Gary Talks With Mary

by Don Boudreaux on March 21, 2009

in The Economy

The Wall Street Journal's indispensable Mary Anastasia O'Grady has a conversation with Gary Becker.  Here are the concluding paragraphs:

That suggests that there is a risk to the U.S. system with more
people relying on entitlements. "Well, they become an interest group,"
Mr. Becker says. "The more you have dependence on the government, the
stronger the interest group of people who want to maintain it. That's
one reason why it is so hard to get any major reform in reducing
government spending in Scandinavia and it is increasingly so in the
United States. The government is spending — at the federal, state and
local level — a third of GDP, and that share will go up now. The
higher it is the more people who are directly or indirectly dependent
on the government. I am worried about that. The basic theory of
interest-group politics says that they will have more influence and
their influence will be to try to maintain this, and it will be hard to
go back."

Still, there remain many good reasons to continue the struggle
against the current trend, Mr. Becker says. "When the market economy is
compared to alternatives, nothing is better at raising productivity,
reducing poverty, improving health and integrating the people of the
world."

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{ 46 comments }

Sam Grove March 21, 2009 at 12:30 pm

When people get hold of entitlement, they tend to lose interest in production.

Thus far, the negatives have been outweighed by the positives.

How long will that hold?

muirgeo March 21, 2009 at 1:27 pm

"That suggests that there is a risk to the U.S. system with more people relying on entitlements."

This is so key. The idea of entitlements. If you are not counting what Wall Street did over the last 10 -20 years as a massive entitlement then I think you need to re-define what you mean by entitlement.

"Now, the question is, who in their right mind, when your company is going bust, decides we're going to be paying a whole bunch of bonuses to people? And that, I think, speaks to a broader culture that existed on Wall Street, where I think people just had this general attitude of entitlement, where, we must be the best and the brightest, we deserve $10 million or $50 million or $100 million dollar payouts…"

Barack Obama

"Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its "pneumonia" was making colossal, world-sinking $500 billion bets with money it didn't have, in a toxic and completely unregulated derivatives market.

Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations."

MATT TAIBBI RollingStone

Murali March 21, 2009 at 1:45 pm

I know, that this is off topic, but I was having a conversation with vidyohs over at another thread. I would like to continue that conversation. Could vidyohs contact me at my email: amurali284@gmail.com

Sam Grove March 21, 2009 at 2:06 pm

They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

This is the history of political government.
It's a way to cheat in the market and defer the consequences onto others.

I just don't know why you think everybody should play the game instead of ending it.

RickC March 21, 2009 at 4:15 pm

Raivo Pommer,

Sorry I don't speak German. Would love to read what Raivo has to say. Is there some sort of translation software, German-English?

vikingvista March 21, 2009 at 4:18 pm

"general attitude of entitlement"

Its called "contractual obligation". If they wanted AIG to renege on its contracts, bancruptcy court would've served that purpose.

No surprise a leftist would oppose living up to contracts. Lying and thieving has always been after all the leftist's modus operandi, and hypocrisy has never been in short supply.

Cheers March 21, 2009 at 4:43 pm

Yea Rick,

You can download it at: german.imabot.com

;)

Muirgeo, I took the liberty of rewriting a paragraph for you:

"the government made themselves sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. They conveniently forgot to mention that they had spent more than a decade systematically scheming to partition and overregulate U.S. and international markets, or that one of the causes of its "pneumonia" was making colossal, world-sinking backroom deals with money it didn't have, in a market they didn't understand or have any ability to influence without destroying.

Bonus points to the person who can look up the term "toxic assets" from before it was demonized by Muirgeo, the MSM and politicians and tell me that it's another term for a junk bond or any high-risk, high yield bond that everyone under 50 had in their investment portfolio on a regular basis.

Whoops, already did it.

Marcus March 21, 2009 at 4:58 pm

muirgeo (and Matt Taibbi, apparently) just doesn't seem to grasp that it is his precious government and the political class which is bailing out Wall Street.

We're not angry enough? Apparently you read this blog without comprehension.

So what should be do muirgeo, give that same government and that same political class even more power?

muirgeo March 21, 2009 at 5:45 pm

Marcus,

We need to figure out how to make the government more responsible to the people and less responsible to corporations.

