Economic problems reflect moral crisis

The focus of this article is on how government destroys our moral values.

COMMENT

By Medecci Lineil
Some five months ago, I made a first attempt to address the minimum wage issue by understanding the nature and importance of money in everybody’s business and used the term “inflation is the result of the increases of the money supply in the market” to characterise it.

In the following articles on national budget, affordable housing and job creation, I tried to demonstrate the danger of government that was so immediate and continually becoming more evident and more difficult to avoid.

I did my best to debunk several economic fallacies and errors by presenting quick analysis on cause and effect. I also argued that in a fully capitalist society, government does not dictate prices, wages, working conditions or engage in any kind of production of goods.

No economic regulation. Government spending and taxation are strictly limited. All economic needs are met privately and voluntarily. But the tragedy is that, on the contrary, these important aspects of capitalism are completely ignored.

I have also received and heard a lot of questions and arguments. For most of the questions, it is impossibe for me to give any concrete answers. I can only give subjective replies.

Perhaps you have read in some of my articles about the Austrian school of economics and are curious as to what it is. The Austrian school of economics is an alternative to the mainstream approach. It places economics on a sound, moral and valid human action.

I will not discuss the Austrian economics and human action in detail here. My focus today will be on how government destroys our moral values.

Moral crisis

When the people turn to the government for social justice, free education, free food, employment, child-care assistance programme, and minimum wage, they become more dependent on government for almost everything. This leaves no room for individual responsibility and individual morality. It undermines incentives for moral conduct and blinds the distinction between what is right and what is wrong.

Government intervention in our economy has increased the power of political action while reducing private action. This is a moral crisis.

The moral crisis that I am talking about is not religious morality, but an attempt to improve society by looking at the connection between economics and morality and using family institutions and savings as keys for discussions.

The benefits that markets generate are easily taken for granted, with little appreciation for the markets’ role in providing them.

Not surprisingly, most people especially politicians see AirAsia as an immoral market organisation. They accused the airline of making excessive profits and therefore they argued it needed to be regulated and controlled. This view is quite dominant and very appealing.

Unfortunately, a few people chose not to see that AirAsia has created 10,000 jobs and contributed 1% of the GDP. Now the brand is becoming more popular among the youth and affordable to all Malaysians.

People see, for example, the government’s action in giving out cash hand-outs, free education and various subsidies to identifiable members of particular groups as morally better than providing benefits indirectly to unknown beneficiaries, which is the main function in a commercial society

Economists have acquired a bad reputation by largely defending commercial society. In principle, the whole idea of free market is voluntary transactions, which must be mutually beneficial.

Looking at the bigger picture, this phenomenon lies in social cooperation and division of labour. I must emphasise this economic cooperation because it occupies so influential a place in our daily life, which many do not realise.

Government and family

In the view of one of the most notable Austrian economists, FA Hayek, the family has served as the central economic and political institution of the social system especially in a free market economy for most of the time.

When it comes to family stories (child care, maids, working parents, child abuses and so on) which I value so much, what has been lost in the debate today is the crucial role played by the market economy (less market freedom) and the effects of big government.

Our low productivity as a result of the weak economy is generally taken for granted. I think this explains all those stories of hardship. According to the 2012 Vacation Deprivation Survey done by Expedia, Malaysia ranks fourth to having the most dedicated workforce with 90% of employees working even when they are on vacation.

On average, Malaysians clock in about 40 hours a week at work which is equivalent to eight hours a day, based on a five-day work week.

Low productivity of labour results in low standard of living and low wages. Low standard of living explains the low wages and long hours of working parents. Thus the pressure increases for households to earn dual income to meet rising commitments

Parents who work long hours have to pay for maids and their children’s expenses in childcare centres. But fewer working parents will be able to afford such luxury.

If maids choose not to come here, many working parents would either have to give up their careers, or demand more childcare centres or seek cheaper alternatives like getting their grandparents to take care of their grandchildren.

With huge government intervention in the economy, there is now a shift in expectations, responsibilities, and social economics that affect the preference and behaviour of men and women with regard to family. The government is displacing existing institutions and private arrangements. The government takes on the role of parents and child protectors along with all the mass of legislations and regulations.

As a result, individual development in the family is hampered by the loss of “private investment” in the family.

Government inflation eats into savings

The other related issue is the low standard of living. High inflation erodes incomes and the purchasing power of everyone and hurts those with low incomes and retirement pensions.

A report by the Academy of Responsible Management recently pointed out that about 90% of Malaysians have no savings and 14% have no wealth. When they retire, the EPF savings are insufficient. Almost 50% of those who withdraw their entire EPF savings finish their money in five years which, I think, is very alarming.

Even worse, the people are encouraged by professional economists and the government to increase their spending and consumption to ensure our economic growth remains resilient.

The truth is it works in the opposite direction. I do not know why the role of savings is almost entirely unappreciated whereas savings is the source of an increase in consumption both in real and monetary terms.

In the Genneva case, for example, the people should not blame the consultants and customers; instead they should blame the government and Bank Negara because many people invested in gold in search for higher returns and better yields to beat the banks’ artificially low interest rates and to boost their income and wealth.

If the interest rates remain too low for too long a time, the value of the savings will shrink, making it difficult for the government to help the savers in the long run.

By frozing Genneva’s gold bullions and accounts because the investment scheme is considered “illegal”, the government has violated the private property of some 50,000 customers nationwide. Isn’t that an immoral action of the government?

Who are these customers? They are mothers who have been using the returns to fund their children’s education. Now they are left with no income after the raids on Genneva and the social trust in relationship is broken because some of customers were introduced to the scheme by their friends.

Given all the stories that come with government intervention including the loss of freedom and individual responsibility, governmental action should never been the first or last resort in dealing with social and economic problems.

It is one of the ultimate ironies that while free market capitalism has created the modern standard of living, it has impoverished the majority of the people. With more government intervention comes more misery.

It is important to realise that government policies promoting inflation (low interest rates, price control and minimum wage) and credit expansion can impede the market’s ability to accumulate sufficient amount of capital and to increase the productivity of labour and standard of living, that is, better working conditions, higher real wages and take-home pay.

Thus, the ultimate foundations of healthy individuals, healthy families and healthy societies are freedom and capitalism. Moral beliefs will likely play an important role in human development. It can solve a fundamental problem associated with social, political and economic growth.

Medecci Lineil is a young Austrian Libertarian who lives in Kuching, Sarawak. He is also a registered voter for Stampin Parliamentary constituency.