Top-Down Collectivism Fatigue: Let's Turn Around
"According to Hayek, order can emerge not just from the top down but from the bottom up. The American people are suffering from top-down fatigue. President Obama has expanded federal control of health care. He'd like to do the same with the energy market. Through Fannie and Freddie, the government is running the mortgage market. It now also owns shares in flagship American companies. The president flouts the rule of law by extracting promises from BP rather than letting the courts do their job. By increasing the size of government, he has left fewer resources for the rest of us to direct through our own decisions.
Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. We join with others to produce the goods and services we enjoy, all without top-down direction. The same is true in every sphere of activity that makes life meaningful—when we sing and when we dance, when we play and when we pray. Leaving us free to join with others as we see fit—in our work and in our play—is the road to true and lasting prosperity. Hayek gave us that map.
Hayek never said that totalitarianism was the inevitable result of expanding government's role in the economy. He simply warned us of the possibility and the costs of heading in that direction. We should heed his warning. I don't know if we're on the road to serfdom, but wherever we're headed, Hayek would certainly counsel us to turn around."
~George Mason economist Russ Roberts in today's WSJ
44 Comments:
Indeed, capitalism may soon be jammed by the demands of federalism. For example, can the US deny California after saying yes to GM, AIG, and dozens of banks...?
Comments welcome at:
http://wjmc.blogspot.com/2010/06/capitalism-or-federalism.html
I am becoming quite concerned not only for our economic future, but for the future of our union as we know it...
Obese government is the problem, 45% of the economy plus another 10-15% of GDP in regulation cost. What happens when government is bigger than the private sector? Euro-sclerosis. High unemployment, slow growth, driving money and businesses out.
Pretending to fight the problem, big government is only making it worse by bailing out overspending state and local governments, and passing out $600 checks, calling it "tax reduction", but it's mostly to people who pay virtually no income tax.
The federal government is borrowing about 43% of its income, accelerating the collapse.
" We join with others to produce the goods and services we enjoy, all without top-down direction. "
That works perfectly for all the goods and services we enjoy.
What about all the crap, garbage, pollution, deliberately obsolete goods, and fraudulent practices and services that we do NOT enjoy?
For that, you need government.
Obese government is the problem, 45% of the economy plus another 10-15% of GDP in regulation cost.
And yet government stimulus spending cannot work.
Sounds to me like what you are saying is that we should cut our economy by 60% by eliminating government.
anon-
i think what he's arguing is that government is now of a size and intrusiveness where the incremental benefit from stimulus is outweighed by incremental crowding out of the private sector.
this is a particularly potent risk when using non traditional means of stimulus and liquidity injection such as the vast fed program of quantitative easing and huge federal stimulus outlays.
tax cuts at least keep the money private, stimulus packages siphon off private money and allocate it in a manner not governed by economic and business discipline, thereby creating far more waste and deadweight loss.
quantitative easing involves the fed directly in asset markets and sets it up as a competing lender, as compared so the standard open market operations by which the fed sets interest rates and controls money supply.
this all leaves an enormous amount of the economy being allocated by one monolithic actor (government) massively magnifying small mistakes.
the beauty of capitalism is that people do different things and can succeed or fail individually. this level of governmental involvement is more like making one big bet instead of many little ones. worse, the people making the bet are less well equipped to do it than those making the small ones. add to that the perverse incentives they face when allocating money, and you have the recipe for a disaster.
we have lived beyond our means for too long. the bill is going to come and we will have to pay it. government can perhaps put that day off a bit, but they are just adding more to the tab while they doing making the inevitable day of reckoning more painful.
the sooner we get this over with, the sooner we can recover. driving our federal government into insolvency to put off the inevitable is a bad, bad policy choice.
"Sounds to me like what you are saying is that we should cut our economy by 60% by eliminating government"...
What?!?!
No anon @ 6/28/2010 9:31 AM, the government (local, state, and federal) is sucking that much out of the economy which means people become unemployed...
From today's Washington Times: From New York to California, state capitals and city halls facing huge budget deficits are fighting with unions to slash costs through pension cuts or freezes and worker furloughs and by renegotiating contracts with unions that represent civil servants, teachers, police, firefighters and other public servants...
From the Cato Institute: Downsizing Federal Government
Oh, PU.
How about we get the federal government to try to run just one country--the United States-- and not three, the other two being Iraqistan.
The CBO says Iraqistan will cost us $3 trillion.
We could also stop subsidizing rural America with crop subsidies, telephone subsidies, highway subsidies, power system subsidies, water system subsidies, and even airline and railstop subsidies.
