" But when the dynamics of creative destruction cause enough patterns to break, workers must wait for entrepreneurs to discover the new profit opportunities that can lead to more hiring."
This made me think of Alexander Field's A Great Leap Forward, which demonstrated that the Great Depression was a time of great technological change. Google's AI says he "argued that the Great Depression spurred significant technological and organizational innovation, laying the groundwork for the post-WWII economic boom." But perhaps there's also causation in the other direction: so much was changing technologically that it took a long time "for entrepreneurs to discover the new profit opportunities that can lead to more hiring." So hiring stayed lower than normal for a long time.
"But perhaps there's also causation in the other direction ... "
Right, and my read of AGLF is that this is one of Field's points, that it wasn't just innovation, but a long period of a sustained, rapid pace and a quick sequence of real "Category 5 Storm" game-changers, producing one major sector disruption after another for decades. The economy and entrepreneurs barely had time to adapt and adjust to some new important development when yet another one showed up and compelled its own adjustment. Many people actually experienced what felt like the invention and manifestation of the whole modern world, with the transition from the old world being shockingly fast.
The BBC historic farm series has a WWII program. In it they talk about how in America there was a two year drop off in tractor sales early in the 1930s, but by the time of the Roosevelt recession sales would have picked back up. In the UK they didn't really pick back up tractor sales and were more reliant on horsepower. Some of this is because of smaller farms sizes. The UK also had a Roosevelt recession, but it was less severe. It would be hard to disentangle the monetary factors that made the UK recession less severe from the technological adjustment factors. The UK had better monetary policy. I asked chatgpt and it gave me satisfactory answers to a certain extent, but Arnold wrote once before that this is understudied and it is likely chatgpt does not have sufficient literature background to give a better answer than the ultimate conclusion it gave me, "America’s tractors deepened the trough; Britain’s horses softened it."
"When they have established sustainable patterns of specialization and trade, offers to work consist of incumbent workers coming to their usual place of work, where their offers are automatically accepted. That is, you go to work every day, knowing that your job will still be there."
This sounds a lot like demand deposit banking and parts of finance where the debtor-credit relationship is one that assumes a high degree of continuity with short-term debts and arrangements just being automatically rolled over, over and over, unless 'something' happens, and even then, that can be easily tolerated if all the somethings are spread out in a steady stream of small and fairly random events. But when lots of people demand their deposits at once or find their debts are being called in instead of rolled over like normal, you get a crisis.
How is it possible that so many really smart people hav not recognized that macroeconomics is a bust? National income accounting is useful in the very same way that descriptive statistics of anything are useful. But to posit cause and effect relationships among aggregates measures that are nothing more than aggregate measures simply hasn't turned out to be a useful, predictive, manageable model of reality. Someone please tell me one macroeconomic relationship that is even remotely reliable in the same way the law of gravity is reliable. Is there even one?
I think you know how to define "remotely;" it's just the word you think it is. The hard sciences are no different from social sciences. Science is the search for true positive statements. As it happens, the law of gravity is a model. The model is highly useful, because it is evidently close enough to reality to be usable for prediction. The same cannot be said for macroeconomic models.
How is it possible that so many really smart people have not recognized that macroeconomics is a bust? National income accounting is useful in the very same way that descriptive statistics of anything are useful. But to posit cause and effect relationships among aggregates measures that are nothing more than aggregate measures simply hasn't turned out to be a useful, predictive, manageable model of reality. Someone please tell me one macroeconomic relationship that is even remotely reliable in the same way the law of gravity is reliable. Is there even one?
"Inflation is everywhere and always a monetary phenomenon." Not as precise as the law of gravity for numerical prediction, but quite useful enough for economic policy.
You call yourself a classical liberal; you should already know how so. For your edification, though, the source of persistent inflation (as opposed to one-time increases from, say, war or famine or Covid lockdowns) lies with the monetary authority, and cannot successfully be addressed through imposing price controls or exchange controls, blaming greedy speculators, castigating an international cabal of Zionist bankers, pleading that inflation is a "cost-push" problem, etc. That is an immensely valuable piece of information given how often governments have tried and continue to try to address inflation with policies that don't get at its source.
What does being a classical liberal have to do with the emptiness of macro economics? I'm not interested in edification, from you or anyone else. I'm interested in the science of economics. Though many really smart people have tried to discover measurable, reliable relationships among aggregate economic measures, they have failed.
I've asked for anyone to name one. You also have not done so.
Heck, I'm no economist of any kind, but I'll take a stab at it. Increasing the money supply beyond population growth means people have more money chasing the same amount of goods.
Imagine doubling everyone's bank account balances and investment account balances overnight. Leave prices alone. Just dump a bunch of newly printed money into bank accounts.
