Is Big Government Necessarily a Bad Thing?

Suddenly, capitalism is in flux. The superiority (or at least, perceived superiority) of the Anglo-Saxon free market model has waned. What's next? Critics of the bailout and expansionary fiscal policy to stimulate the economy scare us with a socialist vision of big government. Some corners of the US political spectrum orchestrate a tax revolt. Do they have a point? A cool, detached look at some stylized facts goes a long way to dispel these fears..

So here are five stylized facts and some conclusions

First, the superiority of the Anglo-Saxon model has never been a universal truth. In the 1980s, the Japanese model was all the rage. The social-market model of Germany has also been much in vogue for long stretches of time, so this perceived superiority was something of the last decade or so, after the mid 1990s when labour productivity growth took off and the creative destruction of entrepreneurial spirits seem to reign supreme.

But until that time, growth in labour productivity (the single most important economic statistic) was considerably higher in Northern Europe (let alone Japan), so it matters which period one is studying, and what preferences one has.

Second, speaking about preferences, yes, Americans are richer than Europeans, on average. But the latter have (on average, Europe is a diverse place) lower crime rates, universal health care (at much lower cost than US), and much longer holidays. It's a matter of taste which is better.

Third, some European countries, like Sweden, Denmark, Finland, The Netherlands, have levels of Government spending and taxing (as % of GDP) that would really scare the hell out of many Americans if they see these figures (40-55%).

Yet, are these countries socialist? Hardly. In fact, all of them have rather dynamic, innovative market economies and (until recently at least) well performing economies. Again, it's a matter of taste, but to say that a government share of 40 or 50% of GDP necessarily means a stifled socialist economy is simply belied by the example of these countries.

Fourth, there are a couple of tendencies which automatically tend to increase the government share of the economy when a country becomes richer. One important mechanism is known as 'Baumol's disease'. Industry can raise labour productivity year-on-year, but this is very difficult in much of the public sector, and this has important consequences.

Government is in education, health-care, national defence, governance, all sectors for which it is very hard to raise labour productivity (through automation). However, for the sake of labour market competition and issues of fairness, it has to offer similar salaries as industry.

Industry can raise wages and pay for it through increases in labour productivity, and overall labour cost will remain flat. If the public sector raises wages at similar rates, but without the offsetting increases in labour productivity, it means that its labour costs will increase, relatively to industry (or the private sector at large, although this is a bit of a simplification).

Which means the public sector is slowly getting more expensive, even without a single new policy initiative!

Is this bad? Not necessarily, because higher incomes in the private sector also increase tax income, at least partly offsetting the increase in public sector cost, and;

Fifth. As people get richer, their preferences change. They place more importance on a safe environment, on healthy products, on a cleaner environment, better schools for their children, better healthcare, etc. all sectors which make disproportionate claims on the public sector (through regulation, justice, law enforcement or direct government involvement).

So, apart from Baumol's disease, here is another mechanism that tends to disproportionally increase demands on the public sector as economies get richer.

Market fundamentalism

Virtually none of these above arguments appear in the US media, not even the more serious one. There seems to be a knee-jerk reaction that bigger government is necessarily bad. Part of this can be attributed to America's (somewhat idolized, perhaps) history of self-made people.

But it often runs into extremes. Much of the present crisis is attributable to the simplistic market fundamentalism (we already wrote about that here), in which markets are always right, government is always the problem, never the solution (except if one's company is threatening to go bankrupt), and regulation is a dirty word.

It can also be seen in the attitude of the new government (notwithstanding Obama's very liberal voting record) towards what is clearly the most practical solution to the banking crisis, temporary nationalization, like Sweden did in the early 1990s.

We find it difficult to believe that Summers and others are not aware of that, the problem is that it is perceived as political suicide because it smacks of socialism. The latter is curious indeed, because there is a very good capitalist principle at work in temporary nationalizations; those who pay, should be able to determine policy.

