Disequilibrium in the Stages of Production

A recession is merely the name for economic dislocations. The stages of production are out of equilibrium. Resources have been allocated to the wrong end products or the wrong stages of production. Consumer preferences have changed, or resources have been allocated by political factors rather than market factors. It really doesn’t matter the cause because the solution is always the same. Get rid of any and all bottlenecks that hinder the reallocation of the factors of production to meet the legitimate desires of the market.

Increasing Private Purchasing Power

There is one huge problem—the welfare state. One, but not all, of the goals of the welfare state is to provide assistance to workers and even companies who find that their cash flow has slowed, as in the case of companies, or even stopped, as in the case of worker layoffs. Government-funded welfare is designed to provide temporary assistance. The problem is that other government outlays are not reduced. No, welfare spending has become “an entitlement” and is always added onto existing spending. This means that the government takes an even-larger bite out of the only economy that matters, the free market economy. Murray N. Rothbard explained that the only spending that matters is “private purchasing power.”

In Making Economic Sense, Rothbard says, “All government taxation and spending diminishes saving and consumption by genuine producers, for the benefit of a parasitic burden of consumption spending by nonproducers.”

He elaborates on the subject in his magnum opus, Man, Economy, and State with Power and Market: “In short, strictly, the government’s productivity is not simply zero, but negative, for it has imposed a loss in productivity upon society.”

Since increased government spending must, by definition, reduce “private purchasing power,” welfare spending hinders the ability of the economy to recover just when more “private purchasing power” is needed most. Resources that should have been reallocated to new products and services desired by the public are instead reduced, not increased! Not only that, but welfare payments tend to disincentivize businesses from taking actions needed to redeploy their capital and to reduce labor’s incentive and ability to relocate or acquire new skills.

End Welfare

The solution is simple but difficult to enact. End both corporate and individual welfare. What? Force businesses to close, and throw great portions of the population into destitution? This need not be the case. It is essential that barriers are removed from reallocating capital and labor to where they are needed most urgently.

Furthermore, just as capitalists must be responsible for the financial health of their companies by saving when times are good and always being sensitive to the needs of the market, labor needs to be just as responsible. Both capital and labor need to save for a rainy day. Capital needs to invest continuously into more-productive processes, and labor needs to invest in personal skills that will be needed in the future. Unfortunately, profits from successful companies are taxed away at a high rate, and labor is subject to propaganda that the state will provide. It is a recipe for long, long recessions. Compare the post–World War I Warren Harding depression with the Herbert Hoover/Franklin D. Roosevelt depression of ten years later. Few know about the Harding depression because it ended so quickly. Everyone has heard of the Hoover/Roosevelt Great Depression of the 1930s.

Harding reduced the federal budget. Hoover and Roosevelt increased the federal budget and placed increased regulatory barriers upon the free reallocation of capital and labor. Lord John Maynard Keynes added insult to injury by abandoning Say’s law that production must precede consumption, enshrining the myth of increasing aggregate demand via money printing, deficits be hanged!

The latest idea from the city’s central planners is to pay out millions more via pre-paid debit cards—pre-paid, of course, by millions of people who actually work for a living. The city has already planned to spend at least $2.5 billion on the migrants in this way. An additional $53 million will go to grease the palms of bankers who will provide the cards.

This is just one story among many we’ve seen in recent years on how state, local, and federal policymakers have shoveled ever larger amounts of taxpayer funds to both legal and illegal immigrants. After all, there are at least 23 million foreign nationals residing in the United States—both legally and illegally—and both are subsidized by taxpayers to the tune of at least $150 billion per year. An additional $140 billion goes to immigrants who have been naturalized.

Clearly, governments across the United States are doing a lot to subsidize new immigration. It is well known by now that American cities and states—not to mention the federal government—offer “free” cash, housing, food, and more. Moreover, it is known that once the migrants get here, they can even hope for fast-tracked legal residency by claiming to be refugees. Then, once legal residency is established, it’s only a five year wait until the citizenship process can begin. At that point, one can apply for the full bevy of public benefits offered to citizens: endless access to Medicaid, food stamps, housing vouchers, and more. And, of course, these new citizens also get to vote.