Everyone will want to buy Roll-Royces instead of Ferraris, Ferraris instead of Corvettes, and Corvettes instead of Chevies. French restaurants instead of McDonald's. High-zoot suits instead of Brooks Brothers.
Prices will rise because storekeepers aren't stupid; why not ration the supply of Rolls-Royces with higher prices?
Being a classical liberal means that you should know that in economic policy, statements about direction or quality can be extremely useful for orienting action properly. I said in my original comment that the statement about inflation was not as precise as the law of gravity for numerical prediction. In my second comment I explained how it was nevertheless extremely useful. We agree that that persistent stable relationships among aggregate macroeconomic variables are rare. That's not all there is to macroeconomics, though. I have been involved in various ways with five monetary reforms (Estonia 1992, Lithuania 1994, Bulgaria 1997, Bosnia 1997, and Ecuador 2000). All relied on qualitative and directional macroeconomic principles, and all were successful because they did so in a way that was consistent with underlying economic realities. If you're really interested, you can look up the supporting work I did for them, mainly in monographs written with Steve H. Hanke.
Some things cannot be, must not be, scaled up. A mother's caring for a child cannot be scaled up to a global government attempting to care for each child. Economics must not be scaled up in this way, either. Every level upward has a different role to play and trying to force a national economy into a structure that functions at a household level will fail (I realize this is an extreme comparison). This is how I view macroeconomics since I first learned about it in college years ago. My first reaction was, "No way." But after much thought and years living, on second thought, "No way, abort, abort!"
Random thought: A patient could, at one time, pay a doctor with a chicken.
A short explanation of what I'm getting at is: less (much less) government intervention at the federal level and almost NONE at the global level.
Long explanation is: I realize trade requires cooperation, but not at the risk of sovereignty. In the home, dad can dictate what I buy. In a community, dad does not reign, but community leaders do, although they should have and do not have power over what my dad says I can buy. They allow or disallow a business to build a data center or manage how many single family homes versus multi family structures are built. The state may influence that city based on wise planning. But the federal government must not (but has) disallow an area to be zoned single family, must not control movement legal of goods between states, and so forth. The federal government should act as protector of justice, defense, independence and freedom, etc. and not negotiate away our livelihood (industry). We should trade beyond what we do to be self-sufficient. Sovereignty first.
I don't know enough about economics to understand exactly what you are saying ... but if you are saying government should ignore economics and stop trying to control the economy, I've often wondered what the consequences would be. I'm certain government meddling makes things worse 99% of the time, and they don't even recognized which 1% they have improved until years later.
I got to wondering about the Fed 10-15 years ago and started exploring its origins. I came to the conclusion that it was created in reaction to the Panic of 1907, which in turn was the result of reacting to previous panics, all the way back to 1819, and that the only real fix for all that was to just stop meddling, period. Of course that's all in general terms and probably horrifies most mainstream real economists, but since I think they are the problem, I'm not too bothered.
Comments like this never cease to amaze me. They seem to be based on the fact that government meddling in the economy is far from perfect and a subsequent conclusion that no meddling would be perfect.
I think that there is a belief/feeling that there is some sort of Platonic ideal of "the economy" that would exist if there were no government. Thus, anything the government does is "meddling in the economy". But an economy relies on a framework of laws and that, pretty much by definition, means a government.
Now, anarcho-capitalists have tried to come up with ways that no government is required. Private "protection associations" enforce contracts. Various private moneys circulate and compete with each other. Some are very creative but I do not find them persuasive.
Various people like James Buchanan have tried to come up with ways that the "rules of the game" are set at the beginning and government's role is mostly to enforce them, to be a referee rather than a player. I think we'd be better if today's governments were more like that.
“I think that there is a belief/feeling that there is some sort of Platonic ideal of ‘the economy’ that would exist if there were no government. Thus, anything the government does is ‘meddling in the economy’.”
Sorry, yours is a false strawman.
At least to the extent that you are trying to broadly argue against everyone who believes there is far too much “government meddling” in the economy today, and that in fact the economy and almost all of its citizenry would be far better off if there were far less “meddling”.
Most people arguing here for less government meddling are not anarcho-capitalists, they are roughly classical liberals, or perhaps minarchists.
Rule of law with fixed rules for government, not unlike at the founding of the U.S., is anything but anarcho-capitalist.
Your last paragraph is perfectly in line with classical liberalism. However, it is also perfectly in line with much larger amounts of government intervention (meddling) as well.
I ain’t a minarchist, but I am a classical liberal. I wish we had far fewer laws, and in particular economic regulations, than we do, but not none.
When I responded to Chartertopia, I made the mistake of using their word "meddling." Apologies. It grossly misses the point.
