I’m a fan of the Ultimate Fighting Championship (UFC). For those unaware, this is the most dominant mixed martial arts (MMA) organization in the world. They put on fantastic pay-per-views at least once a month where fighters put every part of their being out there to reach the storybook peak of a world championship belt. There is a very well-known phrase in the MMA community that relates to older fighters who were once phenoms that pulverised all opposition that stood in their way; yet, when they reach their late 30s, what were once sharp weapons turn blunt and performances degrade. All fighters are aware of this reality, so they go full throttle over the relatively short-term incurring huge penalties that will be felt later in life hoping the high of the short-term makes the long-term more enjoyable. State actors think and act similarly. They believe hurried injections of wild stimulus packages can truly set the economy up for long term greatness. Unfortunately, unlike fighters, state actors are completely unaware that father time waits for no man and eventually, the consequences of ecstatic short-term satisfaction come back to haunt you.
Mainstream politicians tend to have a similar mindset to fighters. They believe that if the state injects what they term “fiscal stimulus” into the economy during a crash then the economy will recover, and even boom, creating this metaphorical high that will also set the economy up, and therefore their position in power, for the long term. In political discourse, there is a question that comes up more frequently than any other: What can the government do to solve this? It is always what act, not whether to act. Mainstream political thought dominates the airwaves and believes that the government should step in to solve everything. You can have disagreements about how to act but, fundamentally, there is no disagreement amongst mainstream political parties about whether to act.
Everyone knows politicians love to lie and manipulate the truth, but this fundamental fact about the nature of politics is extremely illuminating. The goal of a politician is to stay in power so they are heavily incentivized to make decisions that keep them in their jobs but, more importantly, make decisions that keep their jobs relevant. With mainstream thinking being the way it is, a politician’s incentive is to act when a crisis occurs, preferably acting more than the other guy. For example, it’s pretty clear that if the Labour Party in the United Kingdom or the Republican Party in the United States sat around twiddling their thumbs after the 2008 financial crash, they would have been chucked out of office by a record busting landslide at the next election; they were fully aware of this fact. So, if we know politicians lie and have strong incentives to act then why is it commonly accepted that fiscal stimulus is effective at saving the economy? Does it not seem a coincidence that the thing that keeps politicians relevant is commonly accepted by nearly all political parties to be the only solution?
Fiscal stimulus has an extensive history of failure. The Great Depression in the 1930s became a depression as a result of U.S. President Franklin Delano Roosevelt’s fiscal stimulus. In 2008, President Barack Obama sought to inject huge sums of money into the economy to create a recovery but this did little to nothing positive. Instead, it transferred mountains of wealth from the middle and lower-income households to the richest households. After the COVID lockdowns, the U.S. government and European Union devised new fiscal stimulus plans in a renewed effort to boost the economy after their respective shutdown. This fell flat on its face once again but has been covered up by lofty headlines that mould an impression of a glistening and productive economy. Politicians counteracting economic crashes seem hell bent on doing their best Wile E. Coyote impression in their desire to catch the ever-elusive economic boom.
When you look below the headlines and read the finer details, (politicians know the average voter will never read the small print) unemployment numbers are incredibly manipulated and inflation numbers are twisted to allow for a shiny headline bestowing a grade A+ on the economy. Machiavelli put it best: “For the great majority of mankind are satisfied with appearances, as though they were realities, and are often more influenced by the things that seem than by those that are.” Acting when a crisis occurs is merely a case of political actors keeping up appearances. The average person could learn so much by starting from the default position that political appearances are illusory.
There is a serious distinction between the incentives that political actors face versus a normal, privately acting individual. There is almost zero incentive for a political actor to make decisions that are centred around the long-term since the primary objective of a politician is to secure votes and, depending on where you live, this objective strengthens about every four years. This means that politicians trade long-term stability for short-term gain if it gets them elected. For example, fiscal stimulus is usually financed through a combination of sources including the nation’s central bank printing money. This is incredibly harmful for everyone living in that nation as the money in their bank accounts lose value and they find their money does not go as far as it used to.
Another example is subsidies. Politicians have a huge incentive to subsidize politically advantageous industries. In the United Kingdom, the Labour government will be subsidizing environmentally friendly companies despite governments around the world having a horrific record of picking winners and losers. Back in the 1960s and 1970s, the Labour government was still picking winners and losers but for different industries that were favored at the time like coal, shipbuilding, and steel. This will only direct resources away from more valuable ends and towards less valuable ends whilst obtaining no tangible benefit for the investment, as these companies become reliant on subsidies and collapse when the subsidies are eventually taken away.
Some readers may remember the Obama administration’s love for Solyndra, a solar panel company. They received millions of dollars in loans guarantees from the U.S. government but abruptly filed for bankruptcy in 2011. Obama said, “The true engine of economic growth will always be companies like Solyndra.” That is millions of dollars that could have been used productively by private actors but was utterly wasted by an arrogant government that believed it knew what a sound and stable company looks like despite knowing almost nothing about their differing incentives. Obama really pushed for that green thumb but the only ones left with a green thumb were those at Solyndra who pocketed the loans!
A magnificent number of individuals save up for the future whether that be in the knowledge that they wish to marry or start a family. This end goal is years in the making, yet, contrary to the natural world, we sacrifice short-term pleasure for long-term happiness. This sacrifice is what made humanity so successful. It took the collective sacrifices of millions of parents who felt a love like no other for their children to take us to a point where their children can be ten times more productive than their prior generation. The level of wealth engenderment when politicians took less of an active role in society was astronomical, but politicians just could not help themselves and this delicate system of wealth generation has been sliced at until many people are starting to consider socialist alternatives as they perceive that free markets have failed them.
Like the proverbial MMA fighter, politicians seek short-term gain in the hope of future greatness; but unlike some MMA fighters, they can never achieve the peak that will etch their names into the history books. Father time is undefeated and politicians would do well to think about the implications of time in the fragile process of wealth creation that a society unhampered by politics can induce.
