David R. Henderson  

Failings of Left-Wing and Market-Oriented Economists

No Prayer, Sorry... Deposit Insurance...

Tyler Cowen (here and here) and co-blogger Arnold Kling have commented on what they see as the main failings of left-wing and market-oriented economists. I agree with much of what Arnold said and some of what Tyler said: my disagreements and even agreements would take too much space because I like to lay out reasons rather than, like Tyler, give sound bites.

But here's one failing, that neither Tyler nor Arnold mentions, of the vast majority of both left-wing and market-oriented economists: their apparently dogged determination not to analyze the role of war and an aggressive foreign policy in leading to the rise of the interventionist state. Robert Higgs has laid this out well in his 1987 book, Crisis and Leviathan, which I reviewed in Fortune. Jeff Hummel is currently completing a book showing, inter alia, how almost any domestic government intervention you can name had its origin in this or that war. And while we're at it--I know this isn't an economic issue--but wouldn't it be nice if Tyler Cowen or Brad DeLong or Paul Krugman or, for that matter, I (I'm currently writing a piece on it for antiwar.com) took 100 words to denounce the U.S. government for torturing--yes, torturing--Bradley Manning?

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CATEGORIES: Economic Philosophy

COMMENTS (24 to date)
Shangwen writes:

David, I agree with you on the warfare/welfare bit. Our current bloated state programs were modeled primarily on benefits program originally created for war veterans. The first public pensions and public hospitals (charity hospitals existed for the poor) became the template for all kinds of welfare policies as the 20th century rolled on. The growth and development of veterans hospitals also were the main contributors to the neoplastic expansion of licensed health care professionals. Prior to WWI, there were doctors and nurses. By the middle of the last century, we were providing not only specialized training but also monopolistic licensing to physiotherapists, occupational therapists, recreational therapists, clinical social workers, psychologists (a wartime army invention) and a few others. I'm not trashing the work they do, and not denying the fact that their knowledge is a big part of improving health care, but the historical fact is that the tasks and knowledge they represented became licensed professions much faster under the government. These groups were not created in the private sector, and their growth contributed to the identification we now make of "specialized knowledge" with "licensed specialist".

tom writes:

None of Social Security, Medicare, public pensions, or unemployment insurance is mainly explainable as a response to war or your catch-all "aggressive foreign policy". These programs are the majority of what we are talking about when we talk about the 'interventionist' state. So what are you talking about in terms of big budget items?

And it's a non-sequitur to call out economists for failing to denounce the US government for its treatment of Bradley Manning. Even if Obama's people are intentionally hurting Manning, your two subjects are unconnected except by the ferocity of your feelings about the military.

You and I really do not know why Obama is making Manning sleep and stand in line naked. You have presented nothing more than the statement of a group that acknowledges there is a lot that it does not know about what is happening, and you've taken that straight to "TORTURE". Is it possible that the military has been advised by lawyers that it must follow its protocols and make Manning sleep naked or else risk criminal and civil liability if he commits suicide? I bet you have no idea. Do military regulations designed for the protection of prisoners require the military to keep quiet about its reasons here? I bet you don't know. Does the military have strong reasons to guess that Manning may try to kill himself? I bet you have no idea. Is it possible that Manning--whose entire crime was based on deception--has been trying to play mind games with his jailers about his mental state and has gotten himself burned? You don't know.

Isn't it beneath you to play the TORTURE card this way?

fundamentalist writes:

From Cowen:

1. There is excess fear of inflation and hyperinflation in the current economic environment.

I agree, but what economists really need is what Hayek called a fourth generation of monetary theory in which we understood the distorting effects on relative prices (of capital goods vs consumer good) of credit expansion.

2. We know much less about the causes and drivers of economic growth than we like to admit,

I think we admit less than we know. We know for a fact that some amount of private property and free markets are necessary for economic growth. China has proven that. And we know that savings and investment are necessary from the Solow model.

3. Lower taxes don't spur economic development as much as it is often claimed,
There are plenty of studies available on the internet showing that the optimum tax rate for growth is around 25%. That’s quite a ways below Cowen’s 50% level.
7. When it comes to the historical determinants of the Industrial Revolution, the Great Divergence, and the like, the importance of state-building in that process is often neglected.
That’s probably because the state has never been anything but a hindrance to development. The history of development is primarily one of reining in state power.
9. The role of market failure in the recent financial crisis is underestimated.

Not at all. There was no market failure. There were many state interventions that had unintended consequences. Cowen seems to be one of those economists who think the market should always provide positive results and never negative ones. But the invisible hand will slap us if people or the state violate the principles of the market.