Much as Roger detailed, the government does far more than meddle in the economy. I'd argue his list just scratched the surface. Our government provides an infrastructure on which we can build an economy more robust than small scale trade.
I think what I am trying to say is that there are not two distinct things, "the economy" and "the government". All economies involve governments. Chartertopia below says "The only regulation required of government is enforcing laws against theft and assault." But of course there has to be some definition of what theft and assault are. There also has to be definition of what property is, what property rights are, what contracts can be made, etc.
When a new technology like radio comes along, is it an assault to broadcast on the same frequency as someone down the street, rendering his broadcast unhearable? There are more and less "meddlesome" ways of dealing with that (e.g. Coase's famous article, "The FCC") but a government is going to be involved.
Unless you really do believe in anarcho-capitalism.
I can meet you considerably more than halfway, but not all the way.
I agree with you fully that Chartertopia’s referenced comment is wrong (or at least, like you I strongly disagree with it as anything remotely like optimal in the real world).
So yes, there *should* be government.
But if we take “government meddling” to be its much more commonly understood meaning of “the opposite of laissez-faire” beyond what a classical liberal approach to government would be, especially when the subject in question is economics related, I stand with him that not only is most government meddling bad, but any given new instance of government meddling is more likely to make society collectively worse off economically, not better.
The fact that of course we can surely find a few places - like, e.g. defining property rights to RF spectrum - where some amount of explicit government regulation is clearly a good thing notwithstanding.
The only regulation required of government is enforcing laws against theft and assault. All the rest is either crony politics or blatant corruption and meddling. Insider trading laws are a good starting point. If the business doesn't want it, let their employment contract define it and forbid it, and let the owners prosecute it.
I have no use for those so-called "protection association" which someone else better labeled as "protection rackets". They strike me as no better than feudal fantasies of teenaged boys. But they are not necessary for private criminal prosecution by victims, kith and kin, or even bystanders.
Free banks worked fine until governments took them over to debase the currency. US notes before the Civil War were from private banks and society handled them just fine, even before railroads and telegraphs made them even better. England forbade the colonies using English currency; they used Spanish, French, and others, along with wampum and barrels of tobacco, and got along fine. There is no need for a government monopoly on currency.
Let's start with the English colonies before the revolution. England forbade the colonists from using English currency. No doubt they did anyway, but they also used Spanish, French, and other European currency, plus wampum, tobacco, and other more or less standard currency. That's 100-150 years of private currency, in an age of slow communications and travel. If they could do it three hundred years ago, we certainly could today.
US banks before the Civil War issued their own bills which were remarkably successful and stable. George Selgin has an article (https://www.alt-m.org/2021/07/06/the-fable-of-the-cats/) on the myth of the wildcat banks running rampant with fraud. It doesn't take much thinking at all to realize that if banks and private money were as fraudulent as statists claim, the economy would have been dead. It quite evidently wasn't. All of the US financial panics, ALL, were caused by government malfeasance, including patchwork fixes to cure previous panics, from 1819 (caused by the US national bank and crony favoritism) to 1907 (which led to creating the Fed because the government was yet again embarrassed by private banks thumbing their noses at the government and rescuing the economy.
Scottish banks had a good run of issuing private currency, until the powers that be decided it was more important to control the currency for selfish reasons, not because of any failures.
George Selgin has a great book (Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775–1821) on private coiners minting pennies, ha'pennies, and farthings, because the Royal Mint would not. Imagine that! Private companies minting the cheapest coins, defeating counterfeiters, and trusted by everyone, because for 45 years, the government would not do its job.
Or more realistically, that no meddling would be better. Doesn't have to be perfect. Your argument is the counterpart of socialists claiming their ideal socialism is better than messy crony capitalism.
Lol. You are the one asking for a change from the status quo based on absolutely no evidence.
Even with the most generous eetimation, your claim of 99% worse seems way off. Can we agree that there are at least enough government services to justify collecting and spending more than 1% of economic output?
Then there is the money supply. No matter how bad you think they manage it, I'd hope you'd see that entirely private currencies would be worse.
If you disagree on either of these points, we probably don't have anything further to discuss.
No, I will not agree that government needs to spend even 1% of economic output. The government does far too much. It does not need to run a post office. It does not need a monopoly on criminal prosecution. It does not need to fund scientific research or loan money to students or handle unemployment insurance or retirement funds. It does not need to (poorly) inspect and regulate food safety or provide (wrong and constantly changing) dietary advice. It does not need to run parks. It does not need to build and maintain roads or airports or regulate utilities.
You are apparently unaware of free banking’s history of success, which was only curtailed because government wanted to debase the currency. You can hope for your fantasy of competent government money all you want, but that doesn’t make it true. Look at the last 100 years of inflation and depressions for how much I trust government. Look at the prior history of panics, all caused and exacerbated by previous government fixes to previous panics.
