While Economics may not be an exact science, and while economic laws may be more correctly identified as economic tendencies, it is true that, if not intruded upon by government or special interest groups, they will operate to bring about their certain results. That is why, when demand for a given product changes, we must always insert the little phrase “other things staying the same” if we are to identify the effect of the change on price. Permitted to operate alone, economic laws always speak the truth. And so it has been in recent years that the government has been advising us to take specific actions to control inflation, for example. “Save,” they say, “and business will have more money available to use for capital expenditure and business expansion.” In addition, not spending will affect the money supply favorably and inflation will be checked. And it works, much to the surprise of the unknowledgeable and the doubters. As a result of our saving, our inflation rate has done a complete turnabout and dropped from a peak around 12 1/2 % to about 5 1/2 % over the past few months. All of which proves that our economic laws do function, and properly so, if they are allowed to function without interruption.

However, one cannot help but observe the constant frustrative actions being taken by the government, actio ns which continually prove to be counter to our planned programs for improvement of the economy. Our political leaders constantly advise us to take specific actions; then they make other rulings which destroy the ·progress already made by the advised actions people have already taken. Let us observe a few examples of destructive, negative actions taken by our frustrated politicians, sometimes based upon the frustrated thinking of their economic advisers.

1. On April 1, 1983, a new 5¢ federal tax was placed on every gallon of gas purchased across the country. None of us can ever forget the anger which arose within us when the OPEC nations took over the petroleum markets across the world. Gasoline users will surely never forget the lines of cars which piled up at gas stations across the country as they faced a purported gas shortage—as it was falsely labeled. But what “advice” was given by the government at that time? Remember?

1. “Car pool.” “Save gas.” “Control your travel.” “Get gasoline-efficient cars.” Americans did as they were advised, and, of course, it worked. It worked so well that eventually the price of gas all across the country dropped to lower levels. That economic law of demand/supply works every time, if not intruded upon. Now that we have succeeded in reaching our goal; now that we have brought gas prices down, the government has taken a new action which has simply destroyed our purpose and accomplishment. By dictatorial action, the government has driven the price of gas back up again. You see, lower gas prices and lower consumption have lowered the tax monies available to government. So they will try to recoup their incomes by simply adding another tax. What is t he reward for our willingness to participate in the savings program? It is simply that we have wound up paying above the ‘normal market price. “Now,” we say, “what was the use of taking their advised actions? The penalty is simply higher taxes.” The good done is simply undone by the counteractions of government.

   

2. “Save money, quit spending, and beat inflation.” That was the cry a few years ago when our inflation rate was running around 15 1/2%. Everyone must be aware of the fact that money multiplies itself as it is spent and respent. The multiplier principle is a basic economic law which always proves to function well, though not always advantageously. So people did save; money came under control; and the amount of money in circulation decreased to the point desired. Down came the Consumer Price Index figure, and America found that the economic principle involved did work. But something else occurred; the tax base had declined. In order to compensate for the decline, as well as to meet the government’s economic needs for financing more projects, now the government is so desirous of receiving more money that it is calling for quicker tax payments from our savings-interest money. Sure enough, in July of 1983 there will be a more constant flow of our money from our savings accounts and other types of investment accounts into the pockets of government. Now we must ask why we should even consider continuing our savings policies. The penalty for saving will be the loss of money which we could use for reinvestment and personal profit. Once again it becomes obvious that the government is simply undoing all o f the good that has been done by saving, discouraging people from saving rather than encouraging them to save their incomes. It just may be that consumers will again return to spending their money rather than saving it and losing 10% of additional interest-earning incomes during the year and being denied opportunity to make more through thrift. The result? Possibly inflation once again.

