Fixing the country

by Russ Roberts on November 18, 2008

in Politics

From the Guardian (HT: Drudge). Obama talks about working with John McCain:

Obama, speaking before the meeting, said: "We’re going to have a good
conversation about how we can do some work together to fix up the
country." He said he also wanted to thank McCain for his service to the
country.

Yep. The country is like a house. It just needs a new coat of paint, some piering done in the basement and some dry wall replaced. This is the biggest fantasy of politics, that the country is broken or damaged and we just need to get a different contractor in charge of the project who knows more about how to do renovations. It is a dangerous metaphor and an inaccurate one. It ignores the fundamental insight of economics that there are no solutions only trade-offs. It presumes, impossibly, that we share goals as a people when in fact, virtually every government policy benefits one group at the expense of another.

The essence of political action is a compromise over who wins and who loses. The essence of politics is pretending that such actions benefit everyone. So we are told that it is necessary to bail out the auto industry not to benefit a small group of people but rather to save the Midwest or the country or the millions of jobs related to the auto industry or to preserve the industrial base in the name of national security. What is good for GM is usually not good for the nation. It’s good for GM.

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{ 23 comments }

Brandon November 18, 2008 at 8:59 am

I dunno, there's a bit of hyperbole in there:

"It presumes, impossibly, that we share goals as a people when in fact, virtually every government policy benefits one group at the expense of another."

In the sense that laws against coercion benefit the peaceful over the violent, yes.

Speedmaster November 18, 2008 at 9:11 am

Well-stated! On the final GM point, here's a psot I made a couple days ago that might interest you.
http://amateureconblog.blogspot.com/2008/11/what-do-bailouts-and-handicapped.html

Danial November 18, 2008 at 9:26 am

"there are no solutions, only trade offs" good analysis of politics and politicians, who by nature ignore the costs and promote the benefits of their policies.

vidyohs November 18, 2008 at 10:11 am

I read the Guardian article and what struck me is the one big fix it mentioned, Hillary as Sec of State.

I would hope her world view has matured since becoming first lady back in 92.

Upon meeting French President Mitterand in Normandy she gushed, "Oh, I so admire your nation, we are trying to model our Health Care system after yours."

To which he replied, "But why madame, ours is broke."

That kind of awareness is exactly what we don't need.

A phrase I have been using to my friends and acquaintances to describe where I see the nation now is, "The tornado is in the trailer park". We all know what tornados do to a trailer park, that there will be damage, random damage, is certain; the only uncertainty is just how much damage it will do before it exits.

Looks to me like there are a lot of trailers already down. No one can take it for granted that their trailer is going to make it.

Georg Thomas November 18, 2008 at 10:16 am

Roberts' post (including the phrase "there are no solutions only trade-offs") is brilliant.

In response to Brandon, may I add that under the rule of law, the use of the coercive powers of the government are restricted to the enforcement of general rules of just conduct, generally and equally applicable to all members of society, including, importantly, the government.

This fundamental principle of the rule of law is constantly violated by government, with the result that – as Roberts writes – "virtually every government policy benefits one group at the expense of another" – and, in the long run, damages almost all groups.

Anonymous November 18, 2008 at 10:33 am

Using government power to remove resources from one group to provide another group with them is itself an act of illegitimate coercion that government engages in routinely. Shockingly, most people seem to accept the arbitrary practice, whose expediency is of a political nature, i.e. derives its rationale from the desire/need to preserve power (buy votes).

Blinded by the nonsensical term "social justice", we are prepared to sacrifice a consistent notion of justice, whose practice represents the public good, in order to provide the powers-that-be with the means (ultimately our own means) to keep ruling over us arbitrarily.

Akos Beres November 18, 2008 at 12:16 pm

Russ,

I agree with you 100%.

I think where the elected politician have the edge over the opposition is telling us clearly who are the winners of their decisions; most people who are not familiar with issue find it plausible to save an American job. I believe if we would like anyone to listen to our argument we ought to be able to provide examples of all the folks that will loose out on a GM bailout. I haven't read a single article, blog site that cited examples more specific than US consumers, tax payers etc.

Trevre Andrews November 18, 2008 at 1:44 pm

While you make a good observation your all or nothing statement about how government only deals in trade-offs is oversimplified. Right now many of the things the government is doing doesn't create any value for anyone, however there have been things in the past that the government has done that have created value. Long term investments are the best example. Without government mandating long term investments in things long transportation systems, education, and the space program, these things would never exists. Now we can all argue about the way in which the government manages these long term investments, but the fact is they wouldn't have been invested in if the government do it. No private company would have build a road across America, created the very University system that allows us to discuss these very things, or landed on the Moon or Mars. Some of these things were more than just equal trade offs, many of these things generated the wealth that we enjoy today.