If you think all those are not only proper but required government functions, then yes, you are right, you will gain nothing from responding to me.
“Comments like this never cease to amaze me. They seem to be based on the fact that government meddling in the economy is far from perfect and a subsequent conclusion that no meddling would be perfect.’
You should not be amazed at statements like the one you’re referring to.
90%+ of the time - and likely 98% or 99% of the time - the economy in fact WOULD be better off without government meddling.
That other 1% or 2% of the time, the meddling done by human government officials - who not only are not omniscient, but themselves subject to their own incentives, as public choice theory teaches - *sometimes* will make things better, and *sometimes* will make things worse.
I’ll bet you that if you try to name 10 times where government meddling made things better, dollars to doughnuts most of those times involved government meddling having been the one to make them worse in the first place.
It’s not that “no meddling would be perfect”, it’s that “the enormous majority of meddling makes things worse”.
Your defense of “meddling” amounts to the same thing as the idea in the joke that economists have predicted 11 of the last 4 recessions - just with an even worse success rate.
"Leijonhufvud (Germanized as Lewenhaupt, literally "Lionhead") is the name of a Swedish noble family, from which some of the family members were granted baronial title." wikipedia
Axel Leijonhufvud (1933-2022) is a member of the family.
Axel Leijonhufvud (LAY-on-hoof-vood) joked that he would never have a school of thought named after him because it was too hard to spell and to say "Leijonhufvudians."
Arnold, this would be a good time, with Hewitt as a trigger, to try to develop a better form of Macroeconomics, likely depending on far more real data from the economy and more basic math.
While I like “Patterns,” & “Sustainable,” they are far less relevant terms than Trade & (especially) Specialization for understanding the national or global economy. If every possible macro economy is some pattern, that word is superfluous. Like looking at the income of living Americans in 2024, “living” is a waste. For businesses, there is a clear and important signal of sustainability, calculated by subtracting the costs from the revenue, profit. Plenty of MBA books are about increasing the profit of general or specific businesses.
Howitt’s focus on coordination is exactly the kind of macro the world needs, because that coordination comes from trade, and is mediated by prices. The workers specialize in their “work” trading it for money, so as to trade the money they earn for goods & services provided by other specialists.
So who are the PhD students & others working with Howitt?
And how can such a CS&T macro economic school lead to govt decision makers having better policies? The support of active, controlling govt is a popular feature of both Keynesian & socialist econ.
“And in terms of trading taking place outside of equilibrium. How difficult! The profession decided to look for its lost watch under the lamp post, instead.”
What a great metaphor!
I’m curious what percentage of macroeconomists believe this criticism.
Howitt’s story of Keynes is both plausible and the most favorable I’ve heard of him in a long time.
To this amateur economist, the idea that “Keynesianism” (as it evolved) and its policies might be appropriate during the depths of some recessions where demand does “freeze up” I can still accept.
But it’s very clear that:
a) *only* at those times *might* it be correct, and
b) the so-called “Keynesians” refusal to run government surpluses meant that they were largely and now completely insincere in their beliefs. It’s one thing for the politicians to be this way, but for the supposedly “professional” economists…
An economy never produces exactly the right amount of goods and never offers exactly the right amount of services. When the surplus gets high enough that people recognize future demands is unlikely to use up the surplus in a timely manner, producers and service providers cut back on labor and other inputs. These cut backs lead to secondary cutbacks and that process continues. It's less clear to me how demand eventually catches back up to supply but it will.
Keynesian economics (which I've previously heard isn't something Keynesian actually proposed) says that if the government stimulates demand after the downward trend starts, we can shorten the downward trend. In theory, this is no doubt true. In practice it is at best difficult. Identifying the downward trend is probably the easiest part (not necessarily easy). Sizing the stimulus is more difficult. Knowing when to remove the stimulus and carrying that out seems near impossible.
IANAE, but this seems far too general to have any meaning:
"An economy never produces exactly the right amount of goods and never offers exactly the right amount of services."
If a company manufacturers too much of a product, they lower the price to clear their inventory, even selling the whole mess for pennies on the dollar.
But no "economy" produces anything. This is equivalent to saying "America trades with China" when they do no such thing; trade is between individuals.
" But when the dynamics of creative destruction cause enough patterns to break, workers must wait for entrepreneurs to discover the new profit opportunities that can lead to more hiring."
This made me think of Alexander Field's A Great Leap Forward, which demonstrated that the Great Depression was a time of great technological change. Google's AI says he "argued that the Great Depression spurred significant technological and organizational innovation, laying the groundwork for the post-WWII economic boom." But perhaps there's also causation in the other direction: so much was changing technologically that it took a long time "for entrepreneurs to discover the new profit opportunities that can lead to more hiring." So hiring stayed lower than normal for a long time.
