Friday, March 22, 2013

BIG Government Is Good for You

I am a BIG-government man. I disagree with the  dogma according to  which economic decisions should on principle incessantly, or whenever possible, be made by private individuals. I do concede that a sensible argument can be made for arranging social and economic institutions so that individuals are enabled to assume much of the responsibility for their own fate.

However that is largely an ethical and philosophical, and not a strictly economic issue. On the other hand there are extremely powerful reasons of a purely economic  nature to restrict  individuals’ right to make economic decisions, when these decisions affect not only their own fate, but also that of others.

That seems a bland, uncontroversial statement, but it leads directly to conclusions that invariably make libertarians’ hair stand on end.

This is because many sorts of economic decision that intuitively seem to be of the most private and personal nature actually exert substantial  effects on completely Bolivious third parties. This phenomenon is technically known as the “externalities” or “external effects” of private economic activity. Economists overwhelmingly acknowledge that private decisions characterized by large externalities should be strongly influenced, or outweighed, by government policy, whether it be by means of taxation or through other policy instruments.

Take education, for example. It has been repeatedly proven by statistical studies that the amount spent on a child’s education is only vaguely related to the child’s future earning power. On the other hand it is equally certain that aggregate investment made in education by a whole country or region is very strongly correlated with that country’s or region’s future prosperity.

In other words, for a family, money spent on its children’s education is by no means a safe investment. On the contrary, it is fairly risky. However the country  as a whole is extremely likely to benefit from any investment in the education of its youth. Accordingly, it is very  unwise to allow parents to decide alone all aspects of their own children’s education, because parents are unlikely to take into account the benefits such investments will confer upon utter strangers. Nonetheless such benefits are large.

Consequently families tend to invest much less in education than is desirable for the population as a whole. Accordingly the government should heavily subsidise education in order to optimize education investment from a social standpoint. The government must forcibly extract from individuals the funds needed for this investment in education, that the latter would otherwise squander on unproductive purchases.  If the money is wisely used, on average  taxpayers will greatly benefit from the fruits of this governmental coercion.

Scientific research is also an extremely unprofitable industry. A research laboratory devoted to studying the sex life of sardines is unlikely to make its owner rich, because the knowledge won from such research cannot be packaged and sold commercially. But  society as a whole will probably benefit greatly from such endeavours. Accordingly it is madness to let private investors decide how much a country will spend on scientific research. That must be done largely by the government. And the funding must come from taxes paid by people against their will, whose principal motivation in paying them is fear  of punishment if they refuse to cough up.

Private economic decision making is not generally characterized by any deep thinking. Investors lose interest after thinking three moves into the future. Perhaps that was the reason that when the Latvian economy was turned over to the free market, red in tooth and claw, it took private capitalists only 2 or 3 years to run the country’s economy into the ground. The decisions they made were presumably rational from the standpoint of their own private interests. But the upshot was a grave economic crisis in which the entire population suffered greatly. Naturally Latvia’s specific trait of being a small, middle-income   country played an important role  in how the crisis arose.

In a nutshell, individuals are selfish and unwilling to make sacrifices for abstract ideals and distant goals. They prefer to devote their efforts to attaining immediate material goals for themselves and their  close relatives.

That is why we need an 800-pound gorilla -- known as the government -- that can terrify and cajole people into  making sacrifices for the common good.

An individual’s welfare is only partly determined by his or her own decisions and efforts. Impersonal, macro-social phenomena – as well as blind chance -- are decisive in determining people’s fates. The decisions capable of influencing these macro-social phenomena either cannot or should not be made individually, but collectively through a process of public debate on how society should be organized and which policies the government should pursue.

Once those decision have been made by a majority, after free and earnest debate and mature reflection and within the constraints needed to protect the legitimate rights of minorities and individuals, such decisions should be imposed by force if need be.

Libertarians mock this attitude by calling it totalitarian, idolatrous and zombie-like. But they  can do so only by evading serious debate on a multitude of specific social, philosophical and theoretical issues. People with such viewpoints can prevail only by rigorously excluding most of the really important issues in people’s lives from public debate and banishing them to the limbo of private life. The method they employ to accomplish this act of censorship is to dogmatically impose the ideological straitjacket of free-market malarkey.

They try to sound very sage and distinguished, feigning to base their dogmas on rigorous scientific thought. But it is all humbug. Libertarian ideology has no roots in classical  economics, unless we classify screwballs like Frédéric Bastiat as classical economists.

Nonetheless I freely acknowledge that various currents of right-wing economic thought, despite their  occasional hubris, contain nuggets of wisdom that should be duly appreciated by leftists. I am thinking specifically of Austrian economics and social choice theory, but there may be others.

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