An Argument With Some Libertarians Raised An Important Point
That title should be blog-post enough, but I will continue.
I kid - I love y'all crazy bastards. But I think Keynesian economics is a pretty good tool to calm an otherwise-free market. This (admittedly hypothetical) free market will be fraught with positive feedback loops. My favorite historical example is the Dutch tulip craze of the 17th century - the more expensive the tulips got, the more people wanted to buy (and sell) them. The same thing happened over the last few years with houses. Once people started buying homes as investments, to be sold later at a higher price, it became a game of trying to get money for nothing, which will never last in the long term.
These bubbles in free markets are often followed by crashes. I think that this boom-and-bust cycle is too cruel for people to accept, and that's why the government should act as a counterweight to the economy, pressing the brakes during a boom and hitting the gas during a bust. The brakes include raising interest rates and taxes, and cutting spending; the gas is the opposite. Note that the government's debt will grow during a bust; it should be paid off during a boom.
Seems simple enough to me: private industry sees, the government saws, and vice-versa. The economy is kept stable. But An Argument With Some Libertarians Raised An Important Point, even if it wasn't exactly the point the libertarians were trying to make: what if the government is a bunch of morons?
If the government (and of course I am oversimplifying when I imply that it is a single agency that acts unilaterally to counter the economy, but what am I, an economist?) acts to exacerbate the natural ebb or flow of the economy, the country can be quickly headed towards a violent shitstorm. E.g., if, when the economy is doing well, the government behaves as if it's doing poorly by cutting taxes and increasing spending (let's say, again just e.g., military spending), then you might have all kinds of trouble doing otherwise-doable things like paying for healthcare for your citizens and developing clean energy sources, because you're about to have a (natural) bust coming up and a huge deficit to greet it. The government sawed at the same time the economy did, and made matters worse. A la 2003-7.
The libertarian answer seems to be that natural economic cycles are bad enough (I haven't heard an argument that they won't be there at all); the last thing we need is a government of dunces making matters worse. I think they throw the baby out with the bathwater, and that smart fiscal and monetary policy (like that, I think, we've seen from Bernanke, whose deftness just couldn't keep up with Bush's daftness, but at least the latter was smart-or-lucky enough to appoint the former) can effectively make the world of money a better place for your average American (or anybody) to live.
Incidentally, and I know this is dead-horse flogging at this point, but incidentally, Republicans accusing Obama's Democrats of socialism, as though they were not themselves just as in favor of "spreading the wealth" as their better counterparts, is hypocrisy most foul. Both parties actively tax and spend; Democrats tax the rich and spend on the poor; Republicans tax everybody and spend on Iraq. Were the Republican Party what Ron Paul would make of it, Republicans would have a point.
Also incidentally, and also in defense of libertarians, I don't really know how the housing bubble got started. I know it is the nature of bubbles to get started from small things and grow weirdly and explosively and so now its origin might be impossible to trace. But to whatever extent Bush's ideas of an Ownership Society, and Democrats' refusal to rein in Fannie and Freddie, contributed to the mess, we big brother-types owe libertarians and everyone else an apology, and I give it without reservation. Just don't go acting like the Federal Reserve created the tulip craze.
I kid - I love y'all crazy bastards. But I think Keynesian economics is a pretty good tool to calm an otherwise-free market. This (admittedly hypothetical) free market will be fraught with positive feedback loops. My favorite historical example is the Dutch tulip craze of the 17th century - the more expensive the tulips got, the more people wanted to buy (and sell) them. The same thing happened over the last few years with houses. Once people started buying homes as investments, to be sold later at a higher price, it became a game of trying to get money for nothing, which will never last in the long term.
These bubbles in free markets are often followed by crashes. I think that this boom-and-bust cycle is too cruel for people to accept, and that's why the government should act as a counterweight to the economy, pressing the brakes during a boom and hitting the gas during a bust. The brakes include raising interest rates and taxes, and cutting spending; the gas is the opposite. Note that the government's debt will grow during a bust; it should be paid off during a boom.
Seems simple enough to me: private industry sees, the government saws, and vice-versa. The economy is kept stable. But An Argument With Some Libertarians Raised An Important Point, even if it wasn't exactly the point the libertarians were trying to make: what if the government is a bunch of morons?
If the government (and of course I am oversimplifying when I imply that it is a single agency that acts unilaterally to counter the economy, but what am I, an economist?) acts to exacerbate the natural ebb or flow of the economy, the country can be quickly headed towards a violent shitstorm. E.g., if, when the economy is doing well, the government behaves as if it's doing poorly by cutting taxes and increasing spending (let's say, again just e.g., military spending), then you might have all kinds of trouble doing otherwise-doable things like paying for healthcare for your citizens and developing clean energy sources, because you're about to have a (natural) bust coming up and a huge deficit to greet it. The government sawed at the same time the economy did, and made matters worse. A la 2003-7.
The libertarian answer seems to be that natural economic cycles are bad enough (I haven't heard an argument that they won't be there at all); the last thing we need is a government of dunces making matters worse. I think they throw the baby out with the bathwater, and that smart fiscal and monetary policy (like that, I think, we've seen from Bernanke, whose deftness just couldn't keep up with Bush's daftness, but at least the latter was smart-or-lucky enough to appoint the former) can effectively make the world of money a better place for your average American (or anybody) to live.
Incidentally, and I know this is dead-horse flogging at this point, but incidentally, Republicans accusing Obama's Democrats of socialism, as though they were not themselves just as in favor of "spreading the wealth" as their better counterparts, is hypocrisy most foul. Both parties actively tax and spend; Democrats tax the rich and spend on the poor; Republicans tax everybody and spend on Iraq. Were the Republican Party what Ron Paul would make of it, Republicans would have a point.
Also incidentally, and also in defense of libertarians, I don't really know how the housing bubble got started. I know it is the nature of bubbles to get started from small things and grow weirdly and explosively and so now its origin might be impossible to trace. But to whatever extent Bush's ideas of an Ownership Society, and Democrats' refusal to rein in Fannie and Freddie, contributed to the mess, we big brother-types owe libertarians and everyone else an apology, and I give it without reservation. Just don't go acting like the Federal Reserve created the tulip craze.
posted by john at
3:13 PM
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