Charles Wheelan on why we don't have small government

WickedLou9 · 02-21-2008, 10:05 AM

The basic premise is that we get the government we deserve. We have such pervasive government regulation because we, as a society, do tremendously stupid things and then expect help after we screw up. The idea of letting people wallow in thier own mess is something we just can't live with for some reason.

There is an interesting little barb about Ron Paul at the end too.

http://finance.yahoo.com/expert/article/economist/67468

You Get The Government You Deserve

I have one more item of bad news related to the mortgage meltdown: It'll likely provide lots of ammunition for advocates of more government regulation, in the mortgage industry and everywhere else. I'm afraid we're getting what we deserve.
Three things have become clear as the mortgage/real estate debacle has unfolded: 1) Left to their own devices, millions of people (and some pretty sophisticated lenders and investment banks) will do some profoundly stupid things; 2) The effects of those stupid things spill over to affect everyone else; 3) Lots of Americans expect their government to do something about it. (Let's not pretend that it's just Democrats; the White House was pretty darn quick to roll out its bailout plan.)
Rational Debate
One of the fundamental debates within economics concerns the degree to which individuals make fully rational decisions. Do people always act in their own best interest? Or can government help prevent them from doing things that they'll later regret?
This debate over "rational man" isn't just academic -- it lies at the heart of what government ought to do. Should government treat its citizens as informed adults or semi-rational adolescents?
Milton Friedman was the most articulate and prominent proponent of the belief that individuals always act in their own best interest. Yes, it may be dangerous to ride a motorcycle without a helmet, but rational individuals can and should decide whether the thrill of riding without a helmet outweighs the risk of becoming an organ donor.
You Know Best
Individuals know best, Friedman argued brilliantly, even when their decisions don't always make sense on the surface. A worker who takes out a payday loan at an annualized interest rate of 800 percent presumably doesn't have a better option. The same goes for the sweatshop employee in Bangladesh who's willing to work long hours for a few dollars a day. Who are we to say that's a bad decision? Have any of us ever been a poor Bangladeshi peasant?
Even worse, when government overrides individual decisions, then self-serving bureaucrats carve out power and perquisites for themselves. And the larger the public trough, the more incentive organized interests have to jostle for a spot.
The corollary to that view, of course, is that when individuals or firms do stupid things, we ought to let them wallow in their own mistakes. For Friedman and his acolytes, society is best off with a small government that leaves individuals unconstrained to make their own decisions, for better or worse.
Saving Us from Ourselves
Ah, if it were only that easy. There's an equally compelling argument, with strong supporting evidence, that individuals make systematic errors of judgment, and that we're bad at assessing risk. Thus we obsess about dying in a terrorist attack as we merrily tool around the suburbs in our cars -- the latter of which is far more likely to kill us.
We discount the future too heavily. Thus we eat poorly and exercise too little, only to suffer from Type 2 diabetes later in life. Or we start smoking because we think we can quit -- and we don't.
Investors make portfolio decisions that defy the basic rules of finance and lose a bundle as a result. After the dotcom collapse, the Wall Street Journal ran a series of articles on individuals who had taken their retirement savings as a lump sum and then lost most or all of it chasing Internet stocks. The articles were so depressing that I couldn't read them after a while.
All these examples suggest that government can help save individuals from themselves. Cigarette taxes not only compensate society for smokers' health care costs, they may also deter some potential smokers from taking up the habit in the first place. And limiting the portfolio choices investors can make with their IRAs or 529 college savings accounts might stop them from investing a chunk of money in the Harrah's Roulette Fund.
A Bad-Judgment Pileup
Which brings us to the real estate debacle. We now expect roughly a million mortgages to go into default, despite the fact that there's nothing about the real estate correction that should come as a great shock.
No one could've predicted exactly when or by how much real estate prices were going to fall. In fact, no one could have said with certainty that they would fall at all. But any rational person should've known that it was a realistic possibility.
And given that it was a realistic possibility, homeowners shouldn't have borrowed more than their homes were worth. Banks shouldn't have made adjustable rate loans to anyone who could prove that they were alive. And the greatest minds on Wall Street shouldn't have bundled and sold mortgages without clarifying exactly who would be on the hook if lots of them went into default. But that's what happened, because prices were going up, up, up! This all strikes me as a load of new evidence for the "government for semi-rational adolescents" camp.
Pick a Side
But there's a second reason that we're probably not ready for Friedman's elegant small government: When people who play with matches burn their houses down, we're generally not pleased if our political leaders pull up lawn chairs and watch the flames. We expect them to do something about it. We want a plan.
Have you heard any presidential candidate from either party explain why the appropriate response to the mortgage debacle is to let the culpable parties pay the price for their mistakes? Nothing teaches you about debt like losing your home to foreclosure. I'm still waiting for that speech. (OK, Ron Paul has probably given it -- which is one reason he'll never get more than 10 percent of the vote.)
Everyone loves small government in theory. We're tired of being told that the coffee we're about to enjoy is hot. But then we burn ourselves and expect someone to show up with ice. You can't have it both ways.