That is, since the government is already effectively providing most, if not all the capital, it should not only get a return on that (as they did in Sweden only a few years after buying the banks), they should also be able to determine bank policy.

One advantage, we wouldn't have had to worry about all the excess nonsense (corporate jets, bonuses, etc.) that was still going on at banks that were already on public life support (instead, we could have kicked these people out). Another advantage, banks could have resumed lending again.

It's perhaps too much of an inconvenient truth that state run Chinese banks, despite collapsing exports (far worse than anything that has hit the US), are lending at record pace. That's countercyclical policy necessary in a deep recession.

The same knee-jerk reactions were visible against the stimulus package. Socialism, we read from the market fundamentalists. Yet what is the alternative? Balance sheets shrink further, creating self-reinforcing feedback loops with consumption and investment, and possibly with falling prices.

No good will come out of that, we know that since Irving Fisher in the 1930s. But ideology seems to have a stronger hold in the US than economic rationality.

Better government is more important than smaller government

Whether big government is necessarily bad government has a lot to do with how the state, and more especially the political process, is organized. In many developing countries the state seems to be seen as a instrument to enrich one's family (Soeharto, Mobutu) or clan (Mugabe), for instance.

This is not usually a recipe for efficient governance, although Indonesia under Soeharto is in quite a different league compared to Mobutu's Zaïre Mobutu, let alone Mugabe's Zimbabwe.

America's political process seems especially prone to special interest (most of all, from big finance, as has been argued very persuasively by former chief economist of the IMF, Simon Johnson), which doesn't particularly bode well for efficient government either.

Witness the curious disconnect between the adherence to a rather simplistic version of market fundamentalism and the way all kinds of special interest (farming, big energy, financial sector, big three car manufacturers, etc.) are protected and receive almost tailor made regulation (or the lack of it) which seem to come directly from industry lobbyists.

Such practices are widespread in many countries (one visit to Brussels might testify to that), but in the US they seem particularly successful and often display a more or less direct link to campaign finance.

One important condition of efficient big government is therefore that special interests are kept at bay. For this, the presence of a bureaucratic class which regards itself as the guardian of 'the national interest' often helps a lot here.

This is one of the reasons that Japan, and other Asian countries, thrived economically, policy-making was often in the hands of capable bureaucrats with a longer time horizon compared to politicians. Some of the results are immediately visible. In many Asian countries, the public infrastructure is much better than that in the US (go to any airport, train station, etc.).

The US still has a nucleus of this, much of the ICT revolution originated in semi-public (largely defence) agencies, and the industrial revolution before that thrived largely because the excellent educational system the US once had, producing scores of engineers without which those robber barons could not have thrived.

The US needs less of it's simplistic market fundamentalist ideology (coming directly out of a 20 year old economics101 textbook, which could never account for the success of Japan and other Asian countries), which bares most of the blame of the present mess, and start with a more 'evidence based' practical economic policy, based on what works.

That will rekindle the wealth creating animal spirits, as it is not socialism that we are pleading for, but a less simplistic and dogmatic, more practical version of capitalism.

Comments

[ArkansasAngie:]

Until we change Congress' compensation plan and align their interests with the public’s, economic policy will be distorted.

Your point on simplicity is valid. We live in a very complex world. Yet are constantly bombarded with decisions wherein which our decision choices are artificially limited to just two.

Two liberal sites yesterday (Progressive.org and Opednews.com) published sharp criticism of tax money given to AIG showing up scot free on 3rd party balance sheets.

Guys ... we better find us some common ground and stop this.

Put your wedge issues aside for another day.