Top down? Is there any sector of the economy more top-downed than agriculture? Totally regulated and subsidized. How about the really stupid ethanol program?
Funny, how these right-wing windbag-strumpets overlook the biggest welfare pigs of them all--the Red Bloc-rural America, and our foreign-policy-defense establishment.
benny-
there are lots of sectors more top downed than agriculture.
banking, insurance, airlines, airplanes, rail, automakers, education, healthcare, utilities, telcoms, and pharmaceuticals come to mind just off the top of my head. green energy is another one. that whole industry would disappear absent subsidies, but we'd still have farmers.
i don't disagree that all of them ought to be less regulated, subsidized, and protected, but what is it you are arguing here?
Hey pseudo benny, what are you trying to say?
"Top down? Is there any sector of the economy more top-downed than agriculture?"...
Yeah, the constitutionally questionable school lunch program...
" thereby creating far more waste and deadweight loss."
Only if you assume the private sector is far more efficient than government. Both sides are populated by people who are fallible.
I agree that excess government is not good, I just did not think your argument was well stated.
And now if we agree that government is displacing private enterprise, what is the REAL difference to the economy? Not much. Take out the 15% of government that PE could do and shift ti tot he private enterprise side of the ledger. What is the difference to the economy? The amount that PE can do that work better than government minus the costs for that work that PE will externalize.
That winds up being a hidden cost to us while government costs are more transparent.
Morganovich-Juandros--
I don't think you understand the full size and weight of rural subsidies. Rural America is kept alive (wrongly) through subsidy. No one would live in the boonies without highways, power, telephones etc. Once there, they demand more, and their reps go to DC and get more.
The school lunch program and food stamps are bad ideas, and should be ended.
Agriculture is the most top-downed as feds actually try to control production and price--the feds try to limit output, to keep prices up, then subsidize if prices fall too low. There are also more than 7,000 ag. extension agents across the country to help farmers, and land grant colleges with ag programs tec. The irony is that all the subsidy means more production, which means lower prices, which means more subsidies are needed.
The Red Bloc--21 farm states, meaning 42 Red Bloc Senators, who vote for federal money to rural areas and defense-sector operations in their districts. This is where the bulk of federal income taxes go (the huge, bloated entitlement programs are financed by payroll taxes).
I concede that proving what is the most regulated economic sector--the financial sector comes to mind--is a tussle. But agriculture gets direct subsidies--remember the hue and outcry over the auto bailout? Every year is a bailout in farm-land.
Defense, USDA, VA, Commerce, Interior, and Homeland Security-civilian defense eat up 65 percent of federal income taxes.
Generally speaking, the feds get about 25 cents of value for every $10 they spend. When we go overseas, I gather that 25 cents drops to about 10 cents or less.
the government (local, state, and federal) is sucking that much out of the economy which means people become unemployed...
I don't think that is what Tom said, or if it is he did not say it well.
sure, government sucks money out of the economy. And since government does not save anything, it uts that money right back intoo the econy and greedy contractords fight over it.
Let's say the government buys some service from a contractor, and being inefficient the government pays too much for it.
The excess money goes straight to the contractors bottom line: how is that a loss to the economy?
"We could also stop subsidizing rural America with crop subsidies, telephone subsidies, highway subsidies, power system subsidies, water system subsidies, and even airline and railstop subsidies."
As a rural amrican that seems a little one sided to me. How about if we stop providing garbage storage subsidies, watershed protection subsidies etc.
You make it sound as if urban areas are far more efficient. If that is the case why are they more expensive to live in, more expensive to protect, and more expensive to govern and maintain.
Once there, they demand more, and their reps go to DC and get more.
Rural America is what, 10% of the epopulation? How is it that they swing so much weight?
by renegogiating contracts with unions that represent civil service, teachers police, firefighters....
You mean THOSE people who will become unemployed?
Sounds like you are arging WITH Tom, that government spending DOES support the economy,
Generally speaking, the feds get about 25 cents of value for every $10 they spend.
You got a citation for that statistic? As a government contractor I would LOVE to learn how to give them 25 cents worth of value on a $10 contract.
My experience is that on a $10 government contract, I'm lucky to see 80 cents as Gross Profit.
anon 12.38
how is that a loss to the economy?
simple. the governement had to take the money from someone first. profits are taxed. those with profits are generally using money more efficiently that those who don't. so i take a dollar from someone who would have spent it and gotten a dollar's worth of goods, then , as the government, i buy something worth less than a dollar. worse, whereas a business might have used that dollar to invest in something productive, government rarely does so, so future production takes a hit too.
that's how it's a loss to the economy.
