I Love Government

Government differentiates us from animals and savages. The American form of government is the best in the world. Politicians & government officials are generally patriotic and honest. But government is not itself the will of the people. It is merely one tool by which the people implement their will and sometimes not the most appropriate tool in the box.

Government is by its nature an encompassing organization that must have and sometimes use the power of coercion. If you don't believe me, try to imagine a government w/o these characteristics.

Government must always execute its directives by means of others and almost always by means of rules based bureaucratic method. Again try to imagine a government where elected officials do all the work themselves or a bureaucracy that makes its rules optional. Rules must be elaborated through a consultative process that inevitably takes much time and effort. Once established, rules acquire beneficiaries and advocates who resist change.

There are many situations where you want this kind of organization. We would generally apply this kind of structure in places where caution and continuity are more important than rapid innovation and/or situations where the cost of making mistakes was much higher than the benefits brought by inventive success. Bureaucracies usually build in significant redundancy precisely to avoid mistakes and ensure survival. A good example of the durability of bureaucracy came after World War II. Out of the smoking ruins and utter destruction of Berlin emerged a still functioning bureaucracy.

Bureaucracies, BTW, are not limited to government.Any large organization can develop a machine bureaucracy, but in private firms they often fall down from their own weight, i.e. the firm fails.

A free market has complementary strengths and weaknesses, which is why I also love the free market.Firms in a free market are not as durable as government bureaucracies but they are more innovative and tolerant of mistakes. A bureaucrat with 99 successes and one mistake is often characterized as someone with a mistake and it may hurt his chances for promotion. An entrepreneur 99 mistakes and one big success may well be the boss.

Bureaucracies are risk averse, as befits their fiduciary responsibilities. Free markets thrive on risk as befits their need to seek profitable investments. Any prosperous society needs both these sorts of structures and need to be very clear about the differences.

There are some things that cannot be achieved by a free market. There are some things that cannot be achieved by government action. Unfortunately, there are some good things that really cannot be achieved at all.

"Grant to us the serenity of mind to accept that which cannot be changed; courage to change that which can be changed, and wisdom to know the difference."

Which method or mix of methods is appropriate depends on the situation, but we need to be careful to understand the incentives, capacities and limitations involved. It is important also to understand that intentions and plans will NEVER work exactly as they should and will work in ways contrary to intention if the incentives or tools are wrong.

A good example came today from the Social Security Administration, which slowed down disability payments. Why? This week fell between the federal government's 2011 and 2012 fiscal years. Counting this week would make the current fiscal year 53 weeks long. That meant any applications for disability benefits completed between Monday and Friday wouldn't count toward the annual numerical targets set for Social Security judges or field offices. This meant that any work done this week doesn't count toward work targets. No cases were closed in the SSA's Boston and Denver regions on Monday, that person said, and the Seattle region closed just one case, according to the article quoted above. On a normal day, they do 3000. This case came to light because it was especially evident and egregious. A good bureaucrat can cover his/her tracks better or just fail to take an action.

This is why you don't want to apply government management to too many things. My liberal colleagues will give examples of private market failures and they will be right too. I am just calling for the appropriate tools in the appropriate places. And sometimes no solution is possible to particular problems and demanding solutions just aggravates the problem.

A hammer can drive in nails. With less elegance, it can drive in screws. But if you use a hammer where you need a socket wrench, you are unlikely to achieve your goal.

another great article by someone who loves government

Posted by Christine & John at September 29, 2011 8:26 PM
Comments
Comment #329931
Free markets thrive on risk as befits their need to seek profitable investments.

I agree C&J, but it does make you wonder why corporate America and it’s right wing minions use the “uncertainty” line to set on billions of dollars that could be invested in this country to get the economy moving. Seems the concept of “free market” and risk has been more theory than practical since the days of Reagan and “deregulation”.

Posted by: j2t2 at September 30, 2011 8:41 AM
Comment #329939

J2t2

As I learned in my studies of the subject, there is a great difference between risk and uncertainty.

