David R. Henderson  

Madrick's Case for Big Government

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In the latest issue of Regulation, my review [.pdf] of Jeff Madrick's The Case for Big Government appears. One of my favorite grafs:

If economic freedom works, he argues, our economy should be doing very well because we have had "the rise of laissez-faire economics since the 1980s." What is his evidence of the rise of laissez-faire economics? He gives none. That's not surprising given the heft of the Federal Register, the U.S. government publication that lists new regulations. It averaged 72,844 pages annually during the Carter years from 1977 to 1980, just before Madrick's "laissez-faire" 1980s. The average fell to 54,335 during the Reagan years, rose to 59,527 during the George H.W. Bush years, then to 71,590 during the Clinton years, and finally to a record 75,526 during the administration of the supposed great believer in laissez-faire, George W. Bush. It's true that Federal Register pages aren't a perfect measure: when governments deregulate, they must announce those changes, and so some of the pages represent genuine deregulation. But most of the pages listed new regulations, no matter which president was in power at the time. Far from moving away from regulation, the U.S. economy has become even more regulated in recent decades. The almost quarter of a million federal regulators would be surprised to learn from Madrick that they don't have jobs.

Another of my favorite passages:

He writes that the high levels of unemployment insurance in Western Europe "can remove less productive workers from the labor force." The remaining workers would then have a higher average productivity than otherwise because of the exclusion of less-productive workers. We could achieve that same outcome in the United States and vault way ahead of Western Europe in output per worker simply by removing from the workforce all workers whose productivity is less than $100,000 a year. We, too, would have a very productive labor force -- along with few people working and mass poverty.

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CATEGORIES: Labor Market , Regulation



COMMENTS (9 to date)
Floccina writes:

If economic freedom works, he argues, our economy should be doing very well

Relative to what? Relative to Cuba or North Korea our economy is doing very well, even relative to much of Europe and Japan it is doing very well.

Allowing wide economic freedom does not result in a perfect economy but it does better that any alternative that has so far been tried.

Now to be more than fair a stronger argument for a big public sector can be made that a big government sector keeps demand up when the private sector falters. Along this line, I was talking to a friend who also owns a business and he said that the county had only reduced its budget by 1percent from last year and that he would like to be only 1 percent below last year. I agreed that I would be very happy with that, my company is off about 15% from last year but it did make me think that all those Government employees do keep demand up in times like this.

Now my problem with that is that keeping demand up can:
1. Slow helpful change and adjustment
2. Is somewhat unfair to those in the private sector
3. Is unfair to big savers
4. Makes an even stronger draw to government jobs, drawing more over qualified people into government jobs where they are less productive than they otherwise would be.

And this is all apart from the fact that this looks to me like a monetary problem and Government controls the money system.

Even if government was not the cause of the current problems they at least fully participated in what was going on. Politicians and government officials seemed as happy as home owners that housing prices were rising un-sustainably and that loans were being made to poor people, as naturally they would since home owners make up more of the electorate than people looking to buy a home.

Justin Ross writes:

If economic freedom works, he argues, our economy should be doing very well because we have had "the rise of laissez-faire economics since the 1980s."

If we put up a map of economic freedom by country, would it not tell exactly that same story?

The Actual Role of Government

========
Socialists
The government is a caring institution that has been taken hostage by big business. We can free it by making it big enough to resist these businesses. Then the government can give the citizens a fair and prosperous world.

Libertarians
...
========

[Comment elided. Please do not post to EconLog the same material you've already posted elsewhere.--Econlib Ed.]

Bill writes:

OK, since I haven't read his book, I'm assuming that you got the gist of his argument in the second quote. All I can say is...well, I don't know what to say. That may be the worst piece of economic analysis I've seen in this whole mess over the last couple years - including Krugman.

I looked at his web page, and it says he was "educated" at NYU and Harvard, but it doesn't say in what. Nor does it say if he earned any degrees. I would find it hard to believe that anyone with even a basic economic education could make that argument unless they had serious ulterior motives.