Yet, most of the focus in the debate over immigration has been on the government doing too little to physically stop immigration. While Washington holds out a huge carrot to foreign nationals by handing out billions in social benefits, anti-immigration activists spend most of their time focusing on the “stick” of border control and deportation.  Occasionally, a politician might offer a half-hearted claim that “the border is not open.” The migrants, however, know what is really going on.

Unfortunately, a focus primarily on border control and deportations ignores the true root of the problem. So long as the “carrot” remains an enormous incentive, the “stick” will produce limited results.

The Carrot versus the Stick

Moreover, the anti-immigration lobby’s focus on border control and deportation is exactly how the pro-immigration activists like it, and their scheme is going according to plan. The scheme works like this: entice ever-increasing numbers of migrants to the border with ever-larger promises of social benefits. Then, once the migrants get to the border, portray any and all border control efforts as amounting to “kids in cages” or “whippings” by border patrol agents.

The full reality of the border situation is never covered in the media, of course. While the alleged “kids in cages”—or their current PR equivalent—are featured regularly in the officially approved organs of public communication, the exploited workers who pay for all this never seem to get a mention.  If the legacy media were to give a moment’s thought to who is paying for the endless “caravans” of future tax-eaters to the border, the media narrative would be different. The regime journalists would be running news stories about small business owners who are being forced to cough up ever larger sums in taxes—including, of course, the inflation tax—to pay for another 50,000 or 100,000 foreign nationals in any given month.

If the legacy media cared about context, they’d feature stories about plumbers and waitresses whose children are now in overcrowded classrooms filled by the children of migrants who have contributed nothing to the construction or maintenance of those schools. Meanwhile, of course, the longtime taxpayers are stuck with ever larger property taxes to pay for it all. The media would note how these working people have paid taxes in that jurisdiction for many years, just to be told they’d better pay more. Ordinary working people are handed an ever-growing tax bill by the graduate-schooled elites who, for whatever reason, have become obsessed with subsidizing immigration to the fullest extent they can get away with.

In other words, the current scheme is working perfectly: draw countless new migrants to the border with taxpayer money, and when any taxpayers object, call them fascists (or worse).

Moreover, so long as the pro-immigration lobby can keep the other side fixated on the “stick” rather than the “carrot,” the anti-immigration side ends up supporting policies the regime wants. For example, consider how the anti-immigration lobby favors police-state powers in the name of controlling immigration. These measures include “real ID,” “E-Verify,” and the execrable 100-mile deep “border zone” in which any American can be stopped and his “papers” demanded. All this is sold as a way of “preventing illegal immigration.” In practice, the regime is fine with all this since these measures end up greatly expanding federal surveillance and police power.

Subsidizing Border Crossings

Many anti-immigration activists like to focus on border controls and insist that theirs is the only feasible solution. “Good luck cutting welfare to migrants!” they say. They think they’re being clever, but one could just as easily ask them: “how are those mass deportations going for you? I’m sure they’ll begin any day now.” Or we might ask: “how’s that border wall coming? Congratulations, the state of Texas managed to close a tiny portion of the border near Eagle Pass. Good luck with closing the rest of it.”

Without addressing the lure of subsidized migration, “border control” will meet with limited success. After all, if it were easy to close the border—which runs 1,900 miles through mostly remote country—the United States would not be awash in illegal drugs imported from abroad. So long as there is a pile of easy cash waiting on the American side of the border, drug dealers and migrants will find a way to get to it.

Thus, the most sustainable and enforceable policy changes lie in cutting off access to taxpayer funded largesse for the foreign born—both legal and illegal—and in making citizenship more difficult to obtain. Given that legal immigrants collect taxpayer-funded social benefits even more than illegal aliens, there is no reason to draw the line simply at illegal aliens. So long as these benefits are available to any immigrants, the benefits will act as an incentive to migrants who can’t pay their own bills. Moreover, so long as citizenship remains a means of gaining access to welfare benefits, citizenship itself must be harder to obtain. The current requirement that legal residents wait five years to apply for citizenship is hardly a meaningful obstacle. This waiting period for citizenship ought to be closer to twenty years.

Ending the migration subsidies has an added benefit in that doing so does not violate property rights or empower the state. Rather, cutting off migrant welfare restricts state power while reducing the fiscal burden on the taxpayers. “Citizenship,” of course, is not a natural right or a property right. It’s an administrative status, which in the modern world mostly exists to grant access to the public purse.