Apr 16 07:31 AM

[a. palmer jr.:]

Big government, especially government bigger than necessary is bad. They rob taxpayers of the money they should be keeping, instead of paying government people huge salaries to sit around and play computer games (I've seen it) when they are not needed. I've also seen local government have 5 people for a job 1 person could easily do.
But a problem government has also is it has to "look busy" and our government does that by passing laws and acts that aren't beneficial to the majority of our people. Just once I'd like to see the legislature, State and Federal come back with no new laws passed. We have enough laws now, it's the enforcement that's lacking. They are also allowed to vote for raises for themselves which should be done during the voting process; after all, we are supposedly the ones they are working for, we should decide if they have done a good enough job to warrant a raise.
I would prefer to have a smaller government at less cost and let the people do more for themselves rather than depending on government to do it for them.

Apr 16 10:01 AM

[jack kreg:]

Is big gov a bad thing? YES!!

Apr 16 11:25 AM

[Shareholder...:]

Unfortunately, SA changed the title, which used to be "Is big government necessarily bad government?" I've given you four countries where the public sector is almost twice the size of that in the US, and in many ways, these countries are more efficiently run and in some respects more pleasant places to live (less violence, less inequality, better general education, universal healthcare at lower cost, etc.). I've also given you reasons why there is a tendency for the public sector to increase as economies grow richer.
Also, all that stress on "the government is always the problem and the market is always right" type of market fundamentalism has gotten us the present crisis.
Now, having said that, in many cases bigger government can be worse (as the title suggests). In the US that could very well be the case, as government is captive to special interests (more especially big finance, see the link to that excellent Simon Johnson article), but that doesn't dictate that bigger government is ALWAYS necessarily worse..

Apr 16 11:26 AM

[Mad Hedge F...:]

Nancy Pelosi doesn't think so. I chatted with Speaker of the House Nancy Pelosi yesterday as she was passing through the San Francisco Bay Area. I have known Nancy for 15 years, and she was breathing fire and spitting nails as usual. With the public fuming over banksters’ bonuses and bail outs, Wall Street can pretty much count on a Congressional investigation of the causes of the crash, much like the Pecora Commission did in 1932. Health care, essentially a global competitiveness issue, isn’t going to wait for better times either. A bill for a combined public-private national insurance system will reign in the runaway cost of Medicare and Medicaid, the most rapidly growing entitlements. Expect the fireworks to start soon. Investment in education yields the largest source of tax revenues for the Treasury, so expect on more spending there too. Obama plans to cut his $1 trillion budget deficit by a third by the end of his first term, and two thirds by the end of the second. If Congress can’t do this, inflation will rear its ugly head. No kidding. Debt service already exceeds $250 billion a year, or 8% of the total budget. Only “pay as you go” programs will pass to reign in the deficit. The Feds are also going to go after $300 billion in uncollected taxes. Earmarks, which rose by 400% under the Republicans, will be cut in half, and the remainder published on the Internet. Growing up in an Italian American political dynasty that produced two mayors of Baltimore, the petite Nancy used a seat on the San Francisco Library Committee as a springboard to become the most powerful woman in the world in a mere 22 years. She has moved from the kitchen to the kitchen cabinet on the coatails of Obamaphoria. Now the Republican Party’s worst nightmare, she has the power to get a lot of what she wants done.

Apr 16 11:38 AM

[Carlos Lam:]

On Apr 16 07:31 AM ArkansasAngie wrote:
> Guys ... we better find us some common ground and stop this.
>
> Put your wedge issues aside for another day.

I don't disagree that issues regarding the economy are important, but many of us aren't going to put aside issues regarding life and liberty for economics. I'm not going to vote for a pro-abortion politician because he might vote for congressional term limits. I'm not going to vote for an anti-gun candidate because he might introduce a bill to create a lifetime ban on lobbying for former members of Congress. Putting money before principle is what caused the mess we're in, so we shouldn't repeat that same mistake twice.

Apr 16 12:02 PM

[Carlos Lam:]

On Apr 16 11:26 AM Shareholders Unite wrote:
> Now, having said that, in many cases bigger government can be worse
> (as the title suggests). In the US that could very well be the case,
> as government is captive to special interests (more especially big
> finance, see the link to that excellent Simon Johnson article), but
> that doesn't dictate that bigger government is ALWAYS necessarily
> worse.

