Saturday, August 11, 2012

Economic Lessons from American History

Offered, with great examples from American history, by John Steele Gordon (HT - Don Boudreaux):

1. Governments are terrible investors
2. Politicians have self interest too
3. Immigration is a good thing
4. Good ideas spread, bad ones don't
5. Markets hate uncertainty

I don't like all the discussion in all of these - particularly the last one which has a good headline but botches the 1920-21/Great Depression comparison in the usual way. But I do like all the headline points.

I think the first one is more complicated than Gordon implies too. And it's kind of funny in light of "good ideas spread, bad ones don't" too, since there are lots of public investments that lots governments make... so doesn't that mean it's a good idea! I would put it this way: governments are bad investors because "politicians have self interest too" and because there is no price signal or profit and loss discipline. The reason why it is nevertheless still good for governments to make certain investments is because of the externality problem. Profit and loss is only as good as the signal provided by the profit and provided by the loss. So when externalities are a big, relying on a government that's generally a bad investor can be worthwhile if you discipline that government and perhaps stick to plans that can leverage the power of profit and loss (i.e. - the government sets out a plan for infrastructure or defense or research and then funds or subsidizes competing private actors to do it). That won't be perfect either, of course - but who was expecting perfection? You certainly wouldn't get perfection from a pure market solution. That's a good idea, and lo and behold - it has spread widely.


  1. Speaking of success and failure, have you ever read Adapt by the British economist Tim Harford? Success often starts with failure. He discusses in the book that in order to encourage research, you need a certain model...I forget what exactly however.

    But regarding the final point, this is true...but you don't seem to address Keynesian uncertainty or Ellsbergian ambiguity in depth in this instance, Daniel Kuehn.

  2. A publication of the college that advertises on Mark Levin's radio show, where he regularly describes Obama, Pelosi, et al as "Marxists" and "statists," and tells concerned callers that Obamacare will cause their ill loved ones to be euthanized.

    I don't entirely disagree with the bits in point 1 and especially 2. But the obsession with Solyndra is rather annoying. I don't know where to begin. Public goods lose money and positive externalities have a cost that is not directly remunerated -- that is precisely why we can't count on private industry to undertake them! And it's not as though no private loan ever went bad because the falling input prices of competitors suddenly made the venture unprofitable. And Solyndra was one of many projects given loans. And this was a loan program, not just a direct subsidy. And it was conceived in a way that maximized private initiative, rather than, say, creation of a state solar energy company. This is just not on the same scale as the Maginot line.

  3. Immigration is a good thing, just so long as the incentive isn't to gain government entitlements.


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