Risk can be assessed with downsides and upsides.It can be influenced by factors that can be to some extent foreseen. A classic example in a roll of the dice. It is the metaphor for risk, but it is completely certain, since we know that one of the combinations will come up.

Political risk skews the equation. If congress and president Obama are likely to change the basic rules, you have uncertainty. It is like throwing the dice and not knowing whether Obama will toss in a couple extra sevens.

It is the duty of government, whenever possible, to convert uncertainty into risk, never to add uncertainty.

Posted by: C&J at September 30, 2011 6:01 PM
Comment #329944

Come on C&J, there never has been certainty of risk in the financial markets and economic investments. Blaming Obama for the uncertainty of investment risk in this period of worldwide economic turmoil is ludicrous. The businesses hoarding cash are huge multi-nationals not mom and pop businesses. If this practice of hoarding cash rather than capital investment is attributable to Obama, then corporations have been spectacularly prescient since the practice has been going on since the 80s. http://www.ritholtz.com/blog/2010/07/corporate-cash-has-been-piling-up-since-1982/

Posted by: Rich at September 30, 2011 7:46 PM
Comment #329946

Rich

I am not blaming Obama. IMO uncertainty created by Obama and the first congress when he became president did contribute to uncertainty.

Your use of the word “hoarding” is interesting. The idea that people or firms hoard is often associated with oppressive regimes. When people feel confident, most do not hoard money. If a firm is “hoarding” money, all that means is that they do not believe there are investments good enough to deploy that money.

Posted by: C&J at September 30, 2011 8:23 PM
Comment #329947

Come to think about it, if we need to place blame on a President for risk uncertainty in national corporate capital investment then Ronald Reagan would be a good candidate since corporate cash hoarding started during his tenure. The neo-liberal economic revolution spurred globalization and definitely created uncertainty in the national market. We might even add Clinton who signed NAFTA. The truth of the matter is that globalization has created a climate of investment uncertainty. Do you actually risk capital investment in new production when a Chinese firm could undercut your product cost and bankrupt you before the first new widget is even produced. Solyndra come to mind? Better to outsource the production and slap your name on the product. Also, don’t forget the inflation adjusted stagnation of wages. Eventually, the loss of buying power cannot be compensated by increased consumer debt. How do you increase demand with declining wages/salaries?

Yes, there is uncertainty. But, it has little to do with Obama.

Posted by: Rich at September 30, 2011 8:48 PM
Comment #329949

Rich

I say again, the idea of “cash hoarding” as some kind of fault is faulty. I currently have more cash on hand than I have had for a long time. It is because I am not sure what to do with it and my lack of energy will probably end up costing me money in the form of income NOT harvested. But it is not anybody’s business but mine.

Re uncertainty by Obama - in the first year, Obama and his allies in Congress talked all the time about change and implied it would be big change. I didn’t like that. Maybe it is just me. But it affected my thinking. I am happier now that Obama has become more reasonable, but I fear that the 2008 Obama might resurface. I use my personal situation only as an illustration. But I would point out that my lethargy has saved me a pile of money in recent months.

You can tell me why I am wrong to think like this, just as you can argue to business leaders that they are wrong in their assessments. But I perceive in your comments and the use of the world “hoarding” that you feel there is some moral dimension to people making what they consider good decisions about deploying their own resources. Am I wrong?

Posted by: C&J at September 30, 2011 9:00 PM
Comment #329950

“If a firm is “hoarding” money, all that means is that they do not believe there are investments good enough to deploy that money.”

Don’t disagree. I only used the “hoarding” because it is a common term employed in the media to describe the phenomena of corporations retaining cash rather than investing and leveraging that cash into increased production capacity.

As I stated, this should not be surprising as there are clear demand issues resulting from the debt related financial collapse and the long term competition from foreign manufacturers. If people can’t buy it, no sense in producing it. If they can buy it, still no sense in producing it if the Chinese will produce and sell it at a lesser cost.