I do agree to a point with respect to physical well-being. Many of the nations with bigger central governments, however, have more of a homogenous population than does the U.S. Homogeneity is linked with possession of a populace of the same values and norms because all the citizens essentially spring from the same "homeland." Heterogenous societies, though, do not have the same values and norms because by their very nature their citizens have been amalgamated from different corners of the earth. Thus, I would argue that it is doubtful that unity of values and norms can be achieved by the heterogenous populace without the LONG (maybe seven or eight centuries) passage of time.

On the individual freedom side, I tend to disagree with you. Germans can't go out to their local bookstore and buy a copy of Mein Kampf because it's banned. The Japanese citizenry cannot purchase firearms very easily. In many of the European nations, certain exams dictate career choices for the youth. Sure, we Americans have our problems (i.e. the Patriot Act, the REAL ID Act) but our citizens are far more free to do certain things than the citizens in many of the nations that you named.

Apr 16 12:16 PM

[Allan Frain:]

"Suddenly, capitalism is in flux. The superiority (or at least, perceived superiority) of the Anglo-Saxon free market model has waned."

There are those who suggest that capitalism depends on dependable money, the price of which is actually determined in the marketplace.

Fed-era fractional-reserve debt-money is anathema to free markets as the stability of money is gone and the price of money is set by decree.

What may have waned is not capitalism, but the notion that empowered Money Changers have either the skill to manage the system effectively or the benevolence to put the good of the general economy before the augmentation of their peculiar power.

Apr 16 12:23 PM

[sunnsea:]

Good article. But as far as Japan is concerned, it helped to have a trading partner with a huge market of consumers with no trade barriers or tariffs on high value added products such as autos and electronics. For Europe, the same was basically true. In both cases, we allowed all their products in but got little access in return or did not really develop an export strategy for US made products to their markets other than to whine and complain. The only other thing was then to take the remaining U.S. industrial capacity and ship it to China, then count AIG derivatives and CDS's into our GDP and thus have a "$12 Trillion economy" that does not really exist as we are just now beginning to realize.

Apr 16 12:37 PM

[OldNavySailor:]

"Sweden, Denmark, Finland, The Netherlands" - examples of big government working effectively for its people. Perhaps if those countries had a military the size of the USA spreading hegemonic imperialism around the world at the point of a gun they wouldn't be doing so well either.


On Apr 16 11:26 AM Shareholders Unite wrote:

> Unfortunately, SA changed the title, which used to be "Is big government
> necessarily bad government?" I've given you four countries where
> the public sector is almost twice the size of that in the US, and
> in many ways, these countries are more efficiently run and in some
> respects more pleasant places to live (less violence, less inequality,
> better general education, universal healthcare at lower cost, etc.).
> I've also given you reasons why there is a tendency for the public
> sector to increase as economies grow richer.
> Also, all that stress on "the government is always the problem and
> the market is always right" type of market fundamentalism has gotten
> us the present crisis.
> Now, having said that, in many cases bigger government can be worse
> (as the title suggests). In the US that could very well be the case,
> as government is captive to special interests (more especially big
> finance, see the link to that excellent Simon Johnson article), but
> that doesn't dictate that bigger government is ALWAYS necessarily
> worse..

Apr 16 01:59 PM

[Buckoux:]

OldNavySailor: "Sweden, Denmark, Finland, The Netherlands" - examples of big government working effectively for its people."

The aggregate size of these countries and the corresponding size of their respective governments are in no way relative to the size of the USA in population, economy or government. Whenever someone on the left leaps at using examples - sans statistics - of tiny Western European countries as a counter to the USA, they have lost their argument. There is no comparison between the USA and to countries that are the size of its states.

