One of the healthier debates that took place during the macroeconomics group session revolved around the role of government – the good, the bad, the ugly – and the uglier. What is government for? What is it not for? Who stands to gain, to lose, from government with more authority? With less authority? Libertarianism? Ron Paul? Saudi Arabia? Wall Street “banksters?” All that and more below.
Please add your comments at the bottom of the page, and enjoy!
[Editor’s note: Posts have been edited for punctuation, spelling, grammar and length.]
littleguy123: For the champions of small government out there, how do you propose dealing with the realities of mature capitalist markets: huge monopolies/oligopolies, which Adam Smith himself would tell you are solely devoted to using their pricing-power to orchestrate the largest wealth grab in human history, from the pockets of the "have-nots" to the vaults of the "haves?"
StilesBC: Oligopolies suck big time. You're right. However, they are virtually impossible in a free market. If they were exercising such extortionate price power on their customers, their customers would simply create a cheaper alternative; i.e., a poorly run business naturally gets eaten by the free market. Let me use the mobile phone industry in Canada as an example of an oligopoly. (I'm sure you'd agree that paying the highest phone rates in the world is wrong.)
The CRTC regulates the airwaves, and sells this unlimited commodity through auctions. They basically limit the amount of airwaves that can be used (even though airwaves are limitless), thus bidding up the price companies are willing to pay to use them. These costs are then passed on to the consumer.
So what if I were an entrepreneur, and wanted to provide a cheaper service that rivaled rates paid for cell phones elsewhere in the world? I would want to start small (only in Vancouver, for example). First, I would need to leap over years’ worth of regulatory hurdles (costing millions, a little kickback to some bureaucrats, hire a few lobbyists, etc.). Next, I would need to get into the airwave auctions, and outbid Bell and Telus and Rogers, none of who want to see more competition - so will drive prices up, to make it as costly as possible. Only after I do that, can I start my mobile provider. Problem is, I need millions upon millions to do this. Perhaps I better not try this, as the barriers to entry are so high. I'll use my startup capital for something else instead.
So, could the mobile providers in Canada operate their oligopoly without government help? Nope, the market would kick their a$$es out.
littleguy123: We seem to have a serious disagreement on cause and effect here, but I will tone down my rhetoric a notch. BTW, I was not IN ANY WAY attempting to defend the Saudi government, just observing how it escaped criticism when its policies coincided with Western self-interest.
What I believe I can say is that both Stiles and Gabe believe government is the independent actor, and business is the dependent actor. I couldn't disagree more, and the facts clearly support me.
Government has harmed the average citizen (including in Canada) not because it's an inefficient and incompetent behemoth... wait, I better rephrase that. Whether or not a particular government is inefficient and incompetent, what has principally harmed the average citizen is deliberate, malicious planning.
The planning is done by business (the wealthy), and implemented by its pawns in government. There has been much talk about inflation, and much talk about how the only ones who benefit from inflation are those near the top of the wealth pyramid, or close to the levers of power. Does ANYONE believe this is unfortunate accident?
But inflation is only one of the TWO great lies which the wealthy/corporations have relied upon to transfer trillions of dollars from the poor/middle classes to themselves over the last thirty years. When inflation was reined in for two decades beginning in the early eighties, it had nothing to do with Paul Volcker and high interest rates. Yes, bludgeoning the economy like that can knock the inflation out of it - over the short term.
But wages have not remained depressed ever since out of employee deference to Paul Volcker. Employers have not suddenly become more skillful negotiators with their employees - either at the individual or collective level. Wages are depressed because governments are engaged in rampant deceit/fraud in measuring/reporting unemployment, in order to have a large, permanent glut of labor - leaving the average worker in near-perpetual fear of losing employment (which is in stark contrast to the world which previous generations lived/worked in).
For those at the top, not only have their incomes out-paced inflation (while everyone below them lost ground), but a warped tax system allows them to accumulate vast pools of wealth simply through the appreciation of assets - which remains largely, permanently beyond the reach of the tax-man.
I believe frontline_jason mentioned John Williams and his Shadow Government Statistics site. Williams estimates U.S. unemployment at around 9% currently, and his own estimates are low - since they don't account for changes in the labor market due to population growth and the increasing participation of women in the work force. He doesn't provide Canadian numbers. My own guesstimate is that Canadian unemployment is close to 10% currently - not counting the under-employed (part-time workers needing full time employment, and those working far below their level of training).
