Saturday, January 31, 2009

Size of Government

An interesting discussion by Matt Yglesias and Kevin Drum on how big we on the left believe government should get.  Kevin is arguing that the Government should not grow to be more than about 50% of GDP, where it is about 40% now.  Matt thinks that trying to set an arbitrary limit doesn't make much sense, as the economy grows and changes the extent to which government expenditures will rise and fall may be very different from what is appropriate in today's economy.  It is far more important, in Matt's opinion, for the government to be looking for more sensible ways to earn and spend revenue.  By sensible ways to earn revenue he is talking about placing costs on things like the use of roads, or dumping carbon into the atmosphere, where there is a social good in reducing the activity.

I'm very much on Matt's side in this discussion.  In fact, I'm rather of the opinion that the discussion of the fraction of GDP accounted for by government is a very misleading statistic.  It seems to me that government, by its nature, provides a number of services that are very valuable.  And by valuable, I mean in an economic sense.  If these services were not provided by the government people would pay money, or what is the same thing, exchange their labor for these services. Among these services are certainly basic security.  But in today's world would also include copyright protection, licensing the airwaves, risk avoidance via incorporation, and a number of other such services.  Let's assume the government is going to provide $100M worth of such services, copyright protection for example, to some group of citizens.  If the government provides this service to these citizens for free, with no requirement of anything in return, then the government's share of the GDP is unchanged.  The government is only becoming bigger then if it provides this service, charges some money in exchange for the service and then spends the money on some activity of public interest.

It seems to me, however, that this later case, trading the service for something of public interest rather than giving it away, is prefereable to just giving it away.

The problem is that giving the value of the services provided by the government, government is, and always will be, something like 90% of GDP and there is nothing that can be done about it.  Get rid of government services and the government expenditures will go down, but so will the economy and the result will be a poor country were 90% of the GDP is due to government activity.  For what it is worth, I prefer a rich country where government is this large share of GDP to a poor country where government is a large share of GDP.

This is not to say that the intrusion of government cannot be greater or lesser.  This argument is only to say that fraction of GDP is a useless statistic for guaging how intrusive government is.  

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Wednesday, January 28, 2009

Lord Limbaugh

This story is quite telling (see also comments by Steve Benan and Think Progress), I should say. Apparently, even minor criticism by any Republican of Lord High Gasbag is an intolerable sin. So what happened was that GOP Congressman Phil Gingrey of Georgia expressed a mildly critical opinion of Rush Limbaugh. Indeed, calling Rep. Gingrey's opinion critical is a bit of a stretch. To quote the representative, here is what he said:
I think that our leadership, Mitch McConnell and John Boehner, are taking the right approach. I mean, it’s easy if you’re Sean Hannity or Rush Limbaugh or even sometimes Newt Gingrich to stand back and throw bricks. You don’t have to try to do what’s best for your people and your party. You know you’re just on these talk shows and you’re living well and plus you stir up a bit of controversy and gin the base and that sort of that thing. But when it comes to true leadership, not that these people couldn’t be or wouldn’t be good leaders, they’re not in that position of John Boehner or Mitch McConnell.
(See here for full article from which the quote was obtained). Well it would seem that these measured words were far too much for a large segment of Rush fans and they precipitated a large volume of angry calls, emails and letters to the Georgian representative. Within a day he offered a complete retraction and indeed appeared on-air to appologize for this criticism and retract his comments. These comments are pretty banal and yet they are too much for the Republican base to tolerate. This is the power that Rush now has on the Republican party. This is the face of the modern Republican party.