David R. Henderson writes:

You write:
None of Social Security, Medicare, public pensions, or unemployment insurance is mainly explainable as a response to war or your catch-all "aggressive foreign policy". These programs are the majority of what we are talking about when we talk about the 'interventionist' state. So what are you talking about in terms of big budget items?
Unemployment insurance I'll give you; that was imported from Bismarck's Germany. But, as Hummel's forthcoming book, War is the Health of the State, will show and as commenter Shangwen gets at above, the other three do have precursors going back to the Civil War.
You also write:
Even if Obama's people are intentionally hurting Manning, your two subjects are unconnected except by the ferocity of your feelings about the military.
I grant you that they're unconnected in an economic sense, something I admitted in the post above. But you're way out on the connection. I make my living teaching economics to the military. If there's anything that's ferocious, it's my love for my students. That's what makes this so hard.

sourcreamus writes:

Doesn't it define torture down to say that forcing someone to sleep naked is torture? There are plenty of words like "abuse" that seem much more apt. Compare what is happening to Manning with what McCain endured. Does using the same word to describe both illuminate the situation or is it used as a substitute for arguement?

David R. Henderson writes:

You ask, "Doesn't it define torture down to say that forcing someone to sleep naked is torture?"

I don't think so. It's just that there are degrees of torture. If I recall correctly--and I will research this when writing my article--when people in the United States have written about other governments torturing, I think that forcing them to be naked has been discussed as one of the methods.

tom writes:

Hummel will need to show more than "precursors" if he wants to say that our military adventures 'led to' our current Social Security and Medicaid/Medicare, etc..., debts.

On Manning, my problem is that you leaped without looking. You have made an enormous accusation. But you have done it from ignorance. That suggests an uniformed moral preening that I'm sure you see all the time on the left and the right: "Everyone must denounce this thing!"

If you said "We deserve to know all the facts about this right away, even if our finding them out may violate Manning's legal privacy rights, and I want people in the White House, Congress and our military to drop other business and focus on this", then I'd at least understand you were trying to learn about it. But you've reached your conclusion already, and it's the big bad word TORTURE.

The only more conclusive conversation-enders are racism, homophobia and ad Hitlerum accusations.

fundamentalist writes:

Dr. Henderson, I'll state the obvious, but it's clear that the mainstream media believe the US tortures people on when a Republican is president. By definition, it's impossible for a Democrat administration to be guilty of torture.

Of course they're torturing the poor guy!

I have been stunned by the hatred for Manning and Wikileaks. We have more to fear from a state with secrets than we have to fear from the consequences of leaking a few of the secrets.

Jeff Singer writes:

Seems like a chicken and egg problem -- why have a state if you don't need protection from those who would hurt you? Hence it is kind of silly to worry about war leading to "the rise of the interventionist state" -- we've had continuous warfare between people since the dawn of mankind so why is it that now all of the sudden war has led to Social Security, Medicare, and Medicaid?

steve writes:

"That’s probably because the state has never been anything but a hindrance to development. The history of development is primarily one of reining in state power."

Vaccines, sewers, highways, the internet, antibiotics, modern agriculture...


Saracen writes:

Treatment of Manning has certainly been unusual, even if there's a certain poetic justice regarding the whole "transparency" idea. Just have to establish a strong enough case for "cruel" and "punishment".

Doc Merlin writes:

I thought the sleeping naked bit was so he couldn't hang himself with his clothing? I heard he was suicidal.

Gabriel rossman writes:

If economists are too naive about this for your taste maybe you'd prefer it over here in sociology. One of Chuck Tilly's slogans is "states make war and war makes states."

John Jenkins writes:

@Doc Merlin: I don't know the facts of this specific case, but it's well known in the county where I practice that D.O.'s will sometimes jump to the conclusion too easily that someone is suicidal to be able to take the "precautions" involved with that (usually a literally padded cell and no clothes. I think they get to keep the jail-issued flip-flops, but I cant remember.

Lance writes:

Prisons and detention facilities do take on some legal risk when housing individuals and so precautionary measures will be taken if it is believed that a person poses a harm to themselves or others.

But, I think there is some tension in the letter you linked too. The group claims that no information has been made public that would lead them to believe Manning poses a risk to himself. But, if the military made public hypothetical psychological problems ("Manning has contemplated committing suicide"; "His mental state is not well"; etc.), people would claim the military is seeking to embarass him and is violating certain privacy rights.

Forced sleeping in the nude is considered harsh treatment when the person is subject to extreme cold.

Chad Seagren writes:

Prof Henderson's post specifically described the link between the warfare state and the interventionist state, as opposed to simply the welfare state. One of the biggest take-aways from Higgs' book is the extent to which conscription during WWI found its way into Supreme Court decisions upholding many many facets the New Deal legislation. The rationale was essentially: if the govt has the power to send a kid off to fight in a war, then it must have the (lesser included) power to intervene in the market.

My book is in my office, so I can't offer any direct quotes from it, but I can give you Supreme Court Justice Oliver Wendell Holmes: "If government may involuntarily compel people to put their life at risk, may it not restrict their liberties in any lesser way it chooses, should an emergency in its judgment demand this?"

fundamentalist writes:


Vaccines, sewers, highways, the internet, antibiotics, modern agriculture...