RL writes:

David,

Your "pages in the Federal Register" argument is an incredibly mild one. The implication that, had the number of pages fallen from 72,844 pages during the Carter years to, say, 50,000 pages during the second Bush years WOULD demonstrate "laissez-faire" is false. 50,000 pages STILL represents a LOT of regulation.

Floccina writes:

If economic freedom works, he argues, our economy should be doing very well

Relative to what? Relative to Cuba or North Korea our economy is doing very well, even relative to much of Europe and Japan it is doing very well.

Allowing wide economic freedom does not result in a perfect economy but it does better that any alternative that has so far been tried.

Now to be more than fair a stronger argument for a big public sector can be made that a big government sector keeps demand up when the private sector falters. Along this line, I was talking to a friend who also owns a business and he said that the county had only reduced its budget by 1percent from last year and that he would like to be only 1 percent below last year. I agreed that I would be very happy with that, my company is off about 15% from last year but it did make me think that all those Government employees do keep demand up in times like this.

Now my problem with that is that keeping demand up can:
1. Slow helpful change and adjustment
2. Is somewhat unfair to those in the private sector
3. Is unfair to big savers
4. Makes an even stronger draw to government jobs, drawing more over qualified people into government jobs where they are less productive than they otherwise would be.

And this is all apart from the fact that this looks to me like a monetary problem and Government controls the money system.

Even if government was not the cause of the current problems they at least fully participated in what was going on. Politicians and government officials seemed as happy as home owners that housing prices were rising un-sustainably and that loans were being made to poor people, as naturally they would since home owners make up more of the electorate than people looking to buy a home.

David R. Henderson writes:

RL,
You wrote:
The implication that, had the number of pages fallen from 72,844 pages during the Carter years to, say, 50,000 pages during the second Bush years WOULD demonstrate "laissez-faire" is false. 50,000 pages STILL represents a LOT of regulation.
I agree. I didn't imply what you attribute to me, though.
Best,
David

Lance writes:

His argument regarding the removal of less productive workers is questionable, for at least two reasons.

First, such a scheme may allocate high-skilled workers to low-social value employment. You might get rid of low-skilled labor, but that hardly means you obviate the need for it. For example, a cashier at a grocery store. Would you really want to allocate someone with higher-than-average skills as a cashier (especially at requested wage)? It is possible you could avoid human labor in retail, with self-check out, but grocery stores usually have low margins and they would have to either compensate for theft through higher prices or extra security.

Second, it assumes the scheme is well-targeted (and people's preference for leisure is homogenous). A high-skilled worker could easily have a large preference for leisure, and without labor market interference, he is paid just enough to work a full week. If the exampled person is allowed to stay home through assistance, he not only gains the transfer payments, but the benefit of leisure.

Mr. Econotarian writes:

"The remaining workers would then have a higher average productivity than otherwise because of the exclusion of less-productive workers."

But at a much lower total production. By Ricardo's theorem of comparative advantage, total output is maximized when every element produces what that element is MOST PRODUCTIVE AT even if they are LESS PRODUCTIVE at it than others.

For example, I may make 10 staplers per hour and 6 pens per hour, so if I split my time between them I make 5 staplers & 3 pens per hour (8 total things).

But if Joe comes along who can only make 4 pens per hour, if we work together for an hour, and specialize, we can make 10 staplers & 4 pens per hour (14 total things).

Despite the fact that I can make more pens per hour than Joe, our specialization allowed me to concentrate on the more fruitful stapler production, while he handled the pens.

I have seen this in real life in jobs where I either 1) spent all day at $xxx/hour dong my own expense report or 2) spent all day doing engineering work while my admin did my expense report at $yy/hour (which was significantly less than $xxx/hour)

Sure, my Admin is technically "less productive" than me, but by taking on the task that she was best at, I could be more productive at my most productive activity.

[Now an argument that might hold more water is by raising the cost of employment, big government forces higher levels of automation, thus increasing worker productivity. I think the jury is still out on whether the costs truly outweigh the benefits.]

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