Misallocation of Capital, Part 3

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by Gunnery Sergeant John McClain, USMC Retired, ©2013, blogging at Gulf1

(Mar. 7, 2013) —[Editor's Note:  Parts 1 and 2 of Sgt. McClain's series can be found here and here, respectively.]

In the first part, I showed the actual producer with the best data is the best allocator of capital produced as profit. In part (2), I showed the proper use for the purpose of founding government, why government is least qualified to properly allocate capital, distance from the data, and most likely to err.  In this part, I am going to demonstrate how we end up with the least qualified making the most important decisions on capital.

In recap, when a person chooses work, the smith for example, He alone can best plan how much coal he must order, to work.  It is all the raw material, the coal, the iron stock, the contract with the carpenter, as to iron fittings for wagons, and his own expectations of wagon building.  Having someone external to the process makes no sense except if the smith and the carpenter are both talented fools.  Yes, it is nice having a wife who is a bookkeeper, but she still doesn’t know the up-to-the-moment data unless she’s briefed.

Our foundation for failure in “government allocation of capital” is the idea election or appointment of officials is of “experts in vast panoplies of fields” and their intervention in the normal business cycle is rational. Perhaps the best example is one of its most egregious forms, colonists were not allowed to take up trades which would compete with British Tradesmen, so it was illegal in the colonies to smelt iron, all iron must be imported, and the colonies were not authorized their own mining and production.  The cost of transport across the ocean was born by the consumer of products, and at the same time, there was a caused shortage of iron products, raising the price.

The Second order of government misallocation is caused by politically driven planning, with a beneficiary at stake.  Solyndra comes to mind, along with the other dozens of “green energy” government subsidized industries which have taken huge subsidies, produced nothing while going bankrupt, with the money stolen.  Two errors are made in this; first, allowing technical decisions be made by some bureaucrat, and secondly, believing such is done without the intent to allow the bureaucrat to profit enormously.

“Green energy” in government hands is a pet peeve of mine primarily because it is billed as a new idea, driven by moral and concerned “leaders”.  The fact is, getting more from less work has driven man’s inventions from the dawn of “work”, and only those who design such things are qualified to capitalize a likely improvement. Nepotism is the driving force behind this aspect, and we’ve seen the worst in my lifetime, only under this current administration.

It is the presumption Citizens building and designing, visionaries for the future, care only about profit, and will burn the world down, if profitable, which is why we put government in charge.  Doing so must presume government is perfect, honest, and knows everything.  These issues are of paramount importance, but the proper venue is found using logic, not emotion.

We must recognize those in government are less liable to be honest than any other citizen, and more likely to have a personal profit cause to exploit, to face reality.  This has been the downfall of our innumerable “oversight “administrations” such as EPA, BATF, Justice Department and all the government departments which have failed to meet our needs.

The need for “communal oversight” is imperative, but we must choose a venue as “a rational society” which we can both select those best suited for such work, rationally, while having the means and understanding to change this “committee” to meet ever-changing advances in technology.  It must be predicated on utility and value, and we must ensure science drives findings, and realize it must pull from active fields, and rotate the members constantly, that they remain scientists, and not become bureaucrats. They must have full intent in their ongoing education, and find it an imposition to be out of their forte.

We must keep capital allocation choice in the hands of “the people” to the highest degree possible, with only that which only government must do, allowed in its exacting establishment.  This can only be accomplished by a moral and religious people.  We must also choose to be “such a people.”

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