"But perhaps there's also causation in the other direction ... "
Right, and my read of AGLF is that this is one of Field's points, that it wasn't just innovation, but a long period of a sustained, rapid pace and a quick sequence of real "Category 5 Storm" game-changers, producing one major sector disruption after another for decades. The economy and entrepreneurs barely had time to adapt and adjust to some new important development when yet another one showed up and compelled its own adjustment. Many people actually experienced what felt like the invention and manifestation of the whole modern world, with the transition from the old world being shockingly fast.
The BBC historic farm series has a WWII program. In it they talk about how in America there was a two year drop off in tractor sales early in the 1930s, but by the time of the Roosevelt recession sales would have picked back up. In the UK they didn't really pick back up tractor sales and were more reliant on horsepower. Some of this is because of smaller farms sizes. The UK also had a Roosevelt recession, but it was less severe. It would be hard to disentangle the monetary factors that made the UK recession less severe from the technological adjustment factors. The UK had better monetary policy. I asked chatgpt and it gave me satisfactory answers to a certain extent, but Arnold wrote once before that this is understudied and it is likely chatgpt does not have sufficient literature background to give a better answer than the ultimate conclusion it gave me, "America’s tractors deepened the trough; Britain’s horses softened it."
"When they have established sustainable patterns of specialization and trade, offers to work consist of incumbent workers coming to their usual place of work, where their offers are automatically accepted. That is, you go to work every day, knowing that your job will still be there."
This sounds a lot like demand deposit banking and parts of finance where the debtor-credit relationship is one that assumes a high degree of continuity with short-term debts and arrangements just being automatically rolled over, over and over, unless 'something' happens, and even then, that can be easily tolerated if all the somethings are spread out in a steady stream of small and fairly random events. But when lots of people demand their deposits at once or find their debts are being called in instead of rolled over like normal, you get a crisis.
How is it possible that so many really smart people hav not recognized that macroeconomics is a bust? National income accounting is useful in the very same way that descriptive statistics of anything are useful. But to posit cause and effect relationships among aggregates measures that are nothing more than aggregate measures simply hasn't turned out to be a useful, predictive, manageable model of reality. Someone please tell me one macroeconomic relationship that is even remotely reliable in the same way the law of gravity is reliable. Is there even one?
There is almost nothing outside the hard sciences that is as reliable as the law of gravity. So depending on how you define "remotely" ...
I think you know how to define "remotely;" it's just the word you think it is. The hard sciences are no different from social sciences. Science is the search for true positive statements. As it happens, the law of gravity is a model. The model is highly useful, because it is evidently close enough to reality to be usable for prediction. The same cannot be said for macroeconomic models.
How is it possible that so many really smart people have not recognized that macroeconomics is a bust? National income accounting is useful in the very same way that descriptive statistics of anything are useful. But to posit cause and effect relationships among aggregates measures that are nothing more than aggregate measures simply hasn't turned out to be a useful, predictive, manageable model of reality. Someone please tell me one macroeconomic relationship that is even remotely reliable in the same way the law of gravity is reliable. Is there even one?
"Inflation is everywhere and always a monetary phenomenon." Not as precise as the law of gravity for numerical prediction, but quite useful enough for economic policy.
Okay. Explain how so.
You call yourself a classical liberal; you should already know how so. For your edification, though, the source of persistent inflation (as opposed to one-time increases from, say, war or famine or Covid lockdowns) lies with the monetary authority, and cannot successfully be addressed through imposing price controls or exchange controls, blaming greedy speculators, castigating an international cabal of Zionist bankers, pleading that inflation is a "cost-push" problem, etc. That is an immensely valuable piece of information given how often governments have tried and continue to try to address inflation with policies that don't get at its source.
What does being a classical liberal have to do with the emptiness of macro economics? I'm not interested in edification, from you or anyone else. I'm interested in the science of economics. Though many really smart people have tried to discover measurable, reliable relationships among aggregate economic measures, they have failed.
I've asked for anyone to name one. You also have not done so.
Heck, I'm no economist of any kind, but I'll take a stab at it. Increasing the money supply beyond population growth means people have more money chasing the same amount of goods.
Imagine doubling everyone's bank account balances and investment account balances overnight. Leave prices alone. Just dump a bunch of newly printed money into bank accounts.
Everyone will want to buy Roll-Royces instead of Ferraris, Ferraris instead of Corvettes, and Corvettes instead of Chevies. French restaurants instead of McDonald's. High-zoot suits instead of Brooks Brothers.
Prices will rise because storekeepers aren't stupid; why not ration the supply of Rolls-Royces with higher prices?
That's monetary inflation.