This is a good opportunity to mention the thing that I find most galling about Rush and about modern conservatism. Rush Limbaugh has made himself quite a wealthy man by making use the opportunities afforded by broadcast radio. Now broadcast radio is a medium that is completely dependent upon services provided by the federal government. Without the FCC guaranteeing that a give opporator will have sole use of a band of frequencies, it would not be possible to have a broadcast network. Interference would be rampant and would make the medium useless for anything more than the most local communication. Nothing like our modern networks could exist. Were Rush left to try and make his money by renting out a theater and doing his schtick to a ticket buying audience, he would not be quite so wealthy. Indeed, one of the things that most terrifies the right wing today is the phantom menace of the Democrats restoring the fairness doctrine. In spite of the paucity of evidence indicating that Democrats have any intention of doing such a thing (see here for info on the issue), Rush is frequently going on about how his business will be completely destroyed if the Federal government should reduce his guaranteed sole use of his portion of the frequency spectrum from the current 100% all the way down to 95% of the time. His dependancy on this federal service is, by his own admission, this great.

This, in itself, is fine except that Rush then spends three hours a day complaining, effectively, that he doesn't get this for free. In fact his basic complaint is that if only we did not provide any services for poor people then we could provide the FCC protections to him for free. This then is the essence of Rush Limbaugh and the modern Republican party and modern conservatism, the principaled demand for free services for themselves while simultaneously demanding that no such free services be provided to others.

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Government and the Economy

Matt Yglesias points discusses here one example of one of the oddest things about our current political discourse.  Matt's specifically discusses how in contemporary discussion of the economy, monetary policy is somehow treated as if it isn't a "government role" in the economy.  Given that the Federal Reserve is a government agency and the Federal Reserve determines monetary policy, monetary policy is most certainly a government policy. 

I think this is related to another odd thing about our discourse, namely the tendency to treat the government as some sort of alien entity which should normally be outside the economy, but which sometimes interferes with the economy.  This is nonsense.   When people form a government as a means to gain security (Hobbs anyone) the government is providing a service of some substantial value and is therefore part of the economy.  It can provide that service and charge a small part of the market value of that service or it could charge the full market value of that service, but it is an actor in the economy.  It does not, in any meaningful sense, "interfere" with the economy, it just sets pricies. 

It has been the general experience through history and around the world for the government to expand the services it provides.  Today in addition to the basic security that governments are created to provide, governments typically also provide the benefits of risk sharing via incorporation, copyright protection, guaranteed sole use of part of the electromagnetic spectrum, and a host of other services as well.  Note that none of the services in that list are among the things objectted to by conservatives.  This is true no matter to what extent these services involve government intrusion into your life (consider for example the various inconveneinces that copyright enforcement makes upon our lives.  Can I legally transfer my music CDs to my MP3 player?).  The only intrusion that conservatives object to with regard to these services is when government expects some compensation in return for providing them.  The central message of conservative philosophy is that these services should be provided, at least to the already wealthy and well connected, free of charge and with absolutely no strings attached.

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Tuesday, January 27, 2009

Market Pricing

Matt is right here, as is, of course, Mark Kleiman (follow the links), it would be a very good idea for the government to charge market rates for things like runway slots. Currently, the rates that airports using a runway make the use of small private jets more affordable than would the market. Read Matt's and Mark's summary of the issue.

However, I would say that there are a great many things of this same sort that should be subject to more market pricing. I'm thinking of services provided by the federal government such as copyright protection, sharing risk through incorporation, protection of physical and financial assets here and abroad. That kind of thing.

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Monday, January 19, 2009

Standard Deduction

I mentioned earlier that I liked the blog "Adam Smith's Lost Legacy" and I do. For example, I came across the following post wherein Gavin Kennedy argues for one of my preferred changes to the tax code. Gavin is writing about the UK tax system specifically, but the same principal applies to the US standard deduction. I believe that tax cuts should be considered, even in this time of recession, but the appropriate form of those cuts is an increase in the standard deduction. Get golks at the lower end of the income distribution off the income tax rolls. Such tax cuts would be a stimulant to the economy. When tax cuts are discussed it seems to me that the only form of cuts considered are changes in the tax rates. But a rise in the standard deduction should be a part of any progressive policy proposal.


Adam Smith redux

Gavin Kennedy at Adam Smith's Lost Legacy, a site I was unfamiliar with but which, based on my short perusal so far, is a site well worth reading, has a comment on my earlier post about Adam Smith. Gavin's comments are correct, I agree with what he has to say, although I believe that my main point still holds.