"How about we get the federal government to try to run just one country--the United States-- and not three, the other two being Iraqistan. "
Good point. Other bloated democracies are able to actually rovide something to their citizens for the taxes they collect because we subsidize their defense.
When our Navy is larger than the next five combined - and they are our ALLIES - maybe something is wrong.
But, hey, let's whack those rural subsidies, right Benny?
Oh yeah, isn't it true that our rural areas provide a high percentage of defense personnel?
Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation.
I'm not entirely sure we're going to get cooperation. More likely is political vengeance that is used against various groups of people. Already seeing that with the long-term unemployed.
The last time around, we got what Hayek thought we shouldn't get.
those with profits are generally using money more efficiently that those who don't.
You mean like the brilliant contractor that won the excess money the government got from the the others who had to pay excess taxes?
It still goes to profit and by your argument he uses it more efficiently (than government, and probably the other guys, too.)
The money goes throught the government meatgrinder all right, but where is the actual loss? Where does the money disappear?
It isn't like the government was taking th emoney and then dumping 10% of it in the ocean. Of course there is delay, as the giant government worm digests and deposits the casts to fertilize the economic environment, so time value of money is an issue, but actual loss? Where is it lost to? The next guy that does business with the government?
as the government, i buy something worth less than a dollar = as government contractor I sell something worth less than a dollar and make windfall profit.
The equation balances and there is no loss.
anon-
you are missing the total flaw in your thinking though which is that a productive dollar is taken from someone and then used to buy less than a dollar's worth of something that is likely not productive. even if they got the full dollar, it doesn't matter.
diverting capital from productive use to an unproductive one is pretty much the definition of a dead weight loss for the economy. the government is not a good allocator of capital. this is compounded by taking the workers at the contractor away from productive work and into non-productive spheres.
by your argument, it would not seem to matter from whom we ever take a dollar so long as we give it to someone else. that is clearly not the case. your notion that the dollar is still a dollar misses the fact that it matters for what a dollar (or a worker) is used.
Ahh.
Not productive is a different argument than something worth less than what is paid for it.
Now, by the GAO's own policy statement there is no reason for ANY government policy that does not provide a positive net social worth. In other words policy should be productive.
I think we can all agree on that: there is no reason for unproductive policy. The disagreement seems to be on how to do the cost benefit analysis.
People like Juandos assume there is no government benefit and all government costs are a net social waste. No amount of math, statistics or evidence is going to convince him otherwise.
I'm inclined to believe, for example, that the Coast Guard spends less on buying and maintaining the buoy and lighthouse system than the system saves in property losses every year. MAYBE a private company could do it for less, but how would they buy liability insurance?
I think there are ways to find the right answers about what government should and should not be doing, and BOTH of the usual partisan anwers are mostly wrong.
your notion that the dollar is still a dollar misses the fact that it matters for what a dollar (or a worker) is used.
Not at all, it DOES matter. That is why I promote the equation:
Total Cost = Production Cost + External Cost + Government Cost.
Too much government costs raises ttotal cost. Too little raises external costs, and therefore total cost. Article in Last weeks Newsweek makes the argument that we do not have the measurement and feedback systems in place to accurately monitor what it is we are doing, and therefore we have endless arguemnts over what we are achieving.
Unemployment statistics being a case in point.
the argument about productivity is one i made from the start.
i'd also add to it one i left out: overhead. it costs money for the government to collect taxes and disburse money, so a dollar they take from me can never be given in full to anyone. some of it goes to tax collectors and bureaucrats who are only needed if you tax. it also costs money for me to deal with the monstrously complex tax codes ( my personal tax return is no exaggeration over 3 inches thick. i had to mail it in a box) and figure out what records to save and what to pay. this is also a cost, and one that could be greatly reduced if anyone actually wanted to (having tax lawyers and accountants make the laws for those who need their services to comply with the laws is a perverse incentive structure)
further, overpaying for a service, say, road construction, still causes a net loss by itself because it props up the politically connected over the efficient preventing productivity and lower costs. everyone pays for the departure from the efficient production possibility frontier. insane rules like "paying the going wage" which basically means whatever the unions get prevents whole industries from becoming efficient. this misallocates resources and capital, just as farm and water subsidies result in cotton being grown in the desert. we wind up with whole industries (like wind power) that have no business even existing and cannot pay for themselves. dollars spent subsidizing wind may be worse than spending no dollars at all.
regarding productivity, sure, some government money is spent for productive purposes, but a great deal of it isn't. we spend over $12k per year per student on primary education. (that's $250k per class of 20) and get terrible performance for it. we subsidize ethanol and piles of other commodities. we build bridges to nowhere.
this sort of thing will always happen if the profit motive is absent. buying votes is not a productive use of capital.
my view is pretty simple - government is a lousy purchaser and allocator of goods and services. they lack the expertise and have the wrong incentives.
the answer is to have them allocate fewer resources and push things back to the private sector who can allocate effectively.
imagine how much better schools would be if every kid just got $12.6k a year to spend on the school of their choice. that's plenty of money for a top flight education. if the schools had to compete for kids, they'd improve in a big hurry or fail. instead, all we get is a constant stream of demands for more money to be wasted as before.
neither of the 2 major parties seems to favor small government anymore. they and their key constituencies are too addicted to feeding at the trough when their turn comes.