He sort of hashes out the arguement that I myself have made several times. The problem with thefree market economists like Friedman is that we rely on human beings making rational decisions... and we all know that people don't always make rational decisions.

Phantom · 02-21-2008, 10:31 AM

I think the difference between the points of view is more of degree, than ideological.

I think even Ron Paul would want some government insurance for screwups. For example, I don't think he's going to advocate hospitals to turn away ambulances of persons having heart attacks if they don't have insurance.

The question is really how much government insurance do we want?

If the stock market drops, do we want the government to re-fill the accounts of risky investors? I doubt many would be in favor of such insurance.

Spideynw · 02-22-2008, 02:33 AM

No, the reason we have big government is because of propaganda.

More government means less wealth. Because in order to have more government, you have to have higher taxes. Higher taxes means less economic activity, which means more poverty, more crime, and less money to spend on safe products or even the necessities of life.

And again, a free market does not mean there will not be mistakes. It just means there will be far fewer mistakes.

WickedLou9 · 02-22-2008, 09:13 AM

Originally Posted by Spideynw

No, the reason we have big government is because of propaganda.

More government means less wealth. Because in order to have more government, you have to have higher taxes. Higher taxes means less economic activity, which means more poverty, more crime, and less money to spend on safe products or even the necessities of life.

And again, a free market does not mean there will not be mistakes. It just means there will be far fewer mistakes.

The country currently with the best economy has a much smaller government (per capita) than the United States. That would be Korea.

Korea? You realize that they exist because we, with our huge taxpayer funded military, protect south korea from north korea? And because of that they don't have to worry about it? Thier government also interferes in the free market and subsidises specific industries with taxpayer money? It was not the free market by any means.

bheld · 02-22-2008, 09:19 AM

Simple theories for simple people.

More government, bad! Less government, good! Invisible hand! Ugh take care of Ugh! Groc take care of Groc!

Publius · 02-22-2008, 10:37 AM

Originally Posted by bheld

Simple theories for simple people.

More government, bad! Less government, good! Invisible hand! Ugh take care of Ugh! Groc take care of Groc!

it's more simplistic to say, "Government good, it take care of me!" It's also delusional, because if the last few decades have shown us anything it is that government isn't very good at taking care of people.

bheld · 02-22-2008, 11:00 AM

Originally Posted by Publius

it's more simplistic to say, "Government good, it take care of me!" It's also delusional, because if the last few decades have shown us anything it is that government isn't very good at taking care of people.

Not really, because it involves actually solving problems instead of shucking the responsibility.

WickedLou9 · 02-22-2008, 11:06 AM

Originally Posted by Publius

it's more simplistic to say, "Government good, it take care of me!" It's also delusional, because if the last few decades have shown us anything it is that government isn't very good at taking care of people.

I think we have seen examples where the government has failed but we have also seen just as many examples of the free market failing as well.

The government failed to help it's citizens after Katrina, and it has done a piss poor job managing health care in this country. However the free market has given us such hits as Enron, Worldcom, backdating of stock options for CEOs, Blackwater USA shooting civilians in Iraq. And these are just a few recent examples. These are examples of individuals making bad decisions which are not in anyones interests, motivated by greed and short term gains. The free market fails because people operating within it fail. Perhaps the same is true for the government. There is no perfect system because any system is dependant on people which are imperfect by thier very nature.

Publius · 02-22-2008, 11:29 AM

Originally Posted by bheld

Not really, because it involves actually solving problems instead of shucking the responsibility.

What problems has the government truly solved, exactly?

Publius · 02-22-2008, 11:31 AM

Originally Posted by WickedLou9

I think we have seen examples where the government has failed but we have also seen just as many examples of the free market failing as well.

The government failed to help it's citizens after Katrina, and it has done a piss poor job managing health care in this country. However the free market has given us such hits as Enron, Worldcom, backdating of stock options for CEOs, Blackwater USA shooting civilians in Iraq. And these are just a few recent examples. These are examples of individuals making bad decisions which are not in anyones interests, motivated by greed and short term gains. The free market fails because people operating within it fail. Perhaps the same is true for the government. There is no perfect system because any system is dependant on people which are imperfect by thier very nature.

The difference is that none of the organizations you mention on the free market side lay claim to the responsibility of taking care of people (& you already know how I feel about the free market and private military organizations, so I have no problem agreeing with you on the Bkackwater thing).

WickedLou9 · 02-22-2008, 11:46 AM

Originally Posted by Publius

The difference is that none of the organizations you mention on the free market side lay claim to the responsibility of taking care of people (& you already know how I feel about the free market and private military organizations, so I have no problem agreeing with you on the Bkackwater thing).

regardless of whether or not they had an obligation to take care of people, they had an obligation to thier shareholders. The prime obligation of any publicly held company is to maximize shareholder wealth. Enron failed to do that, and not just failed, but the officers did things to decieve thier shareholders for personal gain, ensuring the demise of thier own company. Those bad decisions led to alot of people getting hurt. If they were making rational decisions, as the market expects, the Enron scandal would not have happened. The problem is that the free market doesn't stop people from doing things like this for personal gain. If the government didn't punish the officers they would have been able to make millions destroying thier company and hurting other people. So because that sort of thing does not serve societys best interests, the government has to regulate and prevent people from doing it.