I know you guys don't like that answer because the populace as a whole will tend to be want more government intervention then you guys. But then what is your answer. And the common one… the government needs tighter operational guidelines just doesn't work.

The biggest thing that bothers me about you guys is the denial of a need for government and rules. Quit pretending we don't need these things and come up with a way to improve the process. You HAVE to have a government and you have to have rules. The question is how best to govern and make rules. There's no easy answer when you have 300 million competing interest but I know for sure the answer is NOT to abdicate government to the wealthy minority.

Crusader March 21, 2009 at 5:55 pm

Muirduck just continues to spew the same nonsense over and over again…

If we're not for HIS rules & regs, then that must mean that we're for anarchy. Nice strawman…

Cheers March 21, 2009 at 7:07 pm

But that's the thing, Muir. All this political "intervention" is what gives them power. And that's the core of what we've been saying here on this blog.

If the government couldn't change investment rules, there would be no point to lobby them. Corporations would have no incentive to gain power through the government. If the government couldn't give aid, provide bailouts, close down companies or anything like that, there would be no reason for any company to try to gain political power and try to make the government kowtow to them.

If you don't want politicians to cater to rich people, don't make rich people pay more in taxes. They aren't going to be catered to if they don't pay and influence massively more.

The consequence of progressive taxes is that different people are worth more and less respectively. The consequence of giving government power in ANY arena is that the actors in that arena will spend money and will work to gain control over the power the government has in their arena.

muirgeo March 21, 2009 at 8:03 pm

Muirduck just continues to spew the same nonsense over and over again…

If we're not for HIS rules & regs, then that must mean that we're for anarchy. Nice strawman…

Posted by: Crusader

Oh so YOU'VE got all the answers Crusader? You know the "Right Rules" that of course just happen to be "Your Rules". I never claimed to have them. I never said MY rules. I said the rules we arrive at democratically. YOU GUYS are the ones insisting the rules be to your liking regardless of others desires of how to set up the rules.

If there's a single rule you don't like they you CRY ., "oh you are violating my liberties". Well then the anarchist has the same claim on everyone and that's where your stubborn pigheaded argument falls to pieces.

Are you an anarchist Crusader? Cus if not who the hell are you to impose YOUR rules on all the anarchist… you violator of liberties you!!! HUFF!!!

And bullshit I'm a troll who's not interested in serious debate. I'm very interested in frank discussion but not with people who are intolerant, insecure and do not want their own ideas questioned or challenged.

Sam Grove March 21, 2009 at 8:05 pm

Yes, he brings the same straw man AND fails to address our critique of the perverse incentives created by political intervention in the market. In fact, he seems to hold that there are no temptations to abuse on the political side, that all temptation lies in profit seeking.

Crusader March 21, 2009 at 8:19 pm

Sam – don't forget rent-seeking or Martin will get mad.

muirgeo March 21, 2009 at 8:22 pm

If the government couldn't change investment rules, there would be no point to lobby them.

Posted by: Cheers

OK so the government can't change the rules. So what would that look like? Do we get rid of the treasury? Do we get rid of the judiciary? How are contracts enforced? You really don't think the wealthy wouldn't buy up the legal process to get contracts settled to their favor?

I really don't think you guys think through the implications of what you say because I can't think of a time or place in the real world where it has worked.

Classic Liberal economics was pretty much based on 19th century economies. Listen to this description of working conditions for the average person living in those times. It was HORRIBLE and resulted in revolutions through out the century. The idea that you could convince a populace to return to such a society is poorly thought out.

Kevin March 21, 2009 at 8:57 pm

Muirgeo you get the reputation of being a troll because you go to a blog post about the risk of entrenchment and dependency by the majority on government entitlement payments, and you open a discussion about AIG bonuses. I believe you are genuinely looking for what would qualify in your mind as a real discussion of these topics, but seriously, you can't hijack discussions like that and expect nobody to call you a troll. Then again, people seem eager to engage in these off-topic discussions with you, so what do I know?

On topic for a second, these interest groups will be functionally the same as the old interest groups, from a standpoint of liberty. Relative to output, I don't think anyone can say with any accuracy whether they will come with higher opportunity costs than we have today.

Sam Grove March 21, 2009 at 8:58 pm

You really don't think the wealthy wouldn't buy up the legal process to get contracts settled to their favor?

You really think that hasn't already occurred?

Who do you think is running the show?