Basically, the passage I quoted went on at some length to the effect that the merchant and manufacturer are much better situated in knowledge and experience than are either the laborer or the country farmer to manipulate government policy to his or her advantage. Gavin's point was that while that was perhaps quite true in Smith's day, it is much less so today. All three of Smith's orders of men are today quite savvy at manipulating government policy to their advantage.

I did not mean to suggest that the merchant's and manufacturers still have that advantage as a general rule. My intended points were two fold. One point was that Smith's claim that the interests of the merchant and manufacturer are more often than not at odds with the interests of society as a whole and the general welfare of the nation. Adopting the policies and proposals of this order of men and women without very careful scrutiny is as foolish a move today as it was in Smith's time. Yet we have spent much of the past eight years doing exactly this foolish thing. Secondly, I wanted to advance Smith's other point that the proposals of the merchant and manufacturing class should be met with long study, close scrutiny and a healthy dose of skepticism. I would agree with Gavin's commentary to the extent of saying that the important practice is to address all proposals from any part of society with a healthy dose of critical review.

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Sunday, January 18, 2009

Obama and Investigations

Much of the left blogisphere is abuzz with questions on how the Obama administration will be dealing with the criminal activities of the Bush administration and whether, or not, there will be investigations. The latest from Matt Yglesias, for example, is here. The general consensus, based on Obama's comments, seems to be that he is tyring to avoid any such investigations to keep from upsetting the political climate. I am not so sure.

Keep in mind that he is frequently discussing his admiration for, and desire to emulate, Lincoln. When Lincoln came into office he was not remotely voicing the fire breathers determination to take action against the Southern Radicals, nor evan after secession to attack them directly. However, it is equally clear that when pressed, he was hardly one to let attacks on the Constitution go by unopposed.

I expect Obama to take a similar course. He will come into Washington, as he is, not promissing to cleanse the Captial of wrong doing, or to take a vengefull tact against past wrongdoing. However, there is plenty of indication that investigations will be coming. Investigations lead, I'm quite glad to say, by Congress. I fully expect Obama to pursue the results of those investigations as vigorously as Lincoln pursued rebellion. He doesn't intend to take on the attack, but will pursue those who do. Contrary to the insistance of the right wing, this is by far and away the better course for the US Government.

I cannot say for sure that this is what will transpire. Perhaps Obama will turn out to be too soft on past abuses. But it is certainly not clear, or even likely, at this point, that that will be so.

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Saturday, January 10, 2009

Adam Smith

I found the final paragraph of the first book to be quite striking. It is my contention that much of today's discourse is seriously distorted by the near universal acceptance of some points which are, in fact, completely false. One of these is the idea that modern Conservative/Republican philosophy is strongly tied to the principals of free market capitalism as espoused by the like of Adam Smith. So the following quote, the last paragraph, as I say, of the first book in the Wealth of Nations is quite illuminating. He has just repeated his long running claim that there are three orders within society, those who make their income from the rent of land, those who do so by wages from labor and those who do so off the profit of stock. He discussed that the interests of the first two orders are tightly aligned with the interests of the Nation as a whole and with society in general. In other words, the prosperity of those two classes rises most with the general improvement in the prosperity of the nation as a whole. Of the third class, I quote:

His [the person who lives off of wages from labor] employers constitute the third order, that of those who live by profit. It is the stock which is used for the sake of profit, which puts into motion the greater part of the useful labour of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension, of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin. The interest of this third order, therefore, has not the same connexion with the general interest of the society as that of the other two. Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans an projects, they have frequently more acuteness of understanding than the greater part of the country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion), is much more to be depended upon with regard to the former of those two object, than with regard to the latter. Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction, that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufacture, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have upon many occasions, both deceived and oppressed it.

I would say that the summary of the past eight years of American policy has been to adopt the Conservative/Republican policy of a slavish and servile devotion to all proposals of exactly that order of men whose proposal Mr. Smith says rather "...ought always be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention." Mr. Smith's advice on this score has most certainly not been taken.

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