A Separation of Thought

This article offered a succinct end to a growing direction of thought I have experienced in recent weeks. I have come to find myself separating government financial policy from private financial policy (with obvious reasoning) and here is why: incentives. Yes that simple: incentives. I still retain the Austrian assumption that people respond to incentives and have used this assumption to separate economic application.

In this I reference one of the most important parts of free market economics: consequences and liquidation. In the free economy of an Austrian, the economy will punish bad business by removing it from the market. With this assumption, in the long run, the market will balance and the aggregate of businesses will be financially sustainable. This is only possible if government (financial policy) problems of moral hazard are removed.

Businesses, however, need to be proactive and impose customer and employee incentives in order to compete. This type of behavior can be equated in modern economics with things like modeling and econometrics. Prudence can only be possible if information is valued. Businesses can and will learn from their mistakes.

The distinction I am creating here is one of incentives; as I stated earlier, there is a dynamic difference in the application of economic thought. In a simple statement I believe that, financially, businesses and individuals learn from their mistakes and governments do not. The core incentive I am using is one of ownership. In business or investment one's personal capital or private property is on the line. A government can use capital in the same fashion but as the Voluntaryists correctly state, they are using stolen capital. When one is handling something they own they understand its cost or value; perhaps because their cost is measured in labor or personal sentimental value. They will treat their capital with certain reverence. The government does not have the ability to understand the value of this. Nor do they need to.

Yes, I pay my taxes. I believe that right now some things are not offered by the market because the government must offer them (police). However, I believe that taking power away from the individual, even the power to fail, is crossing the line.

In closing, I believe that the Austrian criticism of government is very relevant and correct (most of the time). Nevertheless, other forms of economics should not be undervalued simply because they do not work for government application.