and bring them greater prosperity. So he resolved to develop the commercial and manufacturing sector. He announced that he would use "public funds" - that is, taxes people like Adam paid - to promote economic growth. He would finance a fleet of merchant ships to encourage trade - and a naval fleet to protect those ships and to make sure overseas markets were "secure." He would also build a network of quality highways - including one that would go right by Adam's town.
The merchants and bankers were delighted. With the government subsidies, they would now build great ships. And the highways built for them meant the entire country became their "market." They could now go across the sea, buy shiploads of widgets, bring them back, sell them in every town in Kleptopia for 25% less than the domestic price had been, and still make a tidy profit. Adam's own profit margin, however, had been less than 3%; there was no way he could match the price of the import.
So Adam was out of business, and his employees were out of work. So were all the other widget-makers, except for a few who had a new job selling the imported widgets. And because so many were unemployed, there was a greater supply of people looking for work in the town. The greater the supply of something, the lower the price will be. This applies to labor as much as to anything else. So now, even people who had jobs were finding they weren't getting the raises they usually got. After all, if they didn't like it and quit, there were now plenty of unemployed people ready to take their place.
Yes, widgets were now a lot cheaper for everybody. Consumer savings on widgets meant they had more to save, or to spend on something else. But this benefit was diluted: yes, everyone saved on widgets, but the savings didn't add up to very much for the average person. The benefits of a cheaper widget was more than offset by the stagnant wages, and the lack of purchasing power by the newly unemployed people. Because of unemployment, every shop had fewer customers than before, and made less money.
The same phenomenon happened across the country. Cheap imported goods drove out domestic industries. But Kleptopia needed something to trade with, something to export in return for all the imports. Fortunately, there were plenty of natural resources in the kingdom to produce thingies. Kleptopia would be the supplier of thingies to the world, just as Plutopia was the supplier of widgets to the world. So people flocked to jobs manufacturing thingies for export. This meant they went to work for the big merchants who sold the thingies to people around the world.
Sometimes Kleptopia's factories would over-produce thingies. That meant the prices fell and the profits for merchants decreased. So the merchants would lay off thousands of workers at once. Sometimes other countries fell into recession and stopped buying thingies. This, too, meant that workers would be laid off. And the people perceived that the merchants were making were greedy and treated their employees like dirt. The King was told of the people's unrest. What the people need, the King decided, is reassurance. The King is on their side; the King will protect them from these evil market forces.
And so the King resolved to improve the lives of the workers. He would make sure they were paid a minimum amount. He would make sure their working conditions were safe. He would give them temporary relief if they lost their jobs, and pensions when they got too old to work. He would make sure they would stay healthy and happy.
The King criticized the merchants and bankers. He made them pay higher taxes, and imposed regulations on business so they wouldn't exploit workers and consumers. The people cheered. The King was looking out for them! They had forgotten all the problems were caused by the King himself. For the King was the one who used the people's money to make it easier for merchants and bankers to get richer. If he hadn't built the roads, bridges, and ships the merchants should have built themselves, the people wouldn't now be exploited by those same merchants.
Even with the higher taxes, the King's promises were expensive. There were a lot of sick, unemployed, and old people legally entitled to government checks. So the King started to borrow money. And borrow some more. He had more debts than he could possibly repay in gold or silver. So the King decided he didn't have to - from now on, the klepto (Kleptopia's currency) would be worth only what the market imagined it to be worth. The King kept printing more kleptos to keep pace with his spending. The inflated supply of kleptos meant they weren't worth as much as before. So prices of goods started to rise. Because of unemployment and job insecurity, wages didn't rise as fast as the price of the things the people needed. The people couldn't buy as much with their income as they once did.
Then, the executives of General Thingies Corporation came to the King. "Your Highness," they said, "We would like to build a new factory. It will employ lots of people. It will be good for Kleptopia's economy. But we have two problems. First, we're paying too much in taxes and so we can't afford to build it. And second, the place we want to build it is on a block with a dozen homes on it. If you can give us a break in taxes and force those homeowners to sell their homes to us, then great things will happen to the economy."
"Of course! Your request is granted," the King replied.
Pretty soon, other corporations came to the King with similar requests. They needed an exemption from a tax. Or a special exemption from a regulation. Or they needed the King to force people to sell their homes and businesses to them. The tax laws were getting mighty complicated, and the business regulations even more so.
Meanwhile, Adam had an inspiration. He couldn't make widgets any more, and everyone else in town (and the country) were in the thingie business, but Adam decided to build gizmoes. Who doesn't love a gizmo? Adam poured his life's savings into the venture, and hired back most of the workers from the good old widget days.
But things were different now. He once did his own book-keeping, but now he needed an accountant to make sure he was paying all his taxes, which, by the way, were a lot higher now. And he had to conform to all sorts of nonsensical codes and regulations that seemed better suited for a thingie factory in mind, rather than a gizmo shop. He had to pay his workers less than what he paid in the widget shop, because he was now required by law to provide them a package of benefits. He had to hire a human resources expert to administer it all. And what once was done with a handshake now required the services of a lawyer and written contract. Then a terrible storm destroyed all the nearby roads. Adam's suppliers used them to ship gizmo parts to him. Getting gizmo parts would now be a lot harder and more expensive, so Adam had to temporarily raise the price of his gizmoes. The King's men heard about this, and were outraged. They sued Adam, on behalf of "the people," for price-gouging.
All the taxes, laws, and regulations that were created to restrain the wealthy corporations from abusing their workers, were being applied to Adam and his small gizmo shop. But they weren't applied to the very corporations they were aimed at, for their executives had persuaded the King to give them special breaks and exemptions.
And then one day executives of WidgetMart, the nation's biggest seller of widgets, made a request to the King. Can the King force Adam to sell his shop to him, and then can the King bulldoze the shop and build a secondary access road for a new WidgetMart store? The King agreed. WidgetMart, after all, provides a lot of jobs for the community. Faced with selling his property to the King or getting shot for resisting, Adam reluctantly sold out.
Two of Adam's children are grown now, with families of their own. They work at the very WidgetMart store that drove their father out of the Gizmo business. They have to work there to make ends meet, because there are no other jobs in town. Except the ends never do quite meet.
It's unclear today if Adam is unemployed, or retired. He spends his days railing against the "damn government" and "our S.O.B. Highness." He thinks about all the times and ways the King stole from him and made his life increasingly worse. Nearly two centuries before, an ancestor of the King had abolished feudal serfdom. But it seems to Adam that his King effectively re-instituted it. Only the lords have changed; they're wealthier and more powerful now.
Adam wishes he lived in a democratic republic. He reckons democratic governments wouldn't and couldn't abuse their own citizens the way he was abused.
THE END
SOURCE: The Partial Observer
Next time you are tempted to call for government intervention over something, think of this cautionary tale.
