Quick Review:
1. Due to the needs of the Civil War, corporatism arose and was upheld as a valid business (and social) organizing principle b the Supreme Court.
2. While preaching government "non-interference, the first large corporations, the railroads, were actually the beneficiaries of massive government largess in the form of land grants, easements, etc.
3. The two World Wars further integrated corporations with government guidance and control for specific, mostly military. areas of operation.
4. Joseph Schumpter's work in the 1920's and '30's showed that there was an appropriate role for government in economic policy-making and that the entrepreneur was the most important element in economic expansion.
5. Government proved, in the 1950's, that there was an appropriate role for government to "shape the market", for specific projects ( interstate highway system, Atomic energy Commission, NASA, etc).
6. Hit with multiple energy crisis's, we now face the most important set of decisions as a nation we have faced since World War Two. How to handle it?
Now we look at next steps and governance.
A word about private property and limited government, since I know people reading this blog are getting nervous about my philosophical framework--Adam Smith was a keen student of John Locke, who eloquently enunciated a natural right to liberty and property, rooted in the very nature of man. For Smith, in fact, property and limited government were the cornerstones of a system of natural liberty, and a necessary condition for the advancement of civilization itself. From the vantage point of the economist, property implies private ownership of the means of production (capital), and limited government implies a regime of low taxation and regulation. With this institutional backdrop, in fact, proper incentives are in place to guarantee maximal economic growth via development of other necessary institutions undergirding a society based on liberty
These are the necessary and sufficient institutional conditions which guarantee maximal growth in an economy (Keynes himself would agree, differing only regarding the relative stability of a market economy and government's role). Effective economic policy, both fiscal and monetary, thus consists in fully promoting this institutional mix.
What claims to be about ‘classical fundamentals’ is suspiciously familiar as a modern presentation that relies on the association of ideas about Adam Smith rather than reflective of them.
“Private property and limited government”
Adam Smith certainly favoured private property in that the emergence of society from the Age of Hunting was what brought about the idea of property, and each successive Age (Shepherding, Farming and Commerce) developed the existence of property into ever more sophisticated forms.
That he favored ‘limited government’ in the same sense (if at all) as a principle is a more complicated notion and a more questionable assertion. To some extent the assertion is brought about because of the detailed rebuttal of mercantile political economy in Book IV of Wealth Of Nations and his account of the roles of government in Book V, reflecting a far more primitive commercial economy in the 18th century than what may be required in the 21st century.
Mercantile governments from the 15th century pursued policies which inhibited optimal economic growth, evident in the 18th century when he was writing. These policies manifested themselves in the forms of the national pursuit of gold, instead of enhancing the annual output of the ‘necessaries, conveniences, and amusements of life’ (which we call GDP), of a ‘balance of trade’, by which was meant avoiding importing more than was exported, of ‘jealousy of trade’ by neighbors, seen as rivals rather than as partners, of the concomitant policies of protection, tariffs and prohibitions, domestic monopolies, and narrowing markets against competition, the Settlement Laws, the Apprenticeship Statutes, Primogeniture and Entails of land, and colonies and their associated wars.
These policies were seen by Adam Smith as a considerable burden of the wrong government policies, not a burden of government in itself.
Government was necessary for a vibrant economy in the stability of laws protecting property, defense capability to protect the nation, a nation-wide system of justice (without which society would ‘crumble into atoms’), and the promotion by the state of public works and public institutions of education, health, and the dignity of the sovereign. These too added to a formidable extension of government in the 18th century, funded by taxation and borrowing.
Given the state of Britain’s roads, harbors, bridges, streets in cities, lack of sanitation and such like, there would have to be a substantial increase in public expenditure just to get the infrastructure in place to facilitate commerce.
Those who link Adam Smith to ‘limited government’ have not appreciated (perhaps have never read) "Wealth Of Nations", "Moral Sentiments", and "Jurisprudence".
Be clear, the reason for relying on government was because individual private capital was in the main not large enough in the 18th century, and while government capital (from taxation and borrowing) was large enough, much of it was wasted on the above mercantile policies including the maintenance of colonies in America and the expenditure on foreign wars.
How do we insure the proper use of public money (taxes) by the government? One of the first things I would do is re-engineer the Department of Energy into a Department of Research & Development. Sub-divisions of the D of R&D would handle disbursements of government subsidies for energy start-ups for new technology, new start-ups for Information Technology, start-ups for everything, from health care to homeless shelters, but no money to extant operations. As Mao said, "plant a thousand seeds to let a thousand flowers bloom'. I am not proposing one, monolithic government program to handle the re-invigoration of American innovation, but a set of conditions that will ease the pain of letting those flowers bloom - innovation everywhere. America has always been an innovation engine, and there is a role for government to play here, but there are difficulties. How to govern this activity? That's where we the people come in. Our politicians must pass the appropriate governance laws for this operation, and must be held accountable for what they do in our name, and this is always a dicey proposition. Gail Russell Chaddock, of the Christian Science Monitor reports on an idea that just might work,:
"After a nearly fruitless long war to rein in wasteful government spending, the Senate's most relentless pork-busters are trying a new tack: unleash the energies - and ire - of 100,000 bloggers.
The answer to budgetary obfuscation, these senators say, is sunlight. They propose to list all federal spending on one easy-to-access website, saying it will be simpler for ordinary citizens to see where tax dollars are going - and to shame lawmakers into being more accountable. "
Perhaps the blogosphere can provide the accountability check we need here - anyone can blog (like me, right now). And there are millions of us, and blogs are searchable by services such as Google. So there - the politicians can't hide anymore. Maybe. What I propose is a very difficult idea to implement - centralized incentives ( Department of R & D) coupled with decentralized operation (the entrepreneurs). It won't be easy - nothing worth having is. But Napoleon did it with state incentives, prizes and honors & awards. And we got the Jacquard Loom which led to the digital computer, canned food, leading to extended exploration and manned space flight, and Carnot's steam tables, which led to the Second Law of Thermodynamics, leading to Quantum Physics, leading to String Theory and a glimpse into the secrets of the Universe.
Start the journey now.
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