THE PEOPLE?

Sam Grove March 21, 2009 at 9:04 pm

The more you have dependence on the government, the stronger the interest group of people who want to maintain it.

And these groups enlarge themselves. The more you have on entitlement, the more difficult it become to dislodge the entitlement.

There comes a point where it cannot be sustained. If nothing else, Martin's demographic curve assures that result.

Um, crusader, I wasn't speaking about Martin.

muirgeo March 21, 2009 at 9:14 pm

Kevin,

I think I make a good point when I point out that there is a double standard with regards to government entitlement. People lobbying the government for universal health care FOR EVERYONE is bad but corporate leaders lobbying for rules changes that specifically help only their interest is something different?

Pointing out hypocrisy and double standards is not trolling. It's a very real point that needs defending to effectively protect a corporations ability to petition the government for welfare on one hand while claiming individuals should apparently not look to the government for programs they'd like to see in place.

Petitioning the government/SEC to relax capital requirements or to allow investment banks to collude with commercial banks is just as much request for entitlement as is the people requesting universal health care. In fact its worse because the government is not here to serve corporations… they exist to serve the people.

I'm a troll but you're willing to deny any dependency of companies like AIG on government. Again.. double standard. Safety net entitlements did not bust the economy. Those granted to AIG did bust the economy and now (rightly or wrongly) their CEO's are receiving far more welfare then any welfare queen could ever dream of.

MnM March 21, 2009 at 9:15 pm

The biggest thing that bothers me about you guys is the denial of a need for government and rules.

We haven't denied it. Advocating less government than you deem necessary is not the same as advocating anarchy. Why do you continue to present this silly straw-man?

Oh so YOU'VE got all the answers Crusader?

He didn't imply that. Do you know what "non sequitur" means?

I'm very interested in frank discussion…

Then why won't you have one?

do not want their own ideas questioned or challenged.

We don't mind having our ideas challenged. Know anyone willing to challenge them?

MnM March 21, 2009 at 9:28 pm

People lobbying the government for universal health care FOR EVERYONE is bad but corporate leaders lobbying for rules changes that specifically help only their interest is something different?

No they aren't different; that's the point.

Safety net entitlements did not bust the economy. Those granted to AIG did bust the economy [emphasis added]

…My brain hurts.

Crusader March 21, 2009 at 10:04 pm

Kevin – it's pointless. Unless the blog owners bring in a registration system, they can't get rid of this idiot.

Sam Grove March 21, 2009 at 10:35 pm

We don't mind having our ideas challenged. Know anyone willing to challenge them?

Know anyone ABLE to challenge them?

People lobbying the government for universal health care FOR EVERYONE is bad but corporate leaders lobbying for rules changes that specifically help only their interest is something different?

I don't want government helping me any more than I want it bailing out AIG, or subsidizing orange growers, etc.

I know that the cost of government spending will ALWAYS be borne by those that labor to create value, AND, that an agency with the power to tax me and force me to participate in totalitarian health care will also have the power to tax us to bailout AIG, and FURTHER, that interests more powerful and connected than you or me will have more influence AND incentive to game the system to their benefit at the expense of those who labor to create value.

This is the reality of political power, there are no rules you or I will be able to impose on the system to change that reality in the context of a powerful central authority.

Crusader March 21, 2009 at 10:45 pm

Sam – you assume muirduck is arguing in good faith.

Kevin March 21, 2009 at 11:17 pm

I'm a troll but you're willing to deny any dependency of companies like AIG on government.

Your strawman probably denies the dependency. I did nothing like that. I didn't even say you were a troll. I just explained why you get treated like a troll. Sheesh.

Cheers March 21, 2009 at 11:42 pm

Muirgeo,

To answer your previous point about standards of living in the 19th century, I'm not sure how widely accepted this view is, but I'm pretty sure that the biggest demonstration of the effectiveness of the economy is best measured by the rate of change rather than the static system.

If we immediately changed the economy to a "better" system, whatever that system is, the world would not immediately reform around it. Standards of living would take time to change. What would change is the rate of change of the standard of living. To see the consequence of an economic system, you have to look forward in time. Look at the consequences of the industrial revolution and the movement from the farms to the cities. Part of the consequences was abuse over the short term. But there was a massive increase in the standard of living that resulted, even though toolmakers, candlemakers and toothpick makers were up in arms about the idea for a hundred years, the results, however, allowed for the creation of complex machinery that has massively increased the standard of living today.