Posted by: Rich at September 30, 2011 9:07 PM
Comment #329952

Rich

I don’t think we can really work from the demand side. We tried to manage the economy that way and it seemed to work when the U.S. was the predominant economy. That system collapsed in the late 1960s and gave us in the 1970s a situation not to different from what we have today.

I agree that it is good if people are rich enough to buy. But they become rich enough to buy through gains in productivity. That is why most of us can work less hard than our grandfather did and still afford to buy more and better stuff.


IF we just dump government money in, it doesn’t do anything for productivity. At first it seems to work because people believe that the money is real and react by working for it. But they soon get used to situation and adapt to it.

In the old communist countries, they used to have a saying that “we pretend to work and they pretend to pay us.” Government ostensibly ran the whole show, but they couldn’t really control human activity nor could they overcome the law of supply and demand.

America has never had a government as intrusive as those of the communists or fascist and I don’t think we ever will. But we can draw lessons from their failures.

As I tried to show in this post, government has an essential role to play, but that role is limited by the way it must gather information and implement its will. The proper role of government is not activist, since it can more easily wreck the economy than help it.

The linked article at the end of my post expresses it well. If government stuck to its core functions, everybody would love it, but

“So much of what government does is beyond its core competencies. Get back to basics. Fix the roads that need fixing, build bridges that go somewhere, and let the creativity of America’s innovators flourish.”

Posted by: C&J at September 30, 2011 9:33 PM
Comment #329953

C&J,

Let me be clear. The term “hoarding” has absolutely no moral dimension in my thinking. Cash accumulation, for want of a better term, is not a new phenomena. The link that I provided contains a reference to a 2006 study on the reasons that corporations were retaining cash and declining to leverage the cash into new capital investments. The principal reason was increased perceived risk. Volatility in the market place makes capital investment with long term payoffs less attractive and riskier. In my opinion, globalization has contributed to such volatility and uncertainty much more than anything Obama or the Democrats could ever conceive of doing.

In terms of your own personal finances, you are certainly not alone. The worldwide turmoil resulting from the private sector debt collapse has resulted in a flight to the safe havens of US treasuries and cash. Until that debt problem is worked out, it probably will be as good an investment as any other. Something tells me, though, that you know that already. Something tells me that the Obama rhetoric of 2008 had little to do with your investments, or lack thereof.


Posted by: Rich at September 30, 2011 9:44 PM
Comment #329954

C&J,

Productivity is not the problem. We have excess productive capacity. We don’t have the income to purchase the productive capacity.

We have been through a period of substantial increases in productivity. Yet, who has realized those gains? It has been capital not labor. Wages/salaries have been stagnant for decades while corporate profits have been increasing. It has been debt, fueled by inflated housing equity that has supported the consumer purchasing power. It is the classic problem of a consumer economy that Henry Ford fully understood. There is two sides to the demand/supply equation. Producing more widgets for less is meaningless if the consumer is unable to purchase the increased number of widgets.

Posted by: Rich at September 30, 2011 9:58 PM
Comment #329958

Rich

Thanks for clearing up the hoarding. It is always interesting the way we load words with meaning, sometimes not the meaning the sender intended. For me, hoarding still carries all the connotations of communism/fascism where the authorities would accuse the productive people in society of not properly sharing or deploying their wealth. Often this preceded some state grab of resources or a pogrom.


Re productivity - It seems to me that we often think that productivity is sufficient and that we just need to stimulate demand. This kind of thinking has been going on since at least the middle of the 19th century. It was at its peak from the 1930-1970, when many experts really though they could closely manage and plan economies.

But what if we indeed had stopped at the productivity levels of 1930 and just managed demand? Most people were really poor back then.

Even the middle class in the year I was born had purchasing power less than somebody at the poverty level today. That is how much richer productivity and technical advances have made us.

The idea that we have not improved since the 1980s misses the point of progress. Almost everything is better now than it was in 1980 for most people. The flat screen TV that even most of the poor can own is much better than the finest TV available in 1980. The cheap computer I am writing on is much better than the Commandor 64 which cost about the same and actually better than those giant ones that cost millions of dollars.