Anti-Welfare, Not Anti-Immigrant

It is important to note that none of these changes are “anti-immigrant.” These policies merely oppose the immigrants that consume taxpayer-funded benefits. Indeed, current immigration policy is far too restrictive on the self-sufficient migrants, who are an economic boon.

Many companies and entrepreneurs, for example, encounter countless difficulties in hiring desirable immigrant workers because current policies have placed low ceilings on the number of visas issued to these workers. Moreover, many employers turn to immigrant laborers because the native-born population is too busy getting high to pass a drug test and show up for work. Yet, while hard-working business owners are legally barred from hiring the skilled the workers they need, unskilled workers pour across the border and receive cash payments—funded by those who actually work.

Migrants who don’t need social benefits—of whom there are many—would benefit from policies cutting immigrants off from taxpayer funds. After all, the productive migrants end up paying to subsidize social benefits for others.  Only immigrants on the dole would suffer from being cut off. Until that happens, don’t expect the flood of subsidized migration to ease any time soon.

About the Author

Ryan McMaken (@ryanmcmaken) is executive editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first. Ryan has a bachelor’s degree in economics and a master’s degree in public policy, finance, and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities and Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

1. After embroiling America in forever wars in Afghanistan, Iraq, Syria, Somalia, and other parts of the world, the Pentagon has succeeded in getting us closer to nuclear war since 1962, when it did the same in the run-up to the Cuban Missile Crisis.

2. America’s socialist system of immigration controls has brought nothing but death, destruction of liberty, perpetual crisis and chaos along the border, and an immigration police state to the borderlands.

3. Social Security has destroyed traditional family values and has inculcated a sense of helpless dependency on the government among seniors.

4. Medicare succeeded in destroying the finest healthcare system in history and is the root cause of America’s ongoing, perpetual healthcare crisis.

5. Governmental measures to combat Covid-19 threw countless American businesses into bankruptcy and fundamentally altered life in America.

6. The Federal Reserve has destroyed what was once the finest monetary system in history, one that was based on gold coins and silver coins, as required by the Constitution.

7. The war on drugs has brought nothing but death, violence, corruption, and destruction of civil liberties and privacy, not to mention the fact that it is the most racially bigoted government program since segregation.

8. The war on poverty has ended up putting more people into poverty, especially with its massive confiscation of income, savings, and productive capital and its inflationary debauchery.

9. The regulated economy, including minimum-wage laws and occupational-licensure laws, has harmed people at all levels of society, but especially the poor.

10. Governmental control of education has destroyed people’s natural love of learning and produced a nation of deferential citizens who swallow whatever propaganda the Pentagon, the CIA, and the NSA dole out.

11. The national-security establishment has inculcated a mindset of patriotic deference to its omnipotent power and wisdom, especially with respect to foreign affairs.

12. The “war on terrorism” racket has destroyed our rights, liberties, and privacy, in the name of keeping us “safe” from the terrorists that the federal government’s interventionist foreign policy produces.

13. Governmental embargoes, sanctions, and trade wars have not only engendered enmity abroad for Americans, they also have destroyed the economic liberty of the American people here at home, not to mention that they have also reduced our standard of living.

14. Americans have been inculcated with the false notion that welfare-state programs, enforced by the IRS and faceless welfare bureaucrats, show how compassionate and generous Americans are.

15. Americans have been inculcated with the false notion that the more people the Pentagon and the CIA kill abroad, the safer American are here at home.

16. The welfare state has produced out-of-control spending, debt, and monetary debauchery, which now threaten the nation with bankruptcy.

17. The welfare-warfare state has brought into existence an aberrant, dysfunctional society, one characterized by daily mass killings.

There are those who still believe that the welfare-warfare state way of life can be reformed and fixed. They are deluded. The welfare-warfare state is an inherently defective governmental system. It can never be fixed or reformed. It will continue to bring us death, impoverishment, moral decay, and the destruction of our rights, liberties, and privacy.

It is time for the American people to do some serious soul-searching, especially before the Pentagon succeeds in getting us into a nuclear war with Russia, China, or both. It is time to acknowledge that it was a horrific mistake to adopt the welfare-warfare state way of life. It is time to restore the good, sound founding principles of our nation and get America back on the right track — toward liberty, peace, prosperity, charity, and harmony with the people of the world.

Article cross-posted from The Future of Freedom Foundation.