3. The newest changes in our present Social Security laws prescribe that there will shortly be an increase in the Social Security tax rate in order to try to rescue a defunct system which guarantees more insecurity than it does security. It also will require that Federal employees and employees of non-profit-making organizations become part of the system. All of this action is being taken at the same time that citizens are being encouraged to prepare for their retirement days by investing in much more financially advantageous private IRA’s and other private pension plans. Somehow there is a conflict developing as these approaches face each other. Even the government is aware of the fact that the IRA program is the one which will bring the best results and that people should put their hopes and money into such a program. So why should federal employees and others be made to join the losing system rather than the winning one? And why should the working person be required to invest money –or any at all—in the Social Security System which is of the losing and less profitable variety? Why not give people the opportunity to invest all of their retirement monies in the more dependable private pension programs rather than in the current, less dependable government system? It is an economic fact that monies invested in the private sector will bring more profit. Why not use it and encourage people to follow those programs to the fullest? Somehow, that makes economic sense. Why not just phase out the current losing system and turn to the better? 4. Americans everywhere know what it means when recession and unemployment are recognized as the chief features of our nation’s economy. Our unemployment rate currently stands at around 10.5%; unemployment means less money for people; unemployment means a lower tax base for government; unemployment means a heavier tax burden for those who are fortunate enough to be able to continue to stay on the job; and unemployment means that the supply/demand principle, let alone to function, brings about lower wages for labor. The working man carries the heaviest burdens during such difficult times and is requested to make fewer wage and benefit demands. And that makes economic sense, although contrary actions are more common. But what about Congressmen? Rather than lighten the load for the worker, they request, and vote for themselves, increases in their salaries. Rather than assist the over-burdened taxpayer, the politicians increase the burden by taking away more tax money and placing it in their pockets. “Not for the working man,” say the politicians, “but for us it is fine.” Again, their actions are contrary to the economic principles. Rather than joining the fight, taking the same beatings the average American is taking, and facing the same economic difficulties as the working person must face, the political leaders pump their own higher incomes out of a suffering economy. What about that basic economic law of supply/demand? Doesn’t it tell us that we all must face economic setback? Surely, it does. Why do the politicians then take counter actions to benefit themselves and harm the economy further? It makes no economic sense. 5. In the area of local government and municipal economics there have also been contradictory developments. Just a couple of years ago there was a loud cry from the city government in Phoenix, Arizona asking citizens to control their use of water. After all, water is a relatively scarce resource in this area of the nation. In addition, saving on water usage would also mean smaller water bills. As a result, people began to control their water consumption , bills declined, and everyone was contented. That is, everyone except the city government. You see, their money supply dwindled and the taxes collected diminished because the tax base declined with less water usage. That makes economic sense, of course. A decrease in demand, supply staying the same, means less income from water for the supplier. Counter action? You guessed it. Now the city is raising water rates in order to get more money. And the tax will increase because the base will go higher. Again, the goal was achieved and now there will be a penalty for achievement. 6. “Natural monopolies” is the name given to the utility companies across the land: they are natural monopolies because it is advantageous to all that competition be limited in the utility business. Accordingly utility companies become legal monopolies, controlled by the state and local governments through their various commissions. Because of the high costs of producing utility services people are constantly advised to make wise use of their utilities services, to keep furnaces properly adjusted and not to waste natural gas and electricity. There is a basic economic of supply/demand which assures us that lower demand, other things staying the same, will bring lower utility bills. People have tried to conserve their usage of utilities and charges have declined. You guessed it again. Bills declined until the suppliers found that they were not receiving enough income; governments found themselves short of tax incomes. What then did they do? Of course, they visit the various commissions throughout the country, and, in the state involved, the utility companies are granted their rate increases constantly. Why are so many people suspicious of collusion between utility companies and the various rate–controlling groups? Because there seems to be a strong tendency to grant the rate increase whenever it is requested. Of course, there are times when rate increases are denied, but it seems easier to convince the governing bodies that rate increases are necessary than to convince them that rate increases are not fair to the users. At any rate, the law of supply/demand, shows us that when the demand drops, supply staying the same, the rates will drop. And they do; unless, of course, counter-action is taken by the governing bodies. What has been the reward for the lowering of consumption of utilities by the people? Higher Rates: 7. America is a land rich in natural resources, so rich that it has assumed leadership in meeting the needs of its population and reached out to help meet the needs of the world’s population as well. When the cry “world hunger” is shouted around the world, it is America which hears and responds. America also has a farm population which has become the most productive of farm groups around the world, due not only to their abilities but also to America’s ingenious development of the most efficient machinery, and the most effective of pesticides and fertilizers. Now the American farmer is capable of producing not only the food supply of America but also much of that of the rest of the world. But, as we consume the food supplies which have been given us, we also face continued reports of hungry people around the world. The answer to the problem is sharing of what we have. We can meet the problem by continuing to be productive. Why, then, has the government offered a new cash receipt and crop-grant program to American farmers which will reward them for not producing? Of course, we know it is to make more money available to the farmer and keep the prices of his products on the market high. But the basic economic of supply/demand indicates that as the supply of a good increases, demand staying the same, the prices should drop. But is the farm subsidy program such as this the answer? Hardly. It appears to be much more economically sound to pay the farmer to produce more by letting foreign demand enter into the market and force the prices upward. Increased demand around the world will automatically raise the prices of food products, supply staying the same. And increasing supply and demand will grant some degree of stability to the prices he receives. Why not pay to be productive rather than encourage unproductivity? Or, better yet, why not let the farmer work within the market system itself and be affected by the forces of supply/demand just like everyone else? 8. “The more you work. the more you earn” is a basic tenet of America’s free enterprise system; it has proved to be a principle practiced in America’s history. It is so reliable that the modern nation of mainland China has recently adopted it and found that it provides incentive enough to bring benefits to every segment of China’s society. Certainly, America has known that this principle is vital to the existence of our society. It has given America an ability to develop a technology which has made her the envy of the world. But why have we introduced such intrusions as the minimum wage law into our free enterprise system? Why can labor unions guarantee membership minimum wages without a demand for productivity? Why are wages, overall, not based on the principle of “the more you work and produce, the more you earn”? Such guarantees mean the undoing of all the benefits received as a result of putting forth our best efforts to be productive. It is evident that the minimum wage law is the chief cause of the high degree of unemployment among the teenagers today. But the law of supply/demand, as it relates to wages, will operate effectively and handle the needs of all, if left alone to operate without the intrusions of the government or the various pressure groups such as the labor unions.

And so our modern history has seen more and more of outside forces undoing the good which has resulted when a wise economic policy was followed by society. When proper economic advice is given and the economic laws of the free enterprise system are permitted to operate, the entire society benefits. History has shown some tremendous successes and gains in overcoming our economic problems. But one of the most difficult things to understand is how the government can spend so much time planning and instituting programs and actions which simply undo all the benefits of proper economic behavior.

Note: James Shook is an economist and teacher at Phoenix, Arizona.