Is the Economist really so naive?

A relatively recent article in The Economist raises significant questions about whether the magazine has some awfully naive journalists on its staff.

It’s a dog’s life discusses a proposal in Mexico “to raise taxes on everything from salaries over 500,000 pesos … to private schools.” (The title of the article plays off of the fact that the proposal also includes a tax on dog biscuits, which would hurt middle class Mexicans who have bought dogs as a sign of upward mobility.)

I’ll just highlight two things from the article that caught my eye. First, there was the sub-headling:

A tax plan dictated by politics

When is a tax plan not dictated by politics?

As Murray Rothbard explains in Power and Market:

Before the development of economic science, people tended to think of exchange and the market as always benefiting one party at the expense of the other. This was the root of the mercantilist view of the market, of what Ludwig von Mises calls the “Montaigne fallacy.” Economics has shown this to be a fallacy, for on the market both parties to an exchange will benefit. On the market, therefore, there can be no such thing as exploitation. But the thesis of an inherent conflict of interest is true whenever the State or anyone else wielding force intervenes on the market. For then the intervener gains at the expense of the subjects who lose in utility. On the market all is harmony. But as soon as intervention appears on the scene, conflict is created, for each person or group may participate in a scramble to be a net gainer rather than a net loser—to be part of the intervening team, as it were, rather than one of the victims. And the very institution of taxation ensures that some will be in the net gaining, and others in the net losing, class. [Emphases added.]

The second thing that caught my eye was the following paragraph:

The most pressing question is whether the new tax code will help or hinder the revival of a stagnant economy. The government said the promise of more tax revenues in the future gave it the leeway to go into the red this year and next, projecting deficits of 0.4% and 1.5% respectively. Two days earlier the central bank ordered a quarter-point drop in its main lending rate, the second this year, even though inflation, at 3.5%, is slightly above its target. In a country with a fetish for low inflation and balanced budgets, both announcements came as unexpected economic tonics.

As far as I can tell, the author is saying that by increasing taxes, the Mexican government will have the ability to borrow more, the result of which will lead to higher economic activity. I think. So to this author the economy thrives not through the economic activity of millions of folks who do valuable things for others, but through the profligate spending and borrowing of some central government. If that’s the case, why bother with private business? Why not just let the state take of everything if it’s so smart?

Yet if history has taught us anything, it’s that the state is anything but smart, and that centrally planned economies leave everyone, except for the politically connected, poorer. Among the greatest problems of those who presume to believe in the free market yet have been taught Keynesian economics is that the mental tool chest they use lead them to policies that squeeze out the marketplace in favor of central decision makers. And it’s those decision makers who will increasingly see people not as those who may or may not have a dog, but as dependent variables who can be manipulated into making the “appropriate” decisions that will lead to economic growth. That will not happen, of course. People will not act according to what the central models predict, all the while the economy becomes less prosperous. One would have thought that the 20th century, with all of the socialist economies that crumbled, would have taught us that.

It would be one thing, and far more understandable, to see such fallacious thinking in a left-wing publication like Nation. It’s another thing, and far more disappointing, to see it in a magazine that claims to believe in capitalism.

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