OldNavySailor: "Perhaps if those countries had a military the size of the USA spreading hegemonic imperialism around the world at the point of a gun they wouldn't be doing so well either."

They don't need a navy, they us ours. Besides, is the size of a country's navy relative to its crimes at the point of a gun? If so, then how do you then explain away tiny, poor, Somalia and its piracy? Perhaps size does, or doesn't matter, but morality certainly does

Maybe you would do well, "OldNavySailor", if you were to leave retail clothing and actually join the US Navy to discover, first hand, about that which you are truly ignorant. (spit!)

Apr 16 04:09 PM

[Pstoneki:]

Funny - the Sumerians probably said the same thing, as did the Egyptians, The Babylonians, the Romans, the Mayans, the Aztecs, the ancient Chinese.... Believe me, we don't have a lock on genius any more than these civilizations did. And they lasted a lot longer than we have.


On Apr 16 07:30 AM atlasman wrote:

> Yes, big government is a bad thing.
>
> "1 First, the superiority of the Anglo-Saxon model has never been
> a universal truth."
>
> The model built the most prosperous nation in the world that used
> that prosperity to win WW1, 2, and cold war. Yes, it is a universal
> truth. Though I would argue that the model has been chipped away
> over the years to the point now where it is no longer effective.
>
>
>
>

Apr 16 04:26 PM

[Shareholder...:]

For those that argue that the small European countries I mentioned are not representative because they have homogeneous populations, I have news: Amsterdam (with less than 1M people) is the worlds leading city in terms of number of different nationalities living there. Also, 50% of it's population is first or second generation immigrant (and most with really quite a different cultural background).
Whether this is good or bad (from an economic point of view) has different sides:
- it has been shown that trust and social capital decline with increasing heterogeneity of the population (bad for economic growth)
- but from the literature on knowledge economics, we know that it increases creativity and problem solving capabilities (but that might be restricted within the boundaries of the firm, were some basic form of community and trust are already established).

I do admit, by the way, that these countries can learn a lot from the US in terms of assimilating large numbers of immigrants, but that also implies cultural diversity might actually be a bigger problem in these countries (which I think it is, apart from Finland).

For those arguing the prosperities of other nations depending on US open markets:
- Economics show that even unilateral free trade is beneficial to the host country
- Jeff Madrick argued, (in a book titled "Why Economies Grow"), that the single biggest benefit the US (and the UK before that) had was a large internal market. Perhaps that has something to do with China still growing at 6% while it's exports are slumping.

To the free marketeers: difficult to explain what is perhaps the most spectacular economic success; Japan post WOII, did many things wrong according to the textbooks..

To the person arguing Friedman: that was not our point at al, it's a separate issue (I'm an economist and well aware of the inflation creating capabilities of central banks). Happy to discuss that some other time.

Apr 16 05:06 PM

[austrian63:]

What is very conspicuous by its absence in this article is (1) facts and (2) a logically sound theory of the causes of the current crisis.

I'm not sure what is meant by the Anglo-Saxon model unless you are describing the economies of Britain, America, Canada, Australia and Nw Zealand, essentially the English speaking world. If so, these economies are ver good examples of State Capitalism. If you equate them with market economies then you must revise your article as none of these economies are close to "pure" market economies. For example, they each have very powerful Central Banks and we all know that central banks are creatures of government not of free markets.

Please explain 'Baumol's disease' as the reader of your article must disregard this point if no support for this theory is offerred. Sounds similar to marginal utility theory but again ther is not enough support in your article for the reader to draw a conclusion re: its validity.

What do you mean by market fundamentalism and can you prove this caused the current cisis? Here's a hint: In the U.S. artificially low interest rates were maintained not by market fundamentalists, who ever they are, but by the Federal Reserve our central bank. Remember, the fed is a creature of government, read the federal reserve act of 1913, and its chairman is appointed by the president of the United States and confirmed by the Senate. He is a government employee. The fed has been quite successful in creating many boom-bust cycles since its founding in 1914. In fact, we average more than one every 10 years.