There will always be some form of unemployment, and it's a good thing, because it means that resources are moving. Without it, production would never improve. There will always be people who want to take while providing as little value as possible. Without that, there would never be gains in efficiency. There will always be things that seem bad at face. The best response to them is not to try to build a system that recognizes these things, and refuses to reward detrimental behavior. When we get more complicated than that, it's inevitable that the "bad guys" will get into the system and build it around the abuse of others and rent seeking.

Crusader March 22, 2009 at 12:04 am

Muirgeo just wants the rent-seekers to be Commmunist party members rather then Republicans.

Sam Grove March 22, 2009 at 12:31 am

you assume muirduck is arguing in good faith.

I don't have to assume anything about muirgeo.
I think my statement stands on its own for anyone who comes by.

brotio March 22, 2009 at 1:06 am

"I think I make a good point when I point out that there is a double standard with regards to government entitlement. People lobbying the government for universal health care FOR EVERYONE is bad but corporate leaders lobbying for rules changes that specifically help only their interest is something different?" – VI Mierduck

The double-standard is all Mierduck's. He was the one opposed to corporate lobbying and bailouts six months ago – we still are. Mierduck is a hypocrite.

muirgeo March 22, 2009 at 1:18 am

We don't mind having our ideas challenged. Know anyone willing to challenge them?

Posted by: MnM

Yeah… he's called the real world where your ideas are non-existent in practice.

muirgeo March 22, 2009 at 1:23 am

I know that the cost of government spending will ALWAYS be borne by those that labor to create value…

Posted by: Sam Grove

Isn't that pretty much everyone? Ultimately most people work for a living and pay taxes. Do you think you are the only one who works or creates value or pays taxes?

MnM March 22, 2009 at 2:04 am

I'm sorry Muirgeo, I must have been too subtle for you.

I was implying that you aren't challenging our ideas. Understand?

muirgeo March 22, 2009 at 2:34 am

I was implying that you aren't challenging our ideas. Understand?

Posted by: MnM

Well of course I am otherwise you wouldn't be calling me names nor even replying to me.

Further to deny my positions and challenges is to deny this debate which has raged on ever since Plato and Aristotle.

MnM March 22, 2009 at 2:40 am

Clearly, you didn't understand.

you wouldn't be calling me names

I haven't called you any names.

to deny my positions and challenges

I'm not denying your position. I'm denying that you've addressed our position. Understand?

Randy March 22, 2009 at 7:43 am

Muirgeo,

"Isn't that pretty much everyone? Ultimately most people work for a living and pay taxes."

Not even close to everyone. Only about half the population works at all, and of those, many work for the state (government, government contracts, public education, etc.) and are therefore collecting taxes, not paying them.

LowcountryJoe March 22, 2009 at 8:42 am

There's no easy answer when you have 300 million competing interest…But then what is your answer.

Repeal the 16th and 17th amendments and adhere, strictly, to the 9th and 10th. States should be where most, if no all, non defense related spending should occur. Have the federal government 'bill' the individual states for the public goods that it supplies to U.S. citizens based on a formula that utilizing three factors: population, landmass size, median payroll income. The states, in turn, make their own tax legislation to pay their federal bill and to provide their own goodies to their voters. Allowing for the free movement of people, let the people decide under which tax & spend regiment that they want to live – a marketplace for government under a framework of a strong United States for denfense and a codification of those rights that were bestowed un all of us through the Bill of Rights of the constitution.

There's one such answer for you, George.

Sam Grove March 22, 2009 at 10:56 am

George, don't assume that going to work and spending a day at some activity for which one is paid, necessarily produces value equal to or more than one is paid.

I wonder that YOU even ask such a question.

But then, Keynesians do seem to assume that paying people to dig and fill holes has some value to others.

Sam Grove March 22, 2009 at 11:19 am

While you're at it, could you explain the validity of an argument that: because something has not existed before, it therefore can not exist.

You can add that to the list with: something that has never existed is nonetheless at fault for various economic problems.

Is this the kind of faultisophical discussions you have with like minded acquaintances in the Sierra Club.

