Friday, January 20, 2006

The finest government other people's money will buy

Remember Manuel Obrador, the Mexican ultra-leftist? I first talked about him here, as part of my exposé of Paul Krugman as an enemy of the free market. I discussed him one other time, detailing his economic policies that, if enacted, would wreck Mexico. Mexico desperately needs the income from foreign trade, and foreign investors' money.

Apparently he was never charged with contempt of court, leaving him clear to run for Mexico's presidency. Obrador is currently the top candidates, which this ABC News article describes as "focused" on the topic of poverty. Obrador is essentially promising the world to the poor, which unfortunately just might get him elected. More unfortunately, the other candidates are following suit. How, though, can they top a candidate who declares, "I'm going to respect everyone. But the poor and forgotten of Mexico will get preferential treatment."

How can they compete with Obrador's reputation? As mayor of Mexico City, he's given cash handouts to the poor -- courtesy of taxpayers, of course. Instead of those at the bottom attempting to work (which means expanding the economy), they rely on government playing Robin Hood. I've explained the dynamics of "trickle-down" economics, specifically how it's impossible, practically speaking, for "the rich" to keep their money to themselves. They must either save or spend it, and because "the rich" work very little for each other, their money goes toward goods and services that everyone else produces. If Mexico weren't rife with corruption, if its tax system weren't so oppressive of "the rich," those with wealth wouldn't try to hide it (which includes sending it out of the country). Mexico's "rich" would have more money to pay home builders, auto workers, jewelers, waiters, landscapers, even maids.

Those are not the most glamorous jobs, of course, but at least they are jobs. When government taxes and spends, as Bastiat reminds us, that is a transfer of spending at best. In this case, it's less money "the rich" can spend that sustains jobs for everyone else. But then we run into the problem of incentive: higher tax rates discourage "the rich" from creating as much new wealth, so the resulting economy is not as large as it could be.

I'm not saying the poor of Mexico don't want to work. I will say that many of them are misguided in their belief about the proper role of government, but they really cannot be blamed. For decades they've been continually victimized by various levels of corrupt government, and worse than we have in the United States, they've developed a false notion that a new government, someday, will be their "savior" and make society "equal." As I pointed out, it's government policies that serve to keep them poor, instead of allowing them the opportunity to work. Obrador has promised to raise wages, but at what cost? Government-coerced minimum wages benefit some but throw others out of work, besides raising prices for everyone else (which is a true squeeze on the middle class, as it finds its purchasing power reduced).

That people leave Metlatonoc (and other similarly poor areas) to find jobs in El Norte reflects a harsh reality of life: when you cannot earn a living, and you have better opportunities elsewhere, it's time to move. My fear is that if Obrador is elected and redistributes wealth on a nationwide scale, among his attempts will be propping up these poverty-stricken areas, which, I hate to say, should be allowed to die (just like a bad business should be allowed to fail). It's truly sad when people leave their home areas, but if the local economy is not viable (let alone prosperous) somewhere, then government should leave the people alone so they can pursue opportunities elsewhere.

There are two ways that Mexico's levels of government should encourage them. First, the governments must stop trying to alleviate the poverty, because that only perpetuates poor economies that are too costly to improve. It is far better to let the people move, on their own, to superior economies elsewhere. Moreover, these government attempts to alleviate poverty require taking wealth away from other areas, especially those with thriving economies, thus depriving them of their maximum potential. Instead of a dollar in a prospering city attracting a worker from a remote village, government taxes the dollar to give to a villager. Such effort appears noble, but remember to account for incentive: what was a dollar will shrink as the taxed become less willing to work for the state.

Second, Mexico desperately needs reform. Not land reform, not redistribution of wealth, but a true implementation of the rule of law. It is a great pity that none of the top candidates are promising the real rule of law. Instead, they want to gain the people's "confidence," promising to move Mexico "forward," and lots of other empty rhetoric. They're trying to outdo each other by pledging most everything under the sun to the most voters: the finest government other people's money can buy.


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