Re labor and capital - most of us have mixed the two. Most American families own stocks. That is why it is so much harder to play the class struggle card than it used to be.

IMO - we are just going through one of those transitions that we always go through. People used to have one job that they mostly kept. Then they retired. Their employers were responsible for lots of things. Today, we all are more like our own masters. This is harder. We have to think about our own human capital, our own investments and our own futures.

It is scary and will lead to greater inequality, because we have more choices. Choice leads to diversity of decisions and diversity leads to inequality. The conformity most of us remember created the equality we think we liked.

Posted by: C&J at October 1, 2011 6:52 AM
Comment #329959

Oh yeah re Obama

I feel that Obama created uncertainty for me. I assume he also did that for others.

His mantra was “change”. I am not that fond of big change that comes through the political process. I am more interested in continuity and stability. I think that change should come mostly from economic dynamism and individual initiative.

I like my politics to be predictable, staid and maybe a little slow paced. I think that our current system is very good and while I want to change many little things, I don’t want massive change in the political system.

I will also admit that I was very uneasy about the enthusiasm of the youth vote for Obama. The youth vote is by definition inexperienced. They are sometimes willing to change things they don’t understand. There are lots of connections among things in society. When you change some things, you inadvertently change others too, often to the detriment.

So I think that many of the characteristics that liberals attribute to conservatives are true. But we do not resist change because we want to protect wealth and privilege. Rather because we believe that rapid political change is dangerous to the well-being of society.

Liberals and conservatives have - IMO - a very different idea re the source of change. Conservatives embrace the free market, which is the greatest engine for change ever conceived in the mind of man. Liberals prefer to regulation and chain the market. Liberals embrace government as the source of change. Conservative prefer to limit the scope and power of government.

So in America at least, almost everybody favors change, but there is a big different about where it will come from.

I also admit that I did not trust Obama, since he had no real executive experience. I do not trust community organizers in general. These things shape my attitudes. It still seems to me that the Obama Administration really does not have the experience to properly work.

BTW - I bought the recent David Suskind book. I only started, but it seems to support the ideas above.

Posted by: C&J at October 1, 2011 7:05 AM
Comment #329965

C&J-
You can’t keep things still forever. Conditions change. Priorities change. Policies turn out to be mistaken. Assumptions turn out to be wrong. If you don’t allow change, you entrench your troubles.

Some people take that approach. They’ll block nearly everything that a Congress tries to pass, and then, when they get into power, they’ll pass no more than a few dozen bills at best, because they have no intent to compromise on anything. The change they do bring will be destructive change, change that couldn’t be more ill timed.

And even that effort will come from the fact that even in these times, they refuse to believe that modification of their beliefs, their dogmas are necessary.

I’m sick of the arrogance of the incompetent, the folks whose own scandals cost tens, even hundreds of billions of dollars for American taxpayers, but come down with hypocritical strength on the waste of half a billion dollars in a program where tens of billions were spent effectively. You don’t like change. I get that. I don’t like change either. Change bewilders me! But I’ve learned through experience that you need to get use to some change, both to get along with people, and to deal with a real world you don’t fully understand or control. Republicans like yourself are looking for the illusion of having things under control, the illusion of setting things to order, when in reality, your politicians have achieved anything but that.

There needs to be a detente in this cold war, a perestroika, if you will (I’m not going to get into the vagaries of actual policy, I’m speaking purely in metaphor). We need to get use to the idea that neither side wants to destroy everything, and that both sides will have to work together to be effective stewards of this nation. Nobody can have America all to themselves, and nobody was meant to.

Posted by: Stephen Daugherty at October 1, 2011 3:21 PM
Comment #329966

Stephen

I believe change should come mostly from the people and society, not government. It should be bottom up, not top down and that as many decisions as possible should be left to the people closest to the problems, those who will have to live with them and pay for them.

This does not mean things stay still. On the contrary, the market is very accommodating to change. This kind of change is organic and created by people who are close to the situation.