This is the problem with many of the discussions/blogs out there about economics and governments. They always speak in absolutes, the government is always bad, private industry and free markets would always work perfectly if we had only chosen them. This simply isn't true, nothing is so absolute.

An economist declaring that politics is only an exercise in deciding who benefits from a trade-offs doesn't encourage anyone to solve any problems.

Sam Grove November 18, 2008 at 2:07 pm

Without government mandating long term investments in things long transportation systems, education, and the space program, these things would never exists.

How can you know this?
There were many roads built before government took them over. In fact, government does not build roads, it merely contracts out the construction and typically at a higher price than the market would otherwise bear.

The space program is a good example of this where bits and pieces of it are built all over the country, a requirement to get congress critters to sign onto the program.
To this day, the government has not put one private citizen into space. Meanwhile it is the telecom industry that has made extraterrestrial endeavors profitable while everything the government does requires perpetual subsidy.

A good example of an industry built in the market is the airline industry.

Kevin November 18, 2008 at 2:17 pm

Trevre no one can possibly know how the world would have developed had the government or any other person done this or not done that.

An economist declaring that politics is only an exercise in deciding who benefits from a trade-offs doesn't encourage anyone to solve any problems.

That's right. We have lots of problem solvers to whom responsible people should not want to provide encouragement.

Akos Beres November 18, 2008 at 2:24 pm

Trevre,

You bring up a valid point, there might be areas that the gov't does a better job than others but it is still manages to do a worse job if it would been left up to market competition. I would reconsider the following statement:

"Without government mandating long term investments in things ('like') long transportation systems, education, and the space program, these things would never exists."

Transportation system – most railroad and road car systems were operated by business and were literally driven out business by government building roads. There are also many toll roads today that are operated by business. If business would build roads instead of the government you wouldn't pay extra gas tax but pay toll on the roads. One thing you would be sure of though the toll that you pay would be supporting roads which you can't say about gas taxes.

Universities – Since I went to a public university, I felt the same way and had serious questions. But after some consideration, I came to the conclusion that private universities have been around longer than private schools, could easily fill the demand gap and provide similar if not higher level of services to students. There thousands of private colleges in the US today and by the way the best, most prestigious universities in the country are private institutions.

I have no comment on the space program because the underlying forces driving it were the least bit altruistic.

Trevre Andrews November 18, 2008 at 3:31 pm

"Trevre no one can possibly know how the world would have developed had the government or any other person done this or not done that."

Fine, I can agree with all of this, but I would argue all of this was created under the free market. As so many economists say, if there was a way to do it cheaper or better, the free market would have found it. If the way the U.S. does things is so bad, why isn't there another country out there doing it better than us?

If government was so ineffective wouldn't the free market have gotten rid of it?

Adam November 18, 2008 at 4:17 pm

Without government mandating long term investments in things long transportation systems, education, and the space program, these things would never exists.

Would it have been so bad had these things not existed? I ask this in all seriousness. Why assume that these things are more important than whatever else would have been done with those same resources?

This is the central point (I think) of the post. These things were all trade-offs, none of them were free. It's the opportunity cost that was traded off for them. The trade-offs aren't always bad, mind you, but they always exist.

Adam November 18, 2008 at 4:24 pm

If the way the U.S. does things is so bad, why isn't there another country out there doing it better than us? If government was so ineffective wouldn't the free market have gotten rid of it?

Because there isn't really a free market in nation states. The barrier to entry and vendor lock-in are both prohibitively high. It takes winning a civil war to start a new country, and it's also very difficult to emigrate (I know, I'm the the process right now). Not to mention that there's no way to do it piecemeal, it's all-or-nothing.

Imagine a "free market" were you had to pay $1 billion to start a new company and customers had to pay a few thousand and move away from friends, family, and jobs to switch service providers. In that kind of market, competition is, for all intents and purposes, dead.

Methinks November 18, 2008 at 6:35 pm

Without government mandating long term investments in things long transportation systems, education, and the space program, these things would never exists.

Why would you make that assumption? If people needed long transportation, somebody would have provided it – but when it was needed and it would have been paid for by the people who were going to use it without subsidy from those who weren't going to. Education wouldn't exist?

however there have been things in the past that the government has done that have created value.