Being a classical liberal means that you should know that in economic policy, statements about direction or quality can be extremely useful for orienting action properly. I said in my original comment that the statement about inflation was not as precise as the law of gravity for numerical prediction. In my second comment I explained how it was nevertheless extremely useful. We agree that that persistent stable relationships among aggregate macroeconomic variables are rare. That's not all there is to macroeconomics, though. I have been involved in various ways with five monetary reforms (Estonia 1992, Lithuania 1994, Bulgaria 1997, Bosnia 1997, and Ecuador 2000). All relied on qualitative and directional macroeconomic principles, and all were successful because they did so in a way that was consistent with underlying economic realities. If you're really interested, you can look up the supporting work I did for them, mainly in monographs written with Steve H. Hanke.
Some things cannot be, must not be, scaled up. A mother's caring for a child cannot be scaled up to a global government attempting to care for each child. Economics must not be scaled up in this way, either. Every level upward has a different role to play and trying to force a national economy into a structure that functions at a household level will fail (I realize this is an extreme comparison). This is how I view macroeconomics since I first learned about it in college years ago. My first reaction was, "No way." But after much thought and years living, on second thought, "No way, abort, abort!"
Random thought: A patient could, at one time, pay a doctor with a chicken.
A short explanation of what I'm getting at is: less (much less) government intervention at the federal level and almost NONE at the global level.
Long explanation is: I realize trade requires cooperation, but not at the risk of sovereignty. In the home, dad can dictate what I buy. In a community, dad does not reign, but community leaders do, although they should have and do not have power over what my dad says I can buy. They allow or disallow a business to build a data center or manage how many single family homes versus multi family structures are built. The state may influence that city based on wise planning. But the federal government must not (but has) disallow an area to be zoned single family, must not control movement legal of goods between states, and so forth. The federal government should act as protector of justice, defense, independence and freedom, etc. and not negotiate away our livelihood (industry). We should trade beyond what we do to be self-sufficient. Sovereignty first.
I don't know enough about economics to understand exactly what you are saying ... but if you are saying government should ignore economics and stop trying to control the economy, I've often wondered what the consequences would be. I'm certain government meddling makes things worse 99% of the time, and they don't even recognized which 1% they have improved until years later.
I got to wondering about the Fed 10-15 years ago and started exploring its origins. I came to the conclusion that it was created in reaction to the Panic of 1907, which in turn was the result of reacting to previous panics, all the way back to 1819, and that the only real fix for all that was to just stop meddling, period. Of course that's all in general terms and probably horrifies most mainstream real economists, but since I think they are the problem, I'm not too bothered.
Comments like this never cease to amaze me. They seem to be based on the fact that government meddling in the economy is far from perfect and a subsequent conclusion that no meddling would be perfect.
I think that there is a belief/feeling that there is some sort of Platonic ideal of "the economy" that would exist if there were no government. Thus, anything the government does is "meddling in the economy". But an economy relies on a framework of laws and that, pretty much by definition, means a government.
Now, anarcho-capitalists have tried to come up with ways that no government is required. Private "protection associations" enforce contracts. Various private moneys circulate and compete with each other. Some are very creative but I do not find them persuasive.
Various people like James Buchanan have tried to come up with ways that the "rules of the game" are set at the beginning and government's role is mostly to enforce them, to be a referee rather than a player. I think we'd be better if today's governments were more like that.
Property rights can be defined only within a nexus of laws. Anarcho-capitalism is thus logically nonstarter.
“I think that there is a belief/feeling that there is some sort of Platonic ideal of ‘the economy’ that would exist if there were no government. Thus, anything the government does is ‘meddling in the economy’.”
Sorry, yours is a false strawman.
At least to the extent that you are trying to broadly argue against everyone who believes there is far too much “government meddling” in the economy today, and that in fact the economy and almost all of its citizenry would be far better off if there were far less “meddling”.
Most people arguing here for less government meddling are not anarcho-capitalists, they are roughly classical liberals, or perhaps minarchists.
Rule of law with fixed rules for government, not unlike at the founding of the U.S., is anything but anarcho-capitalist.
Your last paragraph is perfectly in line with classical liberalism. However, it is also perfectly in line with much larger amounts of government intervention (meddling) as well.
I ain’t a minarchist, but I am a classical liberal. I wish we had far fewer laws, and in particular economic regulations, than we do, but not none.
When I responded to Chartertopia, I made the mistake of using their word "meddling." Apologies. It grossly misses the point.
Much as Roger detailed, the government does far more than meddle in the economy. I'd argue his list just scratched the surface. Our government provides an infrastructure on which we can build an economy more robust than small scale trade.
I think what I am trying to say is that there are not two distinct things, "the economy" and "the government". All economies involve governments. Chartertopia below says "The only regulation required of government is enforcing laws against theft and assault." But of course there has to be some definition of what theft and assault are. There also has to be definition of what property is, what property rights are, what contracts can be made, etc.