Unemployment in both countries will head toward 15% (using a narrow definition), but both countries will claim it's only half that amount. Government does harm because it's paid and instructed to do harm, not because it is simply prone to continual blunders. It is not remarkable coincidence that corporations and the wealthy have just enjoyed their most-prosperous generation ever at EXACTLY the same time that the average Joe has had his worst years in a century.
We don't need smaller (or larger) government. We need a political system which produces HONEST government that works for the people it (supposedly) represents - not against them.
StilesBC: What you are asking for is a utopian fantasy. Power corrupts. It is the nature of man to pursue wealth and power, and once had, it is in his/her nature to try and protect it. Even if they do so seemingly unwittingly. ("Vote this way on a certain tax bill, and I'll ensure all my employees vote you in again" - "You're just fulfilling the wishes of your constituents.") If you have a moral objection to this and believe that human nature can be altered as we evolve, that's fine. I respect that entirely. But my work, my travel around the world to dozens of different cultures, and my interaction with the people I know, teach me that this is not an achievable mission.
We agree completely on the problem: Government and business are far too intertwined. And they both have all the interests in ensuring it remains that way. They'll both go to incredible lengths to ensure it stays that way. Government will go as far as interfering in elections, spying on us, imprisoning us, even killing us if we show dissent. History is rife with examples of government genocide of its own people.
Corporations, on the other hand, will lead propaganda campaigns of their own. They'll even go as far as to monopolize the media industry to ensure we stay misinformed and confused. They'll do whatever they can to ensure competition is made to look as unsafe as possible. Government will even go in to debt with corporations and banks, pay them interest, and use it to enforce their lasting alliance throughout the world by waging wars on other nations. Heck, they'll even let the banks create the money they lend them. The wealth separating effects of this are seen through inflation.
But if this entire idea of government and business operating together as one is not disallowed by a strictly enforced law, they will always attempt to encroach on one another. They'll do it slowly, and they'll come up with all sorts of good reasons why just a little bit is okay. Slowly people become complacent, and even accept it as a fact of life ("the only things sure in life are death and taxes"). When questioned, different political parties spend all their time pointing fingers at one another, never actually reversing prior encroachments, only promising "no more." And then after many years, through the obfuscation and opaqueness, it can be viewed that there is no identifiable difference between the two.
My solution is to disallow government from making entaglements with business through the enforcement of one law: "That they are not allowed." Your solution is to hope that hundreds of elected people all act responsibly all the time, and all manage to keep their hands out of the cookie jar.
Which is easier to enforce?
gabrielgray: Jeff, Jeff, Jeff. You thoroughgoing and unrepentant Bolshevik. I can see you at this very moment in your Che Guevara tee-shirt and Birkenstock sandals, eating whatever totalitarian utopians have for breakfast. Bon appetit.
Now, give me just a moment while I switch on the Syllogism Fault Detector and initialize the False Premise Counter. There, everything's up and running. Let's get started.
"We need a political system which produces HONEST government"---BZZZZT! NON-SEQUITUR ALERT! The idea that a system of any sort could produce honesty in people and institutions is so grossly untenable that the False Premise Counter went off the scale.
There is not, and never could be, a political system which automatically produces honest government. The wielding of power is inherently risky and almost universally corrupting, therefore the more power you permit people, the greater the ruin you inflict upon them. The power of government must be carefully limited and circumscribed or the government will arrogate more power to itself endlessly until it becomes a despotism. No exceptions. Lord Acton will not be circumvented. See "Uday" and Qusay."
Honesty is not produced by systems; that's a Marxist fallacy called economic determinism. Marxism-Leninism proposed to perfect mankind through system refinements, and created the New Socialist Man. Unfortunately, the new man turned out to be even more brutal, destructive and rapacious than anything produced by the Czars. The Nomenklatura of Russia lived in orgiastic excess while the people suffered and starved. The entire Soviet Union ended up that way. See "Nicolae Ceausescu."
Honest government is a rarity because honest people are a rarity, and because the power and influence aspects of government jobs attract just the wrong sort of people. That is, any government can be assumed to be a rough mirror of the integrity-level of its subjects, but skewed to the downside. This is the root cause for the rottenness of U.S. governance; the American people themselves have become morally indifferent and willfully delusionary, thus they tolerate crooked and lying politicians who promise impossible largesse. To get honest government, fix the spiritual foundations of the culture; if that's too much trouble, restrict the powers available to the rotters.
"Governments are engaged in rampant deceit/fraud in measuring/reporting unemployment, in order to have a large, permanent glut of labour - leaving the average worker in near-perpetual fear of losing employment."
