President Obama will visit the Alcoa plant in Riverdale (IA) and speak on manufacturing and job creation. While a visit to the Quad Cities area by any President is always welcome, the visit will most likely include an plethora of platitudes rooted in economic fallacies.
While columnists, talking heads, and pundits are focused 24/7 on the partisan finger pointing, cheerleading, and demagogy, little emphasis is placed on the basic economic theory underlying the economic policies of the President.
Our country desperately needs a strong manufacturing base. A manufacturing base is essential to a prosperous society, wealth accumulation, and rising standard of living.
But what economic policies will ensure this desired reality? Manufacturing requires:
- contract and property rights
- limited barriers to entry
- savings and capital accumulation
- sound money
Preserving the rights of property owners was the original premise for creating government when this country was settled and later founded. Today, one is treated with disdain and scorn when mentioning the common law of “property rights”. If the government continues to penalize, tax, and regulate those who acquires property through voluntary exchange and original appropriation, what is the incentive to work let alone start a manufacturing plant?
The fewer barriers to entry the better when it comes to manufacturing. Whether it be limited regulations, flexible work rules, or a reasonable legal code, all of these factors dictate the environment in which companies can operate and compete with each other.
Savings and capital accumulation is an absolute necessity to growing an economy as well as a manufacturing base. ”The greater the capital, the greater the ability to do all of these things; the less the capital, the less the ability to do any of these things”, says George Reisman. “Capital is accumulated on a foundation of saving. Saving is the act of abstaining from consuming funds that have been earned in the sale of goods or services.”
Building up manufacturing cannot occur without a stockpile of both savings and capital. Government cannot manifest either without draining resources from the economy in the present or future by taxing, borrowing, or devaluing the currency through printing money. Genuine capital formation is only sustainable through the private sector.
Since 1971, the world has witnessed the effects of a global, fiat-paper monetary system. In such a system, the money inflation always leads to price inflation, which always pushes the price of capital goods up before spreading to consumer goods. Such effects negatively affect the economic calculation of manufacturers while also pushing up the price of goods for consumers.
Given these facts, manufacturing cannot be sustained without a sound monetary medium of exchange, store of value, and unit of account. A cheap currency is destructive rather than helpful to manufacturing in the long run.
We need manufacturing in this country for many reasons. This goal is not in dispute. Rather, the means of achieving this goal are without question subject to sound economic reasoning. Only time will tell how far our country will travel down the road of economic misery while those in power ignore what good economic science can tell us.