Does Government Run the Economy?

President Bush received some criticism last week after holding an economic forum in Waco.  The forum was intended to bring business and civic leaders together with the President to discuss America’s economic problems, but the press dismissed the whole affair as nothing more than a photo-op for the President with a hand-picked friendly audience. The message from the pundits was clear: the President is all talk, but we need action by the government to restore prosperity.

So what exactly would critics have the President do to "fix" the economy? Presumably they believe he should propose some new laws and regulations, thereby protecting us from greedy CEOs and the risks of the free market. The belief is that government brings about economic prosperity, and that the current economic malaise represents a failure by government to act. In other words, the government somehow caused the economy to sour through inattention and neglect.

Notice that while our economic problems are always blamed on corporations, greed, capitalism, or a mysterious "business cycle," the solutions are always presumed to come from government. When the economy falters, the public clamors for the government to do something- and when the economy does well, politicians take credit for the good times caused by their sound economic policies. This reflects the pervasive attitude in America that government should "run" the economy.

But should government run the economy in a free society? Remember, there is a simple description for government control of the economy: socialism. America, however, was founded as a capitalist country. The Constitution grants Congress exceedingly limited regulatory and tax powers, because the founders were tired of having their business affairs managed by the Crown. So they created a strictly limited government, which allowed freedom and capitalism to flourish.

In a capitalist economy, the government acts only as a referee by protecting property rights, enforcing contracts, and prohibiting force and fraud.  Because our modern federal government has strayed so far from its limited constitutional powers, it controls the economy far more than the founders intended. As a result, our economy is becoming more and more socialist. Federal taxes, regulations, welfare, subsidies, wage controls, and price controls, along with Fed manipulation of interest rates and the money supply, all represent socialist government intervention in the economy. No matter what the Democrats or Republicans want to call it, socialism is socialism. We should have the honesty to identify exactly what is being advocated when some call for even more government control of the economy.

Centralized economic planning is disastrous for every society that employs it. From the former Soviet Union to present day China, planned economies have produced little but hardship and bloodshed. The reason for this is simple human nature, because individuals have little incentive to produce when the fruits of their labors are stripped from them. Both history and economic theory demonstrate conclusively that government-run economies lower the standard of living for everyone except government elites charged with the "planning." By contrast, capitalism raises the standard of living for everyone in a society. More importantly, free market capitalism is the only moral economic system because it is the only free economic system. Socialism, communism, and authoritarianism- variants on the same collectivist theme- all use immoral government force to control the economic lives of individuals.

If we ever hope to enjoy real and lasting prosperity in this country, we must redefine our view of the proper role of government. It is tempting during difficult times to demand that the government "do something," but a free society is defined by what its government does not do.