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Look For The Gun

December 13, 2009 - 11:48pm
Nick Coons by Nick Coons


The laws of economics and interaction are based on human nature, and on large scales are predictable. Supply and demand, wages, prices; it all levels itself out at an optimal level. But what happens when it doesn't? What if interactions among people do not reach an optimal level?

Those who understand human nature know that government control of the economy isn't necessary. Let's take minimum wage, which is completely unnecessary. Employers will pay employees a sufficient amount in order to attract them and keep them. This means that wages will level out at their optimal level. For instance, wages won't be 25 cents per hour, because other employers will simply offer more in order to attract the best workers, wages will continue to rise as employers compete for the best employees, and they'll stop only when employers reach their limit in ability to pay employees. This is seen now, as the vast majority of employees are paid more than the minimum wage.

Or we can talk about regulations. Banks don't need government-mandated lending standards to tell them how to lend and who to lend to. It should come as no surprise that they don't want to lend to people who aren't going to pay them back. And obviously repackaging bad debts as AAA investments isn't sufficient to fool those who were smart enough to make billions. Those who were savvy enough to earn large sums of money don't say, "Sure, I'll purchase your AAA credit swaps simply by taking your word that these are good investments."

Even though we know people don't act this way on their own, we still sometimes observe that this does happen. Banks did loan to a huge number of people that had a lower-than-acceptable probability of paying back the loan.

When things like this happen on a large scale, completely contrary to what would be expected based on a logical understanding of human nature, there must be a reason why. My suggestion: Look for the gun. When this happens, it's always because government gets involved. Government is capable of one thing; making laws, and then threatening people with violence if they don't follow those laws. For instance, when the government bankrolls the banks, they are less concerned about who they lend to.

When human interactions on a large scale don't mesh with what we know to be logical, look for government involvement, look for where politicians and bureaucrats have created rules that must be followed (by threat of violence), that have changed the way, but not the reasons, that people behave and interact with each other.

Related Content:

Germany Provides Insights into Stimulus - Mike Renzulli
What is a Law? - Nick Coons
Murder In The Streets - Nick Coons

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