Sunday, August 2, 2009

De-capitalizing America

The reason rich countries are rich is that they've managed to accumulate more capital than poor countries. All rich countries have relatively free market economies because that is by far the best way to accumulate capital. Governments in these countries tend to destroy less capital than governments of poor countries.

However, formerly rich countries can destroy enough capital to impoverish themselves. Obvious examples are Zimbabwe, which was among the richest countries in Africa until Marxist Robert Mugabe took over, and, on a longer time scale, Argentina, which was one of the richest countries in the world in 1900, before a succession of populist rulers depleted its capital.

The US government under Obama has recently engaged in an orgy of capital destruction using borrowed capital to fund myriad wasteful liberal causes and special interest groups, and by propping up failing businesses. The latest, and perhaps clearest example is the so-called "Cash for Clunkers" program.

Here the government is paying dealers to destroy cars traded in for new ones which get a whopping 4 miles per gallon better gas mileage. The market value of the used cars is effectively the residual capital value of those cars, so destroying them wipes out that much capital, in addition to raising the cost of used cars for poor people.

Programs like these are precisely how formerly rich countries become poor, as they de-capitalize their economies. Examples like Zimbabwe and Argentina show what happens as this process continues. The governments of both countries have ignored basic economic science to "help the poor", with the result that the poor are now poorer than ever.

The liberal agenda results in the mindless destruction of vast amounts of American capital, with the result that the American poor will be poorer than they would have been. If you doubt that, ask yourself if you would like to live in Zimbabwe.

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