You write that market fundamentalists consider regulation a dirty word however most free market people I know would love to see the Fed reined in significantly since it is a creature of Big Government and creates so much mischief. WOuld you consider this better government?

Finally, if Big Government will have monopoly powers and virtually absolute power, how will you get comfortable with their opinion of what is in the national interest? These men and women are human as such they are corruptable and will always look to better their position at the expense of those they rule over in the name of the national interest.

Mussolini, Hitler, Lenin, Hitler, Pol Pot, etc. did what they believed was in the national interest but they sure did hurt and kill lots of people. But since it was in the national interest I guess that was okay. Who is going to regulate the Big Government guys who are in charge of your life?

You certainly have the right to prefer Big Government and be against liberty but I found your arguments in your article to not be well thought out. At the end of the day government is the negation of liberty.

Apr 16 05:26 PM

[Friar Hilarius:]

Why is the Per Capita GDP of America an obscene multiple of the PCGDP of Burundi ?

What entitles America to so much per capita and Burundi to so little

"The first shall come last and the last shall come first"

As to size of Government it is not a question of whether mine is bigger or smaller than yours

It is a question of whether mine is better or worse than yours

Why can't good governance be shared more ... world wide ?

I don't mean "World Government" ... I mean studying what works and what doesn't at Government level

Surely in this brave new world of Instablogs the best practices should be easy to find

Friar Hilarius

Apr 16 06:21 PM

[Shareholder...:]

Austrian. (Austrian economics, I guess?) Curious comment.
All I tried to say was:
1) Big government is not necessarily bad government (with the emphasis on necessarily), too bad that point has been lost somewhat because SA changed the title, I didn't say that I favour big government (as it happens, I thing good government is much more important than size, but what I argue is that these are unrelated)
2) Same holds for you slamming me with dictatorships. I know Hayek argued there is a correlation (and you might be surprised that I coined "The use of knowledge in society" as one of the most important economic papers of the 20th century elsewhere), but the four countries I mention above are all solid democracies.
3) I didn't have anything to say about the role of a central bank in the article, but try live without a central bank (especially now)...
4) I had something to say on the origins of the crisis in Oct last year: seekingalpha.com/artic...
5) Could it be that government can also sometimes be the guarantee of liberty?
6) I can't help you don't understand Baumol's disease, but perhaps it's better explained in a textbook, it's pretty standard economics

Apr 16 06:42 PM

[Francisco M...:]

Market intervention is like giving a child human growth hormones. The child will grow but with debilitating after-effects.

Apr 16 11:27 PM

[Tony Petroski:]

"Is Big Government Necessarily Bad Government?"

"Big" relative to what? Conservatives used to talk of the "ratchet effect." Government always gets bigger, never gets smaller, although at times the rate of growth is slowed while the productive part of the economy recovers and those that produce real goods and services are once again able to carry those who do little or nothing.

It's interesting to hear an academic discussion of what any person of common sense knows which is that productivity is very hard to improve in the public sector because the public sector draws so many deadbeats seeking sinecures--adverse selection.

In answer to the original question: Yes.

Apr 16 11:46 PM

[austrian63:]

Let's discuss these points:

1) You argue that good government is unrelated to the size of government. I disagree since a bad small government can hurt me less than a bad big government. I would agree that good government is much more important than size but show me some "good governments."

2) I was not slamming you with dictatorships. Here is my point: Is it easier and more likely that a Big government or a Small government will impose a totalitarian regime and restrict liberty. Remember, separating one from the fruits of his labor is the suppression of liberty and something Big governments do supposedly for the greater good.

3) You are correct that you did not say anything about central banks in your article. But central banks are creatures of Big governments not Small governments. This being the case, the harmful effects of central banks on individual citizens and their policies that benefit the few at the expense of the many must be included in any pro and con discussion of Big governments and or good governments.

