Never have so many people been so conscious of the subject of Economics and its influence on our lives, and never have there been so many Economists—with variant opinions—searching for solutions to the many economic problems our nation faces today. The high unemployment rate, the highest since World War II, makes much of America conscious of our economic distress because the unemployment problem affects not only the 9.8% unemployed, but also those who live off the income of the unemployed, all the businesses which received the income once spent by the currently unemployed, and all the levels of government which thrived on the taxes received from the unemployed. But all of the suggested solutions are so variant that to put them into action would result in a complete hodge-podge of contradictions, contradictions which would lead to worse disaster than that which we share today. The basic reason for such a conclusion is that the tools currently being used to fight our economic problems were forged in the 1920’s and were used to try to overcome a 1930’s depression which differed widely from the economic distress of today. In addition to this, economists and political leaders are searching for solutions from outside the system itself, looking for tools which are alien to our economic system rather than correcting the system. Our problems are within the economic system, and the only way to solve them is to permit the system to correct itself rather than to introduce tools which bring destruction to the economic system itself. The means of overcoming our current problems lie within the system and correction can be achieved only by permitting it to correct itself.

In order to avoid the resultant confusion which would occur if the advice of all our economic consultants were followed, it is necessary to study the basic characteristics and principles of our Free Enterprise System and determine just what has occurred to disrupt the progress so long made by our successful 200–year old economic system, to find what elements of the system have been deterred from operating in normal fashion, and to understand how the system can—if left alone—make the necessary corrections and bring us back to economic prosperity and progress once again.

Before even investigating the problems which need correction, it would surely be advisable and extremely wise to consider what the actions and attitudes of all involved parties should be. Today, it is the natural thing for the populace to blame government or business for our economic problems, and it is natural for the latter two parties to blame the consumer for the problems. But rather than point a finger of accusation, and hold up a hand of hope toward the other parties, it is vital and essential that we all understand that both the public and the private sector have contributed to the problems we have today, and we all need to prepare ourselves to contribute to the solutions of those distresses.

     

Some Observations

Some observations we must make are:

1. It is up to both the public and the private sector to accept responsibilities for our problems and to take actions and make sacrifices which are needed to help us overcome our difficulties. 2. It will take time to overcome problems which are so firmly rooted because the system itself has been so much interrupted in its operation by government involvement over the past 50 years in particular. 3. The economic complications we face today are not easy to overcome and the various governmental policies upon which we so much depend tend to act against each other, leaving us with one problem as we endeavor to solve another. A good example of this has been the matter of monetary control by the Federal Reserve System. Too much control leads to unemployment; not enough may lead to inflation. But you cannot conquer both problems at the same time by monetary control or any other of our governmental weapons. 4. We must be willing to surrender governmental services if we desire a limitation on the role by government in our economic system. At the same time, we must expect higher taxes if we wish to see government continue supplying services to us and regulating our economic lives. But “we cannot have our cake and eat it too.” 5. Politicians—who may or may not desire an improved economy—must be willing to put their political careers on the line if reduced government spending is necessary to improve our economic state, knowing that the people “back home” will surrender some governmental services out of necessity to have better economic conditions, our political leaders must be prepared to make sensible economic decisions regardless of the cost to them. 6. Businesses must be prepared—and willing to pay workers wages which reflect their productivity accomplishments and their contributions to the company for which they work, if government interference is to be avoided. 7. Businesses must develop better products and learn t o rely on themselves for accomplishment and success rather than turn to government for financial bailouts as some have done. Their alternative must be accepted as being to drop out of business if competition cannot be met.

8. All of us must recognize that every economic decision has a “cost.” We must be willing to accept the consequences of actions taken, recognize there is no perfect economic system and keep plugging along toward success in both the ups-and-downs of the business cycles.