Benji,
"Defense, USDA, VA, Commerce, Interior, and Homeland Security-civilian defense eat up 65 percent of federal income taxes. "
Well, we're waiting on your boyfriend to go "line-by-line" and deliver that "net spending cut" he promised during the campaign.
When's that going to happen? He has the entire Congress.
imagine how much better schools would be if every kid just got $12.6k a year to spend on the school of their choice. that's plenty of money for a top flight education. if the schools had to compete for kids, they'd improve in a big hurry or fail. instead, all we get is a constant stream of demands for more money to be wasted as before.
You made the mistake of giving a number and not a percentage.
my view is pretty simple - government is a lousy purchaser and allocator of goods and services. they lack the expertise and have the wrong incentives.
While the private sector uses the government to get their way. They're more willing to use it as a cudgel against other citizens(e.g. the unemployed) or all citizens (e.g. making it so that no citizen can qualify with onerous qualifications).
"While the private sector uses the government to get their way. They're more willing to use it as a cudgel against other citizens(e.g. the unemployed) or all citizens (e.g. making it so that no citizen can qualify with onerous qualifications)."
And so sethstorm heroically refuses to bend on his principles and collects unemployment instead.
seth-
i have no idea what you are talking about in either case.
what %? i meant to use an absolute number of $12,600 per student per year to show how ludicrously little we get for that money.
regarding the private sector using government to get their way, you make my argument for me:
so long as and to the extent that government has money to allocate and winners and losers to pick, people (and businesses) will try to influence them. no amount of campaign finance reform can ever change that. this will cause consistently bad outcomes.
the only way to take this sort influence out of government is to take influence away from government.
so long as they have goodies to distribute, there will be a line of people (be they unions or businesses or special interest groups) trying to get them and they will happily buy politicians (who are happy to sell themselves) to do it.
this, to my mind, is one of the strongest arguments for getting government out of business. look at the sort of corruption and nepotism you see in europe or china. that is the direct result of governmental influence in the economy.
Agreed in partial Morganovvitch.
Each point has some merit, but you assume the private sector is perfect which it isn't. And they have overhead, too, so that is not a discriminator.
What I argue for is a larger sense of what is efficient - lower TOTAL costs, recognizing the flaws and necessitiy of both the private and government sector.
imagine how much better schools would be if every kid just got $12.6k a year to spend on the school of their choice.
My father, who was a teacher would have, and did, say the same thing.
Now, are conservatives actually willing to hand over $12.6 k per year per kid to parents who don't have it? Or is this argument just the first round?
what %? i meant to use an absolute number of $12,600 per student per year to show how ludicrously little we get for that money.
When you mention a number, the private sector finds a point above $12,600 that does the same thing to people. When you mention a percent and have a large enough scope on what is funded, they have nowhere to hide.
this, to my mind, is one of the strongest arguments for getting government out of business.
Only if they cannot take their frustrations out on the locality.
They shake down localities for tax breaks, then relocate - leaving the locality worse off.
look at the sort of corruption and nepotism you see in europe or china. that is the direct result of governmental influence in the economy.
And yet we send work to some of those places. In the name of efficiency and all that. That, and they have top-down authoritarianism propped up by various government-backed multinationals.
I'll at least agree with your initial point regarding business and government.
seth, your grasp of capitalism is as tenuous as ever.
you are missing the point on education.
the point is this: we have X amount of money that we are spending. we are not getting our money's worth. if allow competition for that money, we will get better service. for $250k a year, you ought to be able to educate a class of 20 pretty damn well and attract absolutely top flight teachers.
anon-
this is not a conservatives/liberals issue, it's a common sense one. if we are going to spend X amount of money, shouldn't we get the most we can for it? i'll bet you could duplicate the current school system with half the money if it were run by the private sector and subjected to market forces.
tax breaks are just another kind of government largess seth. flat tax, no breaks, and bang, your issue is gone. the bad behavior and outcomes you cite stem from the ability of government to give away goodies. take that away, and bingo, no problem. again, you make my case for me.
