Opinion

The Lady Gaga economy

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Wayne Crews
VP for Policy, Competitive Enterprise Institute
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      Wayne Crews

      Wayne Crews is vice president for policy and director of technology studies at the Competitive Enterprise Institute, a former scholar at the Cato Institute and former Senate and FDA staffer. He can do a <A HREF="http://www.youtube.com/watch?v=xqDg7_f3Ka4">handstand on a skateboard</A> and loves <A HREF="http://www.youtube.com/watch?v=68UkojnnVhU">motorcycles</A>.

      Wayne's work explores the impact of government regulation of free enterprise: Areas of interest include antitrust and competition policy, safety and environmental issues, and information age concerns like privacy, online security, broadband policy, and intellectual property. Wayne is the author of the yearly report, <A HREF="http://cei.org/cei_files/fm/active/0/10KC_2008_FINAL_WEB.pdf">Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State</A>, and he co-authored the recent reports <A HREF="http://cei.org/pdf/5705.pdf">This Liberal Congress Went to Market? a Bipartisan Policy Agenda for the 110th Congress</A> and <A HREF="http://cei.org/pdf/4911.pdf">Communications without Commissions: A National Plan for Reforming Telecom Regulation</A>. Prior to the assorted government bailouts now taking place, he wrote the report <A HREF="http://cei.org/pdf/6425.pdf">Still Stimulating Like It’s 1999: Time to Rethink Bipartisan Collusion on Economic Stimulus Packages</A>.

      Wayne is co-editor of the books <A HREF="http://www.catostore.org/index.asp?fa=ProductDetails&method=&pid=1441156">Who Rules the Net: Internet Governance and Jurisdiction</A> (2003) and <A HREF="http://www.catostore.org/index.asp?fa=ProductDetails&pid=1441127">Copy Fights: The Future of Intellectual Property In the Information Age</A> (2002). He is co-author of <A HREF="http://www.catostore.org/index.asp?fa=ProductDetails&method=cats&scid=30&pid=1441099">What’s Yours Is Mine: Open Access and the Rise of Infrastructure Socialism</A> (2003), and a contributing author to others. He has published in the Wall Street Journal, Chicago Tribune, Forbes, Communications Lawyer, the International Herald Tribune and others. He has made various TV appearances on Fox, CNN, ABC, CNBC and the Lehrer NewsHour, and his regulatory reform ideas have been featured prominently in such publications as the Washington Post, Forbes and Investor’s Business Daily. He is frequently invited to speak, and has testified before congressional committees on various issues.

      Earlier Wayne was a legislative aide in the United States Senate to Sen. Phil Gramm, covering regulatory and welfare reform issues. He was an Economist and Policy Analyst at Citizens for a Sound Economy Foundation, and has worked as an economist at the U.S. Food and Drug Administration and as a Research Assistant at the Center for the Study of Public Choice at George Mason University. He holds an M.B.A. from William and Mary and a B.S. from Lander College in Greenwood, South Carolina. He was a candidate for state senate as a libertarian while at Lander.

      Here are links to Wayne’s CEI <A HREF="http://cei.org/articles_for_author/41">articles</A>, <A HREF="http://cei.org/studies_for_author/41">studies</A> and media citations.

The Lady Gaga phenomenon conquered the Today Show this morning, with what must have been the largest crowd they’ve had in their summer concert series.

In the convoluted way things occur to me, I thought of the contrast between our limping general economy, and her thriving fame-monster micro-economy.

In macroeconomics we’re taught that recessions and depressions occur because of overproduction and a general glut of things that no one can buy.

She reminds us (well, probably only me) that (as “Say’s Law” in economics holds) there are no general gluts; instead there is only relative overproduction in particular sectors of the economy. Yet stimulus proposals like those of today are premised on the existence of general gluts.

Say’s Law in economics is the proposition that supply creates its own demand. A relative overproduction of certain goods may occur, implying that too many scarce inputs have gone into the production of unwanted items relative to inputs for desired goods. But general overproduction — to which demand stimulus would allegedly provide relief — is not the core economic problem.

Right now, there’s lots of demand for Lady Gaga, say; but maybe too many houses, cars for sale, and hokey Internet startups.

Economic recovery requires massive spending cuts, deregulation, privatization, tax-cutting, avoidance of monetary inflation, and elimination of government-granted monopolies and favors.  But, more importantly, economic recovery requires allowing prices and wages to adjust to market clearing levels. Politicians don’t allow that, so downturn is deliberate policy in a sense.  Politicians instead stimulate demand in random, whim-driven ways that create new distortions that harm us later (when they’re out of office, or their earlier misdeeds are forgotten or forgiven).

Such policy prescriptions foster political ends that have little to do with actual economic recovery. Recession is already inevitable if government does not perform its core function of preventing the interest group manipulation that distorts smooth economic enterprise. It’s doubly so when politicians deliberately distort the economy’s workings.

Beyond performing its “classical” functions of maintaining order and thwarting contrived scarcity, government can only serve as a transfer mechanism.  Inherently limited in what it can contribute to the real economy, it can certainly subtract a lot.

One immediate form of stimulus is to cut marginal tax rates to facilitate economic activity via increased supply. With returns to enterprise increasing and workers and investors certain that present efforts will be penalized less, the economy will begin expanding owing to reduced effective tariffs on the creation of supply. Similarly, a sustained program of reducing governmental regulatory interventions in the economy, and invigorating institutions to keep such interventions minimal, point the way toward prosperity and wealth creation, and to an economy that can finally eschew damaging appeals to political stimulus. Rather than spending stimulus, we desperately need a campaign to “Liberate to Stimulate.”

For more detail on all this, see Still Stimulating Like It’s 1999.  Meantime, here’s a bumper sticker version:  Good Government; Good Government.  Sit.  Stay.

Wayne Crews is Vice President for Policy at the Competitive Enterprise Institute in Washington, D.C., and the author of the 2010 edition of “Ten Thousand Commandments.”