WASHINGTON'S BUSINESS CULTURE

In lieu of the budget debate and abject failure of the Federal Government to slow the rate of government growth, cut spending, and devise a viable solution, Standard and Poor’s has downgraded the Federal Government’s debt from AAA to AA+. The Democrats began tossing around blame like beads at Mardi Gras, with profuse attacks directed at the tea party movement. In reality, the blame stems from Washington and the politicians’ desires to finance their reelection campaigns.

There is something in economics that is called the law of unintended consequences. This law is mainly directed at government action but can also be applied to actions of people. Essentially, the law of unintended consequences is where a law or action happens and unforeseen results occur. Examples of this are abound. The income tax, for example, was initially applied only to the super rich, the top 1% earners in the country. Now, everyone pays income taxes.

There is another aspect of the law of unintended consequences that rarely, if ever, is reported. That is the effect of government policies on the dynamics between politicians and lobbyists. Whenever the government enacts a subsidy to prop one industry (i.e. ethanol), or enact taxes to discourage other industries or actions (i.e. tobacco taxes) produces additional lobbyists to encourage or dissuade these policies. The same applies to government spending. To illustrate, the Federal Government enacts a subsidy program to prop up and make competitive the ethanol industry. This policy will purposefully be harmful to oil companies. The ethanol industry will funnel funds to politicians’ campaigns who support this policy. Equally so, the oil companies will do the same to those politicians who oppose this policy. This happens for every policy Washington enacts that interferes with free market principles. This amounts to a politician receiving thousands to millions of dollars on the basis of what policies they support.

In regards to the law of unintended consequences, there exists almost a market where there is a supply and demand for government policy, and the price is campaign contributions. Consequently, there is not much of an incentive to produce true reforms in government policy. There exists too much of an incentive and too much money for Washington to continue its ways. In reality, the incentive exists for continued and additional government intrusion in economic affairs and continued and additional government spending.

Washington is itself to blame for the debt crisis and resulting reduction in our credit rating by Standard and Poor’s. The only path to true reform regarding the debt is for the Representatives and Senators to peel back their relationship with K Street (lobbyists) and remove any interference of the Federal Government in the free market. Maybe then will our nation truly see reform.