THE BLOG
08/05/2018 13:22 SAST | Updated 08/05/2018 13:22 SAST

No Growth Before Economic Fallacies Are Buried

The economy is as dangerous as it is empowering, and if you think you know better than market forces, only pain and suffering await you.

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OPINION

Last year, I wrote that the first step to attaining economic growth in South Africa is to reject pseudoeconomics — those "theories" that are closer to political ideology than objective laws of reality.

These theories are used to justify government intervention in the economy and include ideas like nationalisation and the notion that workers are being exploited on a mass scale throughout the country. In the months since ,these pseudoeconomic theories have become more entrenched, so it is no surprise that our economy has not shown any real signs of recovery.

How does one identify a pseudo-, or rather "anti-economic" theory? One of the best indicators that one is dealing with a political rather than an economic phenomenon is when the theory requires some kind of positive conduct by a noneconomic actor. Noneconomic actors broadly consist of two entities: criminals and government.

Noneconomic actors do not engage in the trade of value, which is fundamentally what economics is about. They take what they want and give only when it is convenient. This is the nature of criminals and government. Ordinary individuals, guided by rational self-interest and a concern for others, appreciate at a base level that to get, one must give. This gives rise to the central reality of economics that criminals and government invariably ignore: TANSTAAFL – there ain't no such thing as a free lunch.

It is the difference between an entrepreneurial enterprise and a government department. If an enterprise desires more money to expand its capacity, it goes about satisfying its consumers by providing a better good or service than its competitors. Enterprises that go about doing this in a fraudulent manner (bearing in mind that "fraudulent" and "unpopular'"are not the same thing), get away with it only for so long before they are caught out or consumers reach the end of their patience. Justice in the market is swift and brutal.

A government department, on the other hand, if it desires to expand, uses coercion: it taxes or prints money. Neither of these things is voluntary. Many people claim they "happily" pay taxes, but the true test of voluntarism is the ability to say "no", an option not extended to taxpayers. Furthermore, when the government prints money, the value of all the existent money in the system decreases. In effect, the government is still taxing its subjects, only this time indirectly.

The greatest economic fallacy that has been accepted by policymakers, and unfortunately the public at large, is that there IS such a thing as a free lunch.

No value is created through taxation. Taxation is, at best, a redirection of funds from one use (that is, the users preferred by the individual who earned the money) to another (that is, the users preferred by bureaucrats).

This sometimes has benefits, like state welfare or infrastructure projects. But it can never be true that more value is extracted from taxed money that would have been the case had the money not been taxed. Indeed, how many rands of taxpayer money do not lose several cents to corruption, "admin fees'"or overheads on its journey through the treasury before ending up in the pocket of some tenderpreneur?

The massive-public sector wage bill and the inordinate amount of money we spend on vanity projects like the telecommunications department's Wireless Open Access Network or the health department's National Health Insurance, means a lot of otherwise productive money (in the hands of those who earned the money) is being wasted by those who taxed it.

Yet despite this, it seems that South Africans remain eager to go down the so-called developmental state route, where government through coercion, and not the people through voluntary engagement, is the driver of growth and empowerment. It therefore comes as no surprise that little growth and not too much empowerment result.

The greatest economic fallacy that has been accepted by policymakers, and unfortunately the public at large, is that there is such a thing as a free lunch. The Wireless Open Access Network, we are being hoodwinked, will apparently be a great success, because the current industry incumbents and aspiring new entrants will agree with government's vision and, despite massive losses in profitability and turnover, will continue to invest in infrastructure just as before.

And if the government is to be believed, healthcare will improve in South Africa after National Health Insurance is introduced, since healthcare entrepreneurs and businesses will simply continue to pour time, effort, and money into the system, even though they will no longer draw much benefit from it.

... if you think you know better than market forces, or think you can circumvent economics, only pain and suffering awaits you.

This fallacy will cost us dearly.

But the greatest cost will come on the back of expropriation without compensation. President Cyril Ramaphosa and his supporters in government have regurgitated time and time again that expropriation will happen without disrupting the economy or investment, and will not threaten food security.

In fact, they say that any policy that includes expropriation without compensation must lead to increased economic growth and must, in fact, increase our food production. How fantastic! This ignorant (and arrogant) view of how economics works is too prevalent to be amusing.

Expropriation without compensation will yield only the following: happy politicians who have checked off another ideological imperative on their to-do list, and an economy devoid of any serious investment.

It is true that being practically-minded and realistic are key to securing a prosperous future for all South Africans. But something more is required. On a philosophical level, one must appreciate the fact that economics is not malleable. The market is not an individual who can be "convinced" of something, or forced into submission.

The economy is as dangerous as it is empowering, and if you think you know better than market forces, or think you can circumvent economics, only pain and suffering awaits you. If you are a policymaker, economic destruction and destitution await everyone affected by your arrogance. One need simply ask the Zimbabweans, the Venezuelans, and the North Koreans.

The East Germans and the Soviets have already learned their lesson. Hopefully leaders in government will take note, so that South Africans can be spared the torture of finding out first-hand what happens when you try to cheat the rules of economics.

Martin van Staden is legal researcher at the Free Market Foundation and is pursuing a Master of Laws degree at the University of Pretoria.