4) I read your article from September 22, 2008 and actually agreed with a few points and you comment that the core of the problem is ideology. You further comment that "The free markets that the supporters purport to defend are a myth. Thier vision of free markets is a highly abstract one, in which any kind of public migling is bad almost by definition." The true myth is that free markets actually exist. There are no free markets today.

I agree with your assessment of ideology being the problem but the ideology is one of crony capitalism and not free markets. Crony capitalists do depend on the government to enforce their monopolies and their ability to allocate resources in their direction and distort "market" functions. Think artificially low interest rates that punish savers and reward debtors especially governments.

5) Government can only guarantee liberty of you believe we are not born free but born as wards of the state and then the benevolent government gives us our liberty. He that gives can take away. I believe all people are born free therefore government is most liklely a menace to one's liberty especially the larger and more powerfull it becomes. I often hear about the greed and rottenness of corporate executives. What's to prevent this very same human attribute from residing in the hearts of government officials? In fact it does.

6) I researched, lightly I will admit, Baumol's disease. The reason I asked you for an explanation was to see if you could provide one. The fact that you did not prompted me to research it. It does appear to relate to the marginal productivity of labor. Obviously this is a whole topic in itself let's just say that without a capital theory, any economic theory is incomplete.

To conclude, if loose regulation and easy monetary policy was one of the casues of the current bubble cycle, the Fed is in charge of monetary policy in the U.S. and it is part of the government. To get back to my main point, how can increased regulation help when the government is the master regulator. That's my point re: the misplaced trust in Big government and the fact that Better government is a not likely to happen.




On Apr 16 06:42 PM Shareholders Unite wrote:

> Austrian. (Austrian economics, I guess?) Curious comment.
> All I tried to say was:
> 1) Big government is not necessarily bad government (with the emphasis
> on necessarily), too bad that point has been lost somewhat because
> SA changed the title, I didn't say that I favour big government (as
> it happens, I thing good government is much more important than size,
> but what I argue is that these are unrelated)
> 2) Same holds for you slamming me with dictatorships. I know Hayek
> argued there is a correlation (and you might be surprised that I
> coined "The use of knowledge in society" as one of the most important
> economic papers of the 20th century elsewhere), but the four countries
> I mention above are all solid democracies.
> 3) I didn't have anything to say about the role of a central bank
> in the article, but try live without a central bank (especially now)...
>
> 4) I had something to say on the origins of the crisis in Oct last
> year: seekingalpha.com/artic...
>
> 5) Could it be that government can also sometimes be the guarantee
> of liberty?
> 6) I can't help you don't understand Baumol's disease, but perhaps
> it's better explained in a textbook, it's pretty standard economics

Apr 17 06:09 PM

[Shareholder...:]

1) Well, small government can hurt as well. We don't have to go back all the way to Hobbes, much more recent examples are available: it was the midwife of an under-regulated, over-leveraged financial sector that wreaked havoc on the world..
2) You have a point there
3) Here you don't, it's nonsense.
4) The ideology responsible for the crisis is the belief that markets don't need regulation. I pointed out that financial markets in particular do need it. Crony capitalism did play a role, but not as an ideology, in fact, it's the other way around. Would you agree to the analysis that under-regulation was a (and in my view the main) driver of the financial crisis?
5) I don't believe either, but I refer back to Hobbes..
6) I assumed (perhaps falsely) I explained it sufficiently in the article. Baumol's disease refers to a situation in which productivity increases occur disproportionally in the private sector, not the public sector, which is born out by the facts. As a result, the public sector faces a choice: either pay public sector workers less and less vis-a-vis the private sector, or maintain wage parity (roughly), but that automatically increases the size of the public sector.
I also gave another reason why a growing public sector is not by definition something scary; changing tastes. As people become richer, their consumption of public goods tend to increase.

Apr 19 04:18 PM