IT PAYS TO KNOW: The Invisible Hand—Not!

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By JUDD MATSUNAGA, ESQ.

As an economics major at UCLA in the late 1970s, I was taught that our economy was regulated by an “invisible hand.” The term, used by Adam Smith, was used to describe the natural force that guides free-market capitalism through competition for scarce resources in the most mutually beneficial manner.

As used in Economics 101, the theory refers to the profit motivation of individuals that drive an economy. “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest.” Therefore, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services.

For example, each customer will selfishly choose the shortest checkout line at Costco, regardless of the other customers. Their utility-maximizing choice is the shortest line; this means that eventually all lines end up about the same length, which is clearly the most efficient disposition.

The process will work even without the agents having any knowledge of it. This is why the process is called “invisible.” It assumes that individuals try to maximize their own good, and by doing so, through trade and entrepreneurship, society as a whole is better off. Any intervention by Costco isn’t needed because the “invisible hand” is the best guide.

But what if Costco tried to regulate the lines, e.g., this line for 10 items or less, or this line for credit cards only, etc.? Chances are the lines for the regular customers would get so long that they would be fed up with it and take their business to Walmart or Target. Therefore, even without the slightest direction from Costco, the lines all end up about the same length.

Smith envisioned the “invisible hand” as eliminating the need for market intervention on the part of government. Moreover, such regulatory action, Smith believed, would only be detrimental to market efficiency. Changes in demand for resources automatically result in price adjustments without the need for regulation.

In economic terms, members of a capitalist economy are driven to obtain the maximum amount of utility (“benefit” or “profit”) at the least cost. Privately owned industry caters to a consumer sector that wants goods and services of the highest value for the lowest price. The role of government in a capitalist society is to protect the legal rights of actors in the economy, not to regulate the free-market system.

However, what do you do when American jobs are lost due to outsourcing? What do you do with the trade imbalance and the importing of Chinese goods? What do you do when businesses pollute the environment? You regulate. Government must play the role of referee and make sure businesses do not pollute, employ children or engage in unfair business practices.

Now, I’m a strong believer in competitive markets with “light” regulation, i.e., regulation that keeps a level playing field and promotes competition. But guess what? The powers behind our government, i.e., the super-rich, are not exactly fond of every American living the “American Dream.” In fact, I believe that the super-rich actually don’t want you owning your own home.

For example, Fannie Mae used its government-granted monopoly to dominate the mortgage market and become the nation’s second-largest debt issuer (second only to the U.S. Treasury). Fannie Mae violated traditional standards of underwriting, building up illusory profits in the process by issuing mortgages to people and households with insufficient assets.

This was all done pursuant to a political agenda of increasing home ownership by the poor and minorities, but it ended up causing a financial debacle costing hundreds of billions of dollars, not to mention the harm caused to all the families who later defaulted on their mortgages and lost their homes in foreclosure.

The super-rich have used Big Government to pass regulations that cause the lack of competition that allows Big Finance, Big Oil, Big Pharma, and Big Agriculture to make huge “record” profits. During the same time, unemployment is at record highs and middle-class America is slowly being wiped out.

We all like to think that we live in the “land of the free,” but the truth is that our lives are actually tightly constrained by millions of rules and regulations. The Federal Register is the main source of regulations for U.S. government agencies. In 1936, the number of pages in the Federal Register was about 2,600. Today, the Federal Register is over 80,000 pages long.

But it is not just the federal government. Many state and local governments are far worse. We have become a nation that is run and dominated by Big Government. The danger of big and unlimited government is that, over time, it can distort the most basic notion of sovereignty and principal-agent.

Under the U.S. constitutional system, the people are sovereign: they are the principal, with government as their agent and servant. Conservatives, Libertarians, and Tea Party activists argue that we have come to a situation where government has gone beyond its role as agent of the people.

Under Big Obama, America has drifted too far from the constitutional principle of limited government — that the federal government is becoming too big, too powerful, with an unlimited scope of authority. It now seems to have an independent existence that in turn must be supported by the people merely for the sake of perpetuating a government that has no limits.

“But Judd, what can I do? What’s your point?” My point is that the “invisible hand” no longer works since government regulators can control the marketplace. You must take steps to prepare for a world economic collapse that will bring about a One World Government.

“One World Government? Judd, you must be crazy.” Perhaps, but some people might not agree. President George H.W. Bush said, “Out of these troubled times, our objective — a new world order — can emerge. Today, that new world is struggling to be born, a world quite different from the one we have known.” (Sept. 11, 1990)

David Rockefeller said, “This present window of opportunity, during which a truly peaceful and interdependent world order might be built, will not be open for too long — we are on the verge of a global transformation. All we need is the right major crisis and the nations will accept the New World Order.” (Sept. 23, 1994)

Henry Kissinger said, “[The New World Order] cannot happen without U.S. participation, as we are the most significant single component. Yes, there will be a New World Order, and it will force the United States to change its perceptions.” (April 19, 1994)

Put two and two together and you get the following: the American dollar and the U.S. economy must fail in order for the American people to accept the loss of their sovereignty and a New World Order. That’s why President Obama, personally selected by the Bilderbergs because of his ability to sell their “snake oil” to the American people, keeps printing money devaluing the dollar and increasing our national debt.

A recent study conducted by the Institute for Private Investors (June 5, 2012), found that ultra-high net worth investors (at least $30 million in investable assets) are shifting away from U.S. stocks in the search of safety and yield. Nearly half plan to add to their holdings of commodities this year, and 45 percent of respondents are putting more money into real estate.

Why? Because the stock market is not safe and may collapse at any time, especially if triggered by a financial crisis oversees. Now, if the multi-millionaires and billionaires are getting out of the stock market and putting more money into private companies, real estate and commodities, maybe you should too.

Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in Estate/Medi-Cal Planning, Probate, Personal Injury and Real Estate Law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.

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