Economics

This post presents some thoughts on the goals of economic policy. One of the defining differences between liberals and conservatives is their quite different goals for the government’s economic policy. Liberals claim they want to provide economic justice. This translates into wealth redistribution. Conservatives claim they want to promote economic growth. This translates into private enterprise and competition. At a darker level, the conservatives claim the liberals really want to enslave the working classes, killing their ambitions with “kindness”. The liberals claim the conservatives really want to make their rich supporters even richer. There’s a substantial truth in all these views.

Moderates would take a middle position. At its most fundamental level, the economy of any society must provide a balance between two competing goals: growth and productivity versus maintaining a stake. Exactly where this balance is at any point in time will vary, but the general rule would be that the government should let the economy operate as freely as possible while making sure that a significant majority of the population agrees that the economy is worth maintaining.

First, there has to be some mechanism so the economy can shift and grow as conditions change. Risk-taking and talent and hard work must be rewarded. Taking away incentives is a guarantee of a sluggish, static, entrenched economy, that will eventually not be able to compete with other economic systems. Wealth as a whole will not increase as quickly as it could, and the society will be poorer in the aggregate. One only has to look at the long list of failed communist states, not one of which has been able to provide what we would now consider a decent living for its populace. Even at its best, an altruistic socialism flies so far into the face of human character that it is untenable, unless there are substantial armed forces to enforce it. These substantial armed forces will inevitably be used for purposes other than maintaining altruism, mostly to maintain the positions of those in power.

Second, there has to be some mechanism so most of the populace has an interest in maintaining that society. Having a large disparity of wealth, along with a well-armed populace, is a recipe for future disaster. Those who have worked hard for what they have might characterize this as extortion, and to some extent they are correct. In a perfect world, nobody would ever attack another person, regardless of the provocation. But for those with wealth, I would simply ask: what type of world do you want to live in? Do you want to live in a world where you must constantly protect what you have from those who do not? Look at Brazil or Mexico for a model of this. For those few who have large amounts of wealth, they live quite well – but in a cocoon of armored vehicles and armed guards.

One of the principle reasons for the conservative drift of the U.S. in recent decades was the over-reaching of the liberals in their effort to build a more “just” society. That they wanted to build it with someone else’s hard-earned money angered so many hard-working Americans that “liberal” has become quite an epithet. As a result of the recent drift, the disparity of income and wealth has been increasing. The rich are getting richer, and there are more of them. That’s all goodness, I’d like to be one of them. But at the same time, the poor are becoming poorer (and I mean poorer in absolute terms, not just with respect to the rich), and there are more of them. The middle class is shrinking. A typical 1950’s family would be very difficult to maintain today. How many new subdivisions have walls around them? And now the U.S. wants to build walls around the entire country.

There have been attempts at justifying the growing disparity of wealth by saying that some of the wealth will “trickle” its way down to the poor, as the rich invest and spend their wealth. It simply hasn’t worked that way. Recall David Stockman’s (Reagan’s budget director) confessions? Or that Bush senior called trickle-down “voodoo” economics?

So what are some practical effects of the above meandering discussion? Most of these are motherhood, with the devil being in the details. Some of the details are discussed in other papers on this site.
(1) The government ought to take steps to see that power – in this case, economic power – does not get too concentrated. The estate tax was, in my opinion, a nice way to do this. Even for the rich, I’m not convinced this concentration would be a good thing. I do know that for the rest of us, it would be a bad thing. One only has to read about the robber barons of the 1800’s to see what happens.
(2) The government should support the operation of the free market – it is the most efficient and effective system there is – and should resist the efforts of the business community to make it less free. It should make sure that competition remains strong. Monopolies are almost always a bad thing, generally serving only special interests.
(3) The government ought to do everything it can to reward those who create jobs and new wealth in a responsible fashion. Keep taxes as low as they can be, consistent with providing necessary government services. Whatever taxes do exist, try to make sure they don’t stifle growth. I agree that deciding which government services are “necessary” is a difficult job. That’s why we have elections.
(4) The government ought to make running a business as easy as possible. We ought to remember that most regulations exist because of past abuse, but there are any number of regulations whose purpose it is to make life easier for the government or for some special interest, and end up making life more difficult for the general population.

December 26, 2002