You haven't established how under-reporting unemployment numbers accomplishes this goal. If they wanted to keep workers in fear for their jobs, it would seem more effective to tell just how many people are out of work and would like to take their job away. I believe the under-reporting is simple political expedience. They don't want to admit how badly they are administering the economy. We might fire them, and hire new masters. See "The Sovereign Individual."
"We don't need smaller (or larger) government."
The faulty premise underlying this statement is that it makes no difference whether the job derives from government employment or the private sector; a job is a job.
Not so: Since government operates as a monopoly, without competition, it has zero incentive to operate efficiently. Most of what bureaucrats do is of no value to the citizen consumer. No one would willingly spend a bunch of his money paying people to shuffle forms around in air-conditioned offices with expensive wool carpets on the floors.
Government here controls roughly 50% of existing jobs, which means that huge numbers of people have left the private sector where they would design useful things (engineers), make useful things (assemblers, framers, bricklayers), or coax useful things out of the soil (farmers, miners), and gone to do largely useless tasks (pass destructive laws, enforce stupid regulations, write pointless reports, annoy me with irritating reminders that my truck inspection sticker has expired).
The net result of government growth is the real impoverishment of the nation. It isn't merely that government steals the value of our labor through inflation and excessive taxation. It's also that they waste it through so much unproductive activity. Smaller government means more real wealth created through productive activities; larger government means more wealth destroyed. We most certainly need smaller government. Repeat after me: Smaller government means more wealth in the hands of citizens.
"The solution is nationalizing these companies that require the huge bailouts."
Whoa - I need to fire up the Epistemology Analyzer so we can run the Fallacy Filter. I don't turn that beast on every day; it consumes too many gigawatts.
To begin with, the companies requiring the huge bailouts are effectively nationalized already. Their operating capital is derived from government (the taxpayers, ultimately) by way of the Fed credit machine. Formal nationalization simply sets the error in stone. There's no meaningful sense in which nationalized banks would become a subsidiary of Main Street, any more than Communist dictatorships calling themselves "People's Republics" makes them a property of the people. The term is a farce, an ugly joke on the poor serfs of totalitarian governments. The real import would be "You screw up, and you're in! All the way in, to full government protection and subsidy." The best way to let them fail, is to let them fail. No bailout, no protection, no government loans, nothing. Let them hit the pavement and splatter. Painful? Yes. But when you've made a mess, you must suffer the cleanup, or live in the refuse.
That will make the bankers very careful about the investments they choose, and citizens very careful about the banks they do business with. Which is how it should be.
In the end, your argument for nationalization is logically extensible to every business sector. Since greed is endemic to all people, except the noble regulators in government, why should businessmen be permitted to run any business? Let's turn oversight of all economic activity to government, and let the bureaucrats administer everything from farming to shoe manufacturing to surgery to auto manufacturing. It worked so well for the Soviet Union and pre-Deng Xiao Ping China.
The mortgage industry is already largely nationalized through Fannie Mae and Freddie Mac, who hold more than 80% of low-income and subprime mortgages at this point. Both entities are managed by the government OFHEO, and both are expensive disasters. Fannie's books were in such disarray that it took $800 million dollars worth of additional accounting work to get them partially corrected. Losses are zooming, and yet capital ratios are being lowered to make it possible for them to get in even deeper to bail out more homeowners in trouble. Nationalization guarantees that normal checks and balances on business can't function. No need to file reports on time, no need to earn a profit, no need to put out a decent product.
Government is a destroyer of capital, and the bigger the government the more capital wasted and destroyed.
At its most recent Congressional audit, the Internal Revenue Service could not account for more than 30% of its huge budget.
It's a mystery how anyone could think that putting something under government control could fix either incompetence or dishonesty.
This group discussion was conducted with members of the Stockhouse community.
Next: Part III of the “Government and liberty” series wraps up as members take the discussion to a higher level with a conversation about human nature. Stay tuned for “An optimist grown old.”
Archive
Investor groups launch with macroeconomics discussion
Inflation and money supply, part I: Treasuries crowd bonds
Inflation and money supply, part II: Buyer’s remorse
Inflation and money supply, part III: Indeflationists unite
Inflation and money supply, part IV: Measuring money
Inflation and money supply, part V: Derivative “Death Star”
Oil supply, oil demand: Is oil in a bubble?
Housing crisis redux: Where do we go from here?
U.S. dollar devaluation not the only currency bet in town
Government and liberty, part I: Size does matter
Spin-offs
Inflation debate stirs investors
Oil speculation theory taken to the woodshed
Oil prices: A critique