You seem to be confused. Just because the state does something doesn't mean it should or that it does it better than the free market could. The USSR did all of those things too. Were Russians better off for it?

Sewers and highways are the only things on your list that the state does and private businesses could do them better and with less waste.

The state is best at providing courts, police and national defense. It should stick with what it is best at and leave the rest to others who are better at it.

Of course, the state is necessary and good, as Mises wrote, for the things it does well. But the state has always tried to control the economy and it's historical fact that the process of development has been one of reining in the state and forcing it out of the market.

Komori writes:


Forcing them to sleep naked is not part of the protocol for handling suspects deemed a suicide risk. In fact, it is flatly contra-indicated by that protocol (forced nudity is a shaming measure, and will exacerbate any such issue). A more usual procedure would be to have them wear disposable paper gowns, which provide cover (important psychologically, even in a good climate-controlled area) and no ability to self-harm.

Everything I've read about the conditions Manning is being held in indicate he's being tortured by UMCJ terms. They're using conditions that are flat out disallowed by the UMCJ for handling POWs. Given that they also refuse to actually charge him (apparently angling for keeping him in confinement until he confesses to whatever they're trying to get him to confess to) and are refusing to let Senator Kucinich visit him, I am unable to give the administration the benefit of the doubt on this.

Shane writes:

It had occurred to me that two of the European countries with relatively free markets - Ireland and Switzerland - both avoided World War II and other wars. Neither are members of NATO. Ireland hasn't gone to war since the 1920s, Switzerland since 1815.

...And then I remembered that other European country famous for its long peace: Sweden. That's a country with a long experiment in the welfare state, yet without the provocations of war. Any thoughts on that?

tom writes:

Komori, you are making an accustation of TORTURE. Be more sure.

You say "everything I've read ... indicates he's being tortured in UMCJ terms."

First, either you need to know more facts about his detention or you don't. You avoid that just by saying 'everything I've read'. It's like what Henderson is doing. If torture is defined in the UCMJ, tell us.

Second, I'm not a military expert. But you say he hasn't been charged yet, while Wikipedia says he has been. You say his treatment is "flat out disallowed" for POWs, so I'd expect you could cite a regulation to show something so clear.

You don't know what facts may make the military think that Manning should have originally been on the "prevention of injury" watch. You don't talk at all about how there may be different things that Manning may have said and done--beyond what Manning's lawyer has chosen to make public--that may have affected how they view him. You don't talk at all about whether the military does this in the normal course.

Henderson and you are defining torture down to a ridiculous extent. Henderson accused people of torture without knowing very much about what is happening. And he compounded it by calling on other economists (!) to denounce the government's actions.

If you really think this is TORTURE by our government, why don't you press Manning's lawyer to release everything he knows and to give the government permission to release everything it has about Manning's detention and the military's determinations? It fits perfectly with Manning's desire for information to be public, and it takes away any privacy reasons for the military to hold things back.

Mario Rizzo writes:

Yes, David, you are entirely right. But I do understand at an almost visceral level why economists don't comment on this stuff. I have thought of posting something on ThinkMarkets about Bradley Manning and associated matters. But I feel "untrained" in foreign affairs and get the sense that, qua economist, this is not my area. In addition, one continually runs into deliberate withholding of relevant data by the government. What exactly is going on is not an easy question to answer.

On the other hand, just how much do our foreign policy experts know about foreign affairs?

FC writes:

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Old Whig writes:

Francis Fukuyama is publishing a book in April that addresses human nature among other its propensity for war, his thesis is that the state, politcal, order grew out of warfare.

From NYT article on the coming book The Origins of Political Order

"But he explicitly assumes that human social nature is universal and is built around certain evolved behaviors like favoring relatives, reciprocal altruism, creating and following rules, and a propensity for warfare.

Because of this shared human nature, with its biological foundation, “human politics is subject to certain recurring patterns of behavior across time and across cultures,” he writes"

"The book traces the development of political order from the earliest human societies, which were small groups of hunter-gatherers. The first major social development, in Dr. Fukuyama’s view, was the transition from hunter-gatherer bands to tribes, made possible by religious ideas that united large numbers of people in worship of a common ancestor. Since a tribe could quickly mobilize many men for warfare, neighboring bands had to tribalize too, or be defeated.

Warfare also forced the second major social transition, from tribe to state. States are better organized than tribes and more stable, since tribes tend to dissolve in fighting after the death of a leader. Only because states offered a better chance of survival did people give up the freedom of the tribe for the coercion of the state."

Jacob Oost writes:

Call me illogical, but I don't put much credence in a far-left magazine that happily publishes articles by Fidel Castro or Stalinist apologists like Noam Chomsky.

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