When a new technology like radio comes along, is it an assault to broadcast on the same frequency as someone down the street, rendering his broadcast unhearable? There are more and less "meddlesome" ways of dealing with that (e.g. Coase's famous article, "The FCC") but a government is going to be involved.
Unless you really do believe in anarcho-capitalism.
I can meet you considerably more than halfway, but not all the way.
I agree with you fully that Chartertopia’s referenced comment is wrong (or at least, like you I strongly disagree with it as anything remotely like optimal in the real world).
So yes, there *should* be government.
But if we take “government meddling” to be its much more commonly understood meaning of “the opposite of laissez-faire” beyond what a classical liberal approach to government would be, especially when the subject in question is economics related, I stand with him that not only is most government meddling bad, but any given new instance of government meddling is more likely to make society collectively worse off economically, not better.
The fact that of course we can surely find a few places - like, e.g. defining property rights to RF spectrum - where some amount of explicit government regulation is clearly a good thing notwithstanding.
Agreed, though we might quibble about how much more like that
The only regulation required of government is enforcing laws against theft and assault. All the rest is either crony politics or blatant corruption and meddling. Insider trading laws are a good starting point. If the business doesn't want it, let their employment contract define it and forbid it, and let the owners prosecute it.
I have no use for those so-called "protection association" which someone else better labeled as "protection rackets". They strike me as no better than feudal fantasies of teenaged boys. But they are not necessary for private criminal prosecution by victims, kith and kin, or even bystanders.
Free banks worked fine until governments took them over to debase the currency. US notes before the Civil War were from private banks and society handled them just fine, even before railroads and telegraphs made them even better. England forbade the colonies using English currency; they used Spanish, French, and others, along with wampum and barrels of tobacco, and got along fine. There is no need for a government monopoly on currency.
Clearly you know nothing of the history of private currencies.
Let's start with the English colonies before the revolution. England forbade the colonists from using English currency. No doubt they did anyway, but they also used Spanish, French, and other European currency, plus wampum, tobacco, and other more or less standard currency. That's 100-150 years of private currency, in an age of slow communications and travel. If they could do it three hundred years ago, we certainly could today.
US banks before the Civil War issued their own bills which were remarkably successful and stable. George Selgin has an article (https://www.alt-m.org/2021/07/06/the-fable-of-the-cats/) on the myth of the wildcat banks running rampant with fraud. It doesn't take much thinking at all to realize that if banks and private money were as fraudulent as statists claim, the economy would have been dead. It quite evidently wasn't. All of the US financial panics, ALL, were caused by government malfeasance, including patchwork fixes to cure previous panics, from 1819 (caused by the US national bank and crony favoritism) to 1907 (which led to creating the Fed because the government was yet again embarrassed by private banks thumbing their noses at the government and rescuing the economy.
During the Civil War, private bank notes were so common and popular and reliable that the US had to tax them out of existence before the populace would accept the debased "greenback" dollars used to finance the war. https://www.alt-m.org/2022/06/09/paul-krugman-and-the-ersatz-theory-of-private-currencies/
Scottish banks had a good run of issuing private currency, until the powers that be decided it was more important to control the currency for selfish reasons, not because of any failures.
George Selgin has a great book (Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775–1821) on private coiners minting pennies, ha'pennies, and farthings, because the Royal Mint would not. Imagine that! Private companies minting the cheapest coins, defeating counterfeiters, and trusted by everyone, because for 45 years, the government would not do its job.
No sir! It is you who are ignorant of them.
Or more realistically, that no meddling would be better. Doesn't have to be perfect. Your argument is the counterpart of socialists claiming their ideal socialism is better than messy crony capitalism.
Lol. You are the one asking for a change from the status quo based on absolutely no evidence.
Even with the most generous eetimation, your claim of 99% worse seems way off. Can we agree that there are at least enough government services to justify collecting and spending more than 1% of economic output?
Then there is the money supply. No matter how bad you think they manage it, I'd hope you'd see that entirely private currencies would be worse.
If you disagree on either of these points, we probably don't have anything further to discuss.
No, I will not agree that government needs to spend even 1% of economic output. The government does far too much. It does not need to run a post office. It does not need a monopoly on criminal prosecution. It does not need to fund scientific research or loan money to students or handle unemployment insurance or retirement funds. It does not need to (poorly) inspect and regulate food safety or provide (wrong and constantly changing) dietary advice. It does not need to run parks. It does not need to build and maintain roads or airports or regulate utilities.
You are apparently unaware of free banking’s history of success, which was only curtailed because government wanted to debase the currency. You can hope for your fantasy of competent government money all you want, but that doesn’t make it true. Look at the last 100 years of inflation and depressions for how much I trust government. Look at the prior history of panics, all caused and exacerbated by previous government fixes to previous panics.