Government creates value in doing things that are too expensive to do for private individuals and it has some moral obligation to the citizens who are unable to look out for themselves – children, for instance. Providing for the common defense and running the court and criminal justice system are pretty much the only things the government does more efficiently than private business. It's not a mystery why that is – private business is driven by competition. Government has no competition, so like it or lump it. There's no incentive to do anything well.

They always speak in absolutes, the government is always bad, private industry and free markets would always work perfectly if we had only chosen them. This simply isn't true, nothing is so absolute.

I would like to know where these people are. I've never heard a pro free market argument claiming perfection. I've only heard other people claim that that's the claim of those who are pro free markets. The market allows people to find solutions that are most suitable to them and doesn't restrain the providers of those solutions from trading with those who would purchase them. The government is always and necessarily a one size fits all solution. Is it any wonder that the free market is more efficient?

T L Holaday November 18, 2008 at 7:34 pm

Russ,

Torture, rendition, holding without trial, suspending Habeas Corpus, warrantless eavesdropping, politicization of the Justice Department, wars of choice, airline security as theater, imprisoning Californians who obey California state laws on medical marijuana … all these are "trade-offs that benefit some citizens while harming others"?

Adam November 18, 2008 at 7:36 pm

Torture, rendition, holding without trial, suspending Habeas Corpus, warrantless eavesdropping, politicization of the Justice Department, wars of choice, airline security as theater, imprisoning Californians who obey California state laws on medical marijuana … all these are "trade-offs that benefit some citizens while harming others"?

Which can't you see, the people benefiting or the people being harmed?

vidyohs November 18, 2008 at 9:22 pm

"If government was so ineffective wouldn't the free market have gotten rid of it?
Posted by: Trevre Andrews | Nov 18, 2008 3:31:10 PM"

Trevre, let's not forget that government is just an agreement among men. Then let's not forget that men are individuals, individuals who are not identical.

Then let's not forget that as individuals we are all hardwired different, different desires, tastes, goals, and ambitions.

Let us remember that some are hardwired to seek power, and develop the charisma and skill to bend people to their will.

Free markets have no ability to force anyone to do anything, so there is no way free markets can banish political agreements.

Government on the other hand has all the force that its collective participants give it, and in the case of the USA that is considerable, if you don't believe that check with the people who lived near Mt. Carmel, Branch Davidian compound, Waco, Texas, in 1993.

How do we charge government with a crime? How do we send government to prison to pay for a crime? We can't. We can only deal with the people who represent themselves as government.

In effect your arguement falls apart with the realization that free markets needs a political agreement and some degree of force behind that to guarantee property rights which are the foundation of free markets. Furthermore, free markets provide the funds for government to function.

Some foolishly think that government exists in spite of free markets; but, that just isn't so. Governments exist because of free markets.

Through all the colossal devastating poverty creating run of communism in many
nations very rich in natural resources during the 20th century, it was only free markets in other nations loaning/donating money and food that allowed them to feed their own populace.

Look to North Korea as a hold-out example of what happens when a nation insists on total communism and has no markets.

The problem is that free markets give government a monoply of force with which to protect; and, inevitably some charismatic clown(s) comes along and hijacks or tries to hijack the process and life becomes a misery for everyone until it gets sorted out again….if it ever does.

Markets do not exist without people particiapating, in other words if there are no people there is no market.

Markets can not act in any capacity, people engaged in marketing can and do act, sometimes negatively or selfishly. It is not the market that was negative or selfish, it was the individual.

How do we charge a market with a crime? How do we sentence a market to prison? Like government, markets are nothing more than agreements between voluntary participating individuals and none are compelled to participate.

Flash Gordon November 19, 2008 at 12:27 am

Are we sure Obama said they'd "fix up" the country? I thought he actually used a different word, also beginning with the letter "f."

simpsonian November 19, 2008 at 9:58 am

This is Russ at his best

Trevre Andrews November 19, 2008 at 11:23 am

Thanks for all the discussion, quite interesting. I think I will come back for some more later…

Sam Grove November 19, 2008 at 1:41 pm

The "market" is the system of complex relationships that occur when people interact for the purpose of exchange.

To regulate the market is to regulate the economic relationships of people.

That there are those that seek the power to grant privilege and those that seek privilege says not so much about markets but much about people.

Mark Clark November 21, 2008 at 12:13 pm

Excellent post. Straight to the fundamental core of the issue. I'll keep this for later use.

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