As a nation, we are deeply imbedded in an economic system in which government involvement over the past 50 years had done much to destroy the initiative originally intended and needed to expand the free enterprise system and its basic essential concepts. As a people, we have become so dependent on government that we look for it to handle our recurring ailments. As workers, we have access to labor unions which—after receiving our dues—will draw up contracts guaranteeing us a certain wage whether we earn it or not. We are also conscious of the fact that government has guaranteed us a minimum wage in some industries, a wage which we shall receive whether we really earn it or not. Businesses look to the government to bail them out of their financial distresses and to protect them against interventions by more competitive businesses. And we prepare for government to care for us when we someday cannot—or will not—work any more. So, we have become dependent upon the government to keep us alive rather than rest our hopes in our own initiative and hard work. And, rather than lay up treasure for the future, we place our hopes in the preservation power of government’s social security and other retirement programs.

Suggestions

What can America do to overcome her present economic problems? Must she rely on government? Must she look for solutions in the systems of other nations? What changes are necessary in current practice to overcome her problems? What will it cost America to arrive successfully at the end of a road of economic success? What policies must be adhered to if we are to be successful in our attempt to improve our state? Let’s look at a few suggestions which are irrefutable as far as their virtue is concerned.

1. Competition is the classic backbone of our free enterprise, capitalistic, way of economic life. Though we have never been completely “laissez faire” (hands off), we have enjoyed 200 years of success with our modified system, one which has given us the highest standard of living in the world and has made us the most prosperous nation in the world. Competition brings out the best in products and performance. And we must turn back to the power of competition, one without government interference, to successfully return to prosperity. Rather than spending millions of dollars annually just to meet the high costs of government regulations, the entire nation would benefit if the money could be pumped back into productivity. The copper industry of Arizona, one which produced at one time over 60% of the nation’s copper but is now standing practically idle, is a good example of an industry which was forced to spend far more than it ever could afford just to meet the clean air standards laid down by government. Small businesses too must spend thousands of dollars per year just to satisfy Uncle Sam. The nation suffers because of the diversion of money from productivity to paper work, just to make the federal government, pressure groups, and individuals who have complaints happy. But all of these individuals fail to understand that there is no perfect economy and that there is a “cost” to everything, the cost in this case being the loss of all those goods and services which we could enjoy if the money were properly used, the jobs which could be filled if more products were being made, and the tendency toward inflation as the quantity of goods and services offered decreases in relation to money supply. Meanwhile, there is really only one chief function for government to perform in our free enterprise system, that being to guarantee the right of fair competition. It is not theirs to give protective custody to certain businesses over others, or to subsidize particular firms or industries at the expense of others and the taxpayers, or to place restrictions on businesses which only tend to deny them the right to compete fairly, or to place limitations on the number of people or firms who wish to compete in particular types of industries—as has been done in the peanut industry, for instance. Nor should our courts be so involved as to be entitled to demand that the business community be responsible to pay for safety insurance and charges brought by customers on their premises. The legitimate role of American business is to provide goods and services and compete fairly in doing so; the role of government is to protect competition and be sure the consumer receives what he has been guaranteed.

2. American workers must be prepared to work to get their income and must receive a fair and fitting wage based upon the productivity of the worker. The minimum wage law has been proven to be not only a hindrance to business which must pay a minimum amount to the worker whether it represents income really earned or not, but it is also a drawback for many who are willing to work even for less. Many young workers, in particular, who are willing to work for less than minimum, cannot be hired because the management cannot afford to pay them the minimum wage and get ahead. This has been a special problem for teen-age job seekers.

The laws which require what are called “fair hiring practices” demand the hiring of workers based on their sex or ethnic background regardless of worker inabilities to be productive must somehow be rewritten to include the requirements of ability, willingness to produce, and productive accomplishments. The hiring of workers who cannot, do not, or will not “earn” their incomes and prove profitable to the firm , costs not only to the business, but to the consumer as well, in higher prices, or inferior products, or both.

That one thing which makes for the best relationship between workers and management is workers who have the incentive to work. In recent years many workers who were once willing to work longer hours are encouraged not to do so because more pay simply means higher taxes to pay on their higher overtime earnings. If there is one thing government can do to help out in this matter, it is to pass laws which give workers incentive to work rather than not to work. Government taxing powers currently destroy such incentive. Fair taxes will give back that incentive. Of course, this policy also demands that government cut back its spending if taxes are to be reduced and incentive to work is to be restored. The whole system would benefit from these actions.