regarding sending work to europe, that's just the US taking advantage of european subsidies (to our own benefit as we get cheaper products) just as they do with ours. giving up subsides unilaterally makes us better off and more competitive. the money that had been wasted will be used productively elsewhere. if they still want to let us buy stuff below cost, so what?
i'm sure you'll argue that that means you won't get a job, but that's not true. it's a net benefit to us and will cause more growth and more jobs by saving our industry and households money through the largess of european taxpayers. at that point, they are paying taxes for us. fine by me.
for every $ lost to boeing from airbus subsidies, many more are saved by US citizens and businesspeople traveling and airlines. subsidies are nearly always a net loser of money, productivity, and jobs.
Defense can take budget cuts because at the moment the USA has the most modern army on the planet. The navy is pretty much the same and plans are in place to replace a big percentage of the air force fighter force with new aircraft.
Research and development needs to be maintained in areas where weapons dominance is no longer assured and these invented systems manufactured and then employed as needed.
The USSR was a collapsed country but the new Russian Federation is very well managed and expanding on huge export income from petroleum exports and 13% flat personal income tax rate[Milton Friedman style]
The Russians are developing new weapons systems.A new fighter rumoured to be a very close performer to the F22 Raptor and various other new sophisticated weapons.
The big problem is these weapons are being sold by Russia into the second and third world.
China has a rapidly expanding domestic military and defense equipment sales.
Total relaxation of military spending is unfortunately not possible because of the increasing number of possible threats from wealthier second and third world countries.
anon @ 6/28/2010 2:30 PM says: "People like Juandos assume there is no government benefit and all government costs are a net social waste. No amount of math, statistics or evidence is going to convince him otherwise"...
Ahhh, so sad...
There was NO reason to make any assumptions, just an honest look at the huge problem we have on our collectives hands would show you the error of your thinking...
A little basic arithmetic and a little basic economics and you too can figure it out...
Confused!
I became very confused when I heard the word "service" used with these agencies:
Internal Revenue 'Service'
Postal 'Service'
Telephone 'Service'
Cable TV 'Service'
Civil 'Service'
City, Provincial & Public 'Service'
Customer 'Service'
This is not what I thought 'service' meant.
But today, I overheard two farmers talking, and one of them said he had hired a bull to 'service' his cows.
BAM!!! It all came into focus.
Now I understand what all those agencies do for us!
juandos, thanks for link to the cool math site. My grandson will enjoy it.
Paul said: - "And so sethstorm heroically refuses to bend on his principles and collects unemployment instead."
That may be ending. shall we ask him?
"Defense, USDA, VA, Commerce, Interior, and Homeland Security-civilian defense eat up 65 percent of federal income taxes"...
Well as usual pseudo benny doesn't let the facts get in the way of a good cry...
Juandos:
I see the math page you posted is a service of the Dept. of Energy.
maybe the reason we have "so much" government has something to do with the law of supply and demand.
Anon @ 12:23 said: "I see the math page you posted is a service of the Dept. of Energy.
maybe the reason we have "so much" government has something to do with the law of supply and demand."
DOE?!?!
What are you talking about?
Your browser must be broken. Try that link again.
Ron H. said...
Already ended a couple of weeks ago, and I have about 20 weeks before I'm a 99'er. Been very tight on money. Doing what is asked by law, and getting nothing for it.
Really could go without the folks who demonize the unemployed. They'll probably demonize the same people again when they apply for government assistance elsewhere - as they'll be painted with the welfare brush.
Now might be a time to make it possible to give the same requirements to businesses to not refuse or act in bad faith towards the long-term unemployed. Just like how the unemployed are required to be looking for work, the other end of the table needs to be willing to accept them on good faith and as a direct employer.
How about starting that with folks who took bailout money?
sethstorm said: - "They'll probably demonize the same people again when they apply for government assistance elsewhere - as they'll be painted with the welfare brush."
You've got that right! I'm tired of supporting you, Seth, get a job. Maybe after almost 2 years you could figure out that either your "reservation wage", as the Keynseians say, is too high, or you should seriously consider a different line of work.
There are jobs available & companies that will train you, but you have a boatload of lame excuses for why nothing is good enough for you. I no longer have any sympathy for you. It's not all unemployed I "demonize", just you.
"How about starting that with folks who took bailout money?"
Well, Seth, none of those companies comment on this blog, or I might treat them with the same disdain.
There's one big difference, though, I understand many banks took bailout money under duress after being threatened by government. You, on the other hand weren't forced to take your bailout money all this time.
Look again. A gift to children and math students of the world from us doe's Argonne national lab.
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