Tuesday, October 11, 2011

Government Interference

What is the role of government in shaping our economic system? I feel I haven't adequately addressed this point. The government has a complete say in not only who wins and who loses in the system we have, it also dictates the rules and the playing field.

Let me put it this way: what if there were a country that used grains of sand as its reserve system. For every dollar it distributed there was a grain of sand held in a national bank. And sand miners would become rich. The government levies heavy duties on imports of sand to protect its sand mining industry. All sand mining technologies are owned by the government and leased to miners (even shovels). Mining companies employ anyone who wants to work and guarantees a percentage of the sand each individual mines as payment. The government has tight permits on land leases to restrict depreciation of their currency. Only a few mining corporations can be maintained. The government knows that there is a lot of sand and generally allows a lot of under-the-table mining to go on because it doesn't significantly affect their economy. Only owners or shareholders of mines are allowed to vote in elections, but everyone can donate sand to specific pieces of legislation they want. And on and on.

I know that was a bit long, but the point is to illustrate that every aspect of our society is influenced by government action. If you can name it, government has been involved.

So the natural conclusion should be that government isn't bad, it's government. And we get what we vote or pay for. Americans aren't dumb either, they know that government is necessary to at least some degree. The argument tends to be over how much is too much. Lawrence Jacobs and Benjamin Page argue that Americans are “Conservative Egalitarians”. They are cautious about how much government to allow, but are very concerned with fair distribution of our vast resources. Notice I did not say redistribution; that is because in our world there are few instances where people truly acquire wealth completely independently. And even then, the amount of payout one receives is again heavily influenced by societal constructs (I'm sure an American would be very disappointed to obtain big bags of sand on payday).

I'm riding on a bus without wi-fi so I don't have all the details; suffice it to say that the Nobel Prize for Economics was just to two professors who have spent over 20 years looking at how government interacts with the economy. Their big takeaway (as reported by NPR yesterday) that our economic systems cannot be free of government. And they have created sophisticated models far better than the traditional Rational Actors Model or RAM that students of Econ 101 would be familiar with.

What's important about this seemingly obvious statement of facts? Well, the American perception toward government is the conservative egalitarian. But there are two confounding factors that have made this perspective get drowned out. The first is that our politicians don't perceive the public this way, and the second is that they add a radical. As Pierson and Hacker put it, politicians frame the American public as Conservative Inegalitarians—spiteful of those who do not make their own way, insistent that the individualism of this nation rest on exceptionalism and merit. This is in heavy contrast to the well-documented reality that political scientists, sociologists, and Nobel Prize winning economists know: through a network of well-organized and logical support systems certain individuals or groups tend to be favored.

It's the secret of the horse race of elections. Once someone is elected, there are policy decisions to be made, and those affect the constituency. So America is full of upstarts and genius level individuals that show a surprising amount of ingenuity and perseverance, but every aspect is reliant on not just networks and organizations but also on the government for substantial forms of support.

Take the case of Steve Jobs; someone who started out with Steve Wozniak and created a whole culture—twice. But he didn't do it alone. Favorable tax codes for new technologies and small businesses helped Apple get off the ground. The patent laws that protected the new technologies so that its inventors could make money off it. The huge network of experts, programmers, hardware technicians, and a myriad of other employees to conceptualize and build the product. And on and on. No man is an island, and no island is ungoverned.

Government is everywhere. Get over it. Shrinking government to reduce waste is overwhelmingly popular amongst Americans—liberal and conservative. But so too is the egalitarianism I mentioned earlier. Americans want to keep in place or create programs and laws that help everyone in America thrive. The culture war is not playing out with the people—although there will always be radicals and dissent. Largely the polarization on issues—especially economic ones—is the result of our ruling class; they have become blind to their constituency and focused on the few who vote and donate. But more on that later.