David Octavius · 02-22-2008, 03:10 PM

Originally Posted by bheld

Simple theories for simple people.

Excellent point - the stupid system wont let me give you a rep point for it

When those famous founders said that "government is a necessary evil" it seems - years later - that too many people focused too much on the 'evil' part and not enough on the 'government' portion.

Sure government can and has become unwieldy and inefficient - but you don't throw the baby away with the bath water (sorry for the cliche

), you exercise the right our founders gave us to make a more perfect union through the process.

More government is inevitable, we are a trillion dollar economy, government will naturally grow or else its power will be trumpt by corporations or individuals who are bigger than the GDP of many countries on the planet. We are a nation of laws, not business - the whims of a person or business (or "free market) should not overrule the laws that protect liberty.

Spideynw · 02-22-2008, 05:59 PM

Originally Posted by WickedLou9

Korea? You realize that they exist because we, with our huge taxpayer funded military, protect south korea from north korea? And because of that they don't have to worry about it? Thier government also interferes in the free market and subsidises specific industries with taxpayer money? It was not the free market by any means.

Please disregard my statement about Korea. I meant Hong Kong. Typing while at work does not work very well a lot of the time.

And they do not necessarily have the best economy (I said they did). They have the most economic freedom per the Heritage Foundation’s Index of Economic Freedom.

The actual point is that Hong Kong has one of the most improved economies.

Why Economies Grow | The Foundation for Economic Education: The Freeman, Ideas on Liberty

...The experience of countries such as Hong Kong, South Korea, and Singapore should give hope to a number of developing countries today. A half-century ago these countries were as poor as—if not poorer than—many developing countries today. Now these countries are some of the wealthiest in the world. Real GDP in Hong Kong in 1998 was 15 times larger than it was in 1960, while Korea was 16 times larger and Singapore 22 times larger. In contrast, real GDP in sub-Saharan Africa increased only 3 times over this same time period (see chart 1)...

Spideynw · 02-22-2008, 06:02 PM

Originally Posted by bheld

Simple theories for simple people.

More government, bad! Less government, good! Invisible hand! Ugh take care of Ugh! Groc take care of Groc!

You know what is funny? Your answer is simply "more government is good, less government is bad".

RMNIXON · 02-22-2008, 06:12 PM

Originally Posted by Publius

it's more simplistic to say, "Government good, it take care of me!" It's also delusional, because if the last few decades have shown us anything it is that government isn't very good at taking care of people.

Thank you Sir!

If only we had more people like you teaching our children!

bheld · 02-22-2008, 06:14 PM

Originally Posted by Spideynw

You know what is funny? Your answer is simply "more government is good, less government is bad".

What's funny is that you paint yourself into a corner with your theories and can't understand how anybody else's could be different. Maybe government is the answer sometimes. Unfortunately your dogma won't even let you acknowledge that simple fact. That's the funny part. You're owned.

RMNIXON · 02-22-2008, 06:20 PM

Originally Posted by Spideynw

You know what is funny? Your answer is simply "more government is good, less government is bad".

No!

It is not funny at All!

They are the ones who stake a claim on your productivity, not the other way around. They are the ones who claim they have a right to take from you for the sake of their goodness, and then pretend you attack all of government if you question the result.

If you can't see how a certain class of people cower in fear at real accoutability while they throw rocks at people who dare make a profit off their professional skills and abilities then what else do you need?

The time to be polite has ended.

RMNIXON · 02-22-2008, 06:21 PM

Originally Posted by bheld

What's funny is that you paint yourself into a corner with your theories and can't understand how anybody else's could be different. Maybe government is the answer sometimes. Unfortunately your dogma won't even let you acknowledge that simple fact. That's the funny part. You're owned.

bheld · 02-22-2008, 06:23 PM

Originally Posted by RMNIXON

No!

It is not funny at All!

They are the ones who stake a claim on your productivity, not the other way around. They are the ones who claim they have a right to take from you for the sake of their goodness, and then pretend you attack all of government if you question the result.

If you can't see how a certain class of people cower in fear at real accoutability while they throw rocks at people who dare make a profit off their professional skills and abilities then what else do you need?

The time to be polite has ended.

Do you really believe the crap you write?

Spideynw · 02-22-2008, 07:01 PM

Originally Posted by WickedLou9

I think we have seen examples where the government has failed but we have also seen just as many examples of the free market failing as well.

The government failed to help it's citizens after Katrina, and it has done a piss poor job managing health care in this country. However the free market has given us such hits as Enron, Worldcom, backdating of stock options for CEOs, Blackwater USA shooting civilians in Iraq.

Free market? I think you mean statist market.