Try this as an example: pre-computer – people don't want computers because they have never had them BEFORE.

muirgeo March 22, 2009 at 2:15 pm

" States should be where most, if no(t) all, non defense related spending should occur. Have the federal government 'bill' the individual states for the public goods that it supplies to U.S. citizens based on a formula that utilizing three factors: population, landmass size, median payroll income…..

There's one such answer for you, George.

Posted by: LowcountryJoe

That's as good an answer as there is. Not sure what the ultimate ramifications would be. I've heard some good formulated arguments that it would possibly result in civil war or another revolution but maybe it would work quite well. I somewhat like the idea because then ideally states could individually decide what levels of service they would provide. I suspect most of the rich people would live in the well governed states and exploit the states with minimalist regulations. And the bigger problems with our money system would still remain unsolved.

muirgeo March 22, 2009 at 2:19 pm

George, don't assume that going to work and spending a day at some activity for which one is paid, necessarily produces value equal to or more than one is paid.

Posted by: Sam Grove

Why would you think I would assume so? I've said time and again most Hedge fund managers and such have not only NOT produced anything of value for the billions they take in but have actually created negative value while many good teachers and science researchers and even this President Obama are vastly underpaid. So yeah I think we agree here.

muirgeo March 22, 2009 at 2:23 pm

While you're at it, could you explain the validity of an argument that: because something has not existed before, it therefore can not exist.

Posted by: Sam Grove

Again I think you agree right. I've never seen pink invisible flying miniature elephants but that can run the economy even better then The Invisible Hand God but that doesn't exclude them from existing or coming into existence. I mean the would be invisible so how would we know. Good point so there are TWO things we agree on. What else? Are you an Atheist like me and Don?

Sam Grove March 22, 2009 at 2:48 pm

I've never seen pink invisible flying miniature elephants but that can run the economy even better then The Invisible Hand God but that doesn't exclude them from existing or coming into existence.

This is one of your most worthless straw man arguments. It reveals your unwillingness to attempt a comprehension of the arguments presented to you here.

NOBODY I know of believes in some invisible hand GOD.

What we believe is that humans participate in economic activity from self interest engage in trade for the same reason.

The original quote from Smith is NOT:

"guided by an invisible hand",

it is:

"AS THOUGH guided by an invisible hand"

I don't know if you can tell the difference, but I can. Smith was referring to the obvious trait of humans to act in their own interests. There is nothing in the slightest mystical about it.

If you do not wish to earn any more disdain, you should post a note by your computer, as you apparently do not have the ability to remember, to the effect that your straw man "invisible hand god" will not fly.

Sam Grove March 22, 2009 at 2:50 pm

I suspect most of the rich people would live in the well governed states and exploit the states with minimalist regulations.

OR, heavily governed states would be run by the political elite as is always the case in any heavily governed state.

muirgeo March 22, 2009 at 4:52 pm

Sam,

The well run states would look like Canada. The poorly run and poorly regulated states would look like Mexico or Russia or Mississippi.

brotio March 22, 2009 at 5:05 pm

"I've heard some good formulated arguments that it would possibly result in civil war or another revolution…" VI Mierduck

Mierduck,

In case you don't know what The Sixteenth and Seventeenth Amendments are, and judging from your (sarcasm on) well-reasoned (sarcasm off) argument quoted above, it seems likely that you don't, I'll fill you in:

The Sixteenth Amendment authorizes collection of Income Taxes. The Seventeenth Amendment rescinds the mechanism of electing US Senators via State legislatures, and instead, electing US Senators by direct, popular vote. Both were ratified in 1913.

I don't remember the one (American) civil war that was fought before 1913 being fought by people wanting the government to tax their income, or seeking direct election US Senators. Perhaps you can provide links that make the assertion that the Civil War wasn't about States' rights, and/or slavery, but was instead fought because we NEEDED an income tax and direct election of Senators, and there was no way to amend the Constitution to make that happen?

brotio March 22, 2009 at 5:46 pm

"The well run states would look like Canada."

Eh, Canada!

The Country with approximately 400 MRI machines for an area of a million square miles* versus California, a State with approximately 400 MRI machines for an area of 156,000 square miles. Yeah, we want to be like them!

* To try and be fair to the Canucks, I'm only counting the area close to the United States, because that's where the majority of Canadians live. The total land area of Canada is over 3.8 million square miles – and that is also a valid (and more devastating) comparison.

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