3. It has been quite noticeable in recent years that the mandatory retirement laws have needed some changes and that changes have been made to some degree. But the elimination of the mandatory aspect of these laws would be the best action government could take. Many who are still capable, able and willing to work are forced to withdraw from America’s work force, simply because they reach a given chronological age. Many people do not want to stop working and many who grew up with principles which demand “work for your income” would desire to continue. In addition, years of developed talents and skills are wasted and laid aside because of age. Why not just throw away the mandatory provision and let the willing and productively skilled worker work as long as he wishes, and as long as he can be productively beneficial to society? That is what it would take to bring back productivity of our labor market to a respectable level again. Why are we so non-productive? Perhaps a large number of our most skilled workers take their capabilities with them when they are mandated to give up working-unwillingly.

4. Much is currently being said about the tremendous impact which high interest rates are having on America’s economy. In a free enterprise system such as we enjoy, competition in every field is the one element which keeps the system going and being successful. Part of that competition is that to borrow money which individuals may wish to invest. It is essential that private investors be encouraged to make their money available to private industry wishing to use it for business growth. There are a number of actions which could be taken to accomplish this. People would be encouraged to put their money up for investment if they were given the right to tax-free interest and dividend income. It is not enough just–to give small percentage tax breaks, but it would do the job right to make such income completely tax-free. It is a well known fact that people have for years been happy to spend money as fast as it was received. Why not, “considering our current economic problems?” As a result, investment income has not been available as needed and government has bailed out the business or business has failed. If the government were to completely deregulate the interest-rate system and permit banks to offer whatever they wish, to use money and to pay for its use, then people would be more willing to make their money available for business use. Any program which destroys saving-and-lending incentives, including the newly-proposed and ridiculous “flat tax rate” programs, must be abolished if individual investors are to be willing to put up needed investment incomes. Then it will be found that interest rates which are dependent on the market will fluctuate with supply and demand and will not be “too high” or “too low.” 5. Another step government could take to encourage our business world would be to give business a freer hand to compete. Let businesses merge or consolidate as they wish; let the market itself make such decisions. The role of government should be only that of ensuring proper and fair procedures. If new firms wish to enter into competition with other businesses in any field—be it peanuts, dairying, etc.—let them do so. Competition will bring out the best products and demand the best performances from business in today’s highly-competitive economic world. The function of government should be to set tariff and taxing policies which will protect and encourage American business first and help the American worker. 6. While the labor unions have their proper and fitting place in our work-a-day world, right-to-work laws should be given prior consideration in every state. The first consideration must be that every American has the right to make a living. In addition, provisions in every union contract must include the requirement that workers be paid on the basis oftheir productivity and not just according to the contract demand. A guaranteed wage based only on union demands does not bring out the highest quality performance in workers, but a wage dependent on productivity will. So, why not simply include a requirement for workers, quality productivity in order to receive the union-demanded income?

America’s problems can be solved by returning to the free enterprise system in which competition is the principal force in operation, bringing better products to more people, making the most money available to the most productive people, and encouraging businesses to sustain themselves while doing a better job for others. The solutions to our problems are to be found in the system itself and not in artificial actions of other groups. To be sure, an uninterrupted free economic system—as history has shown us—can solve its own problems, whether they be cyclical problems, money problems or production problems. No, we have no perfect system and we always have and always will have problems.

But we have a fine system, one which has had 200 years of success, and that “that system serves best which is interrupted the least” is surely a truth to remember. It must be agreed that things change with time and our nation is changing all the time. But our system of economics will—and has changed of its own accord to meet the changing demands of a changing society. Someone once said, “that government is best which governs least” and it is surely a truth which must be recognized as it relates to the operation of our capitalist economy.

Professor James Shook is an economist and teacher living in Phoenix, Arizona.