If you think all those are not only proper but required government functions, then yes, you are right, you will gain nothing from responding to me.
“Comments like this never cease to amaze me. They seem to be based on the fact that government meddling in the economy is far from perfect and a subsequent conclusion that no meddling would be perfect.’
You should not be amazed at statements like the one you’re referring to.
90%+ of the time - and likely 98% or 99% of the time - the economy in fact WOULD be better off without government meddling.
That other 1% or 2% of the time, the meddling done by human government officials - who not only are not omniscient, but themselves subject to their own incentives, as public choice theory teaches - *sometimes* will make things better, and *sometimes* will make things worse.
I’ll bet you that if you try to name 10 times where government meddling made things better, dollars to doughnuts most of those times involved government meddling having been the one to make them worse in the first place.
It’s not that “no meddling would be perfect”, it’s that “the enormous majority of meddling makes things worse”.
Your defense of “meddling” amounts to the same thing as the idea in the joke that economists have predicted 11 of the last 4 recessions - just with an even worse success rate.
Leijonhufvud
Time to get a new last name? Seriously, what on earth is this thing?
"Leijonhufvud (Germanized as Lewenhaupt, literally "Lionhead") is the name of a Swedish noble family, from which some of the family members were granted baronial title." wikipedia
Axel Leijonhufvud (1933-2022) is a member of the family.
I’m now dyslexic after having to read that last name yet one more time. Thanks for your help and history lesson.
Axel Leijonhufvud (LAY-on-hoof-vood) joked that he would never have a school of thought named after him because it was too hard to spell and to say "Leijonhufvudians."
Arnold, this would be a good time, with Hewitt as a trigger, to try to develop a better form of Macroeconomics, likely depending on far more real data from the economy and more basic math.
While I like “Patterns,” & “Sustainable,” they are far less relevant terms than Trade & (especially) Specialization for understanding the national or global economy. If every possible macro economy is some pattern, that word is superfluous. Like looking at the income of living Americans in 2024, “living” is a waste. For businesses, there is a clear and important signal of sustainability, calculated by subtracting the costs from the revenue, profit. Plenty of MBA books are about increasing the profit of general or specific businesses.
Howitt’s focus on coordination is exactly the kind of macro the world needs, because that coordination comes from trade, and is mediated by prices. The workers specialize in their “work” trading it for money, so as to trade the money they earn for goods & services provided by other specialists.
So who are the PhD students & others working with Howitt?
And how can such a CS&T macro economic school lead to govt decision makers having better policies? The support of active, controlling govt is a popular feature of both Keynesian & socialist econ.
“And in terms of trading taking place outside of equilibrium. How difficult! The profession decided to look for its lost watch under the lamp post, instead.”
What a great metaphor!
I’m curious what percentage of macroeconomists believe this criticism.
Howitt’s story of Keynes is both plausible and the most favorable I’ve heard of him in a long time.
To this amateur economist, the idea that “Keynesianism” (as it evolved) and its policies might be appropriate during the depths of some recessions where demand does “freeze up” I can still accept.
But it’s very clear that:
a) *only* at those times *might* it be correct, and
b) the so-called “Keynesians” refusal to run government surpluses meant that they were largely and now completely insincere in their beliefs. It’s one thing for the politicians to be this way, but for the supposedly “professional” economists…
An economy never produces exactly the right amount of goods and never offers exactly the right amount of services. When the surplus gets high enough that people recognize future demands is unlikely to use up the surplus in a timely manner, producers and service providers cut back on labor and other inputs. These cut backs lead to secondary cutbacks and that process continues. It's less clear to me how demand eventually catches back up to supply but it will.
Keynesian economics (which I've previously heard isn't something Keynesian actually proposed) says that if the government stimulates demand after the downward trend starts, we can shorten the downward trend. In theory, this is no doubt true. In practice it is at best difficult. Identifying the downward trend is probably the easiest part (not necessarily easy). Sizing the stimulus is more difficult. Knowing when to remove the stimulus and carrying that out seems near impossible.
IANAE, but this seems far too general to have any meaning:
"An economy never produces exactly the right amount of goods and never offers exactly the right amount of services."
If a company manufacturers too much of a product, they lower the price to clear their inventory, even selling the whole mess for pennies on the dollar.
But no "economy" produces anything. This is equivalent to saying "America trades with China" when they do no such thing; trade is between individuals.
And what they sell for pennies on the dollar is something they probably won't be making much more of, which was my point.
Sorry if it wasn't clear that "economy" refers to everything that is produced for exchange.
It’s still just as misleading to talk of “economies producing” anything, as it is to talk of countries trading.