The change I don’t believe in is the top-down political dictates. Political decision making often empowers people whose stakes in the outcome are smaller.

The market more often concentrates decision making near where it makes a difference. Maybe the majority want something, but few care very much. One the other hand, the minority who want something else may be very much affected. The market can easily accommodate this kind of pluralism. Government has a much harder time doing it.

I know that you are sick of - fill in the blank. This is not helpful to anybody except maybe you. You call for a truce in what you call a cold war. I have explained why I love government and where I think it works and where not. It is a highly nuanced idea. Situations can change and so should our responses. My formulation includes just about everybody.

Your response is that you are sick of arrogance. What arrogance? I am not telling anybody what to do. I am merely asking that we all have as much choice as possible, or at least freedom from coercion. I also said that I accept and favor change; I just prefer it comes from the people rather than the government. You tell me that nobody can have American all to themselves.

Once again, you are making MY points. Your defense of Solyndra forced you to admit that the market was more nimble than the government. Everybody could read that in what you wrote. Now you are telling me the we should have diverse choices (so nobody can have America to themselves). Again, we have something like that and it is called a market economy.

Posted by: C&J at October 1, 2011 4:26 PM
Comment #330014

C&J-
I said I was sick of the arrogance of the incompetent, the folks who insist on having their way, on presenting their ideas as unquestioned truths. Why did you walk into that charge?

I don’t have any special preference about where change comes from. It’s functionality is my concern.

We’re running trillion dollar deficits, and the people who are telling us we’re spending too much say the best thing is tax cuts, followed by spending cuts. We seem to be on a never-ending treadmill with that, and the promised economic growth and jobs don’t come, and the deficts remain high. You tell me, what should my response be? We can talk about what we imagine to be best, but if the math isn’t adding up, then the system has to be readjusted. Because of their dogmas, Republicans often won’t help with that.

That’s one example.

We can talk about top down, but there’s a reason government exists in the first place. Sometimes the agility you need is in decisiveness on policy. Crowds are sometimes decisive, but they have to build up to it, and sometimes waiting for that build-up can be like waiting for Godot.

I think in terms of a feedback loop between top-down and bottom-up, a kind of synchronization. I mean, really, part of what people want, if you look at the polls, is decisive action from the government on issues like jobs and Wall Street Corruption. There are any number of things they want that Republicans are resisting in a top-down fashion.

Rather than pretend that one side or another represents the true approach, I take the notion that the framers deliberately created a system where the wishes of America’s citizens would, through elections and the demonstration of public opinion, percolated up into a strong government, and that strong government would bring about the desired change.

This is not a perfect system, and people can be misled. But it is a correctable system, one that can recover from error in a way that other systems, where leaders can hold on indefinitely in power despite their mistakes, are not.

I don’t see markets or crowds as infallible. Their judgment can work well in a certain set of cases, and can be off in others, especially when information is limited. I support government intervention not because government is infalliby wise, but because I think many of our problems grow from having a market unconstrained in certain key ways.

The question, in my mind is what is that market adapted to? Right now, the market is very well adapted for working off of fossil fuels. If fossil fuels were some ideal, I wouldn’t argue with that. But carbon emissions and limitations on recoverable supply make it a bad long-term bet.

The market is not so well adapted to solar, wind, and renewables, and it won’t get well adapted until supplies of fossil fuel are disasterously low, horribly expensive, or some combination of the two. We’ve already seen the consequences of sharp upticks in oil prices, recently. We’ve seen the economy drag to a halt on that account.

We’ve also seen hoarding and market manipulation of oil costs, indicated by the crash in commodities a while back that somehow affected oil, though it started with silver.

Public policy and corporate policy, I would submit, interact with the behavior of the masses to build the current adaptive character of the market.

Or, put another way, while we can’t always predict what the consequences of a law might be in full, that is not a reason to throw away regulations as a means to deal with matters. We just have to be observant, and look towards dealing with the long-term, smoothed out behavior of the system, rather than trying to micromanage it.

Posted by: Stephen Daugherty at October 3, 2011 4:21 PM
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