No, Government Should Not “Get out of the Way”

January 21, 2018

The midst of a U.S. government shutdown, on the threshold of the second year of a chaotic American presidency, is an appropriate moment to launch this blog. During the past year, we have seen not only chaos, but also a systematic assault on democratic norms and institutions in the U.S., and an accompanying erosion of democracy around the world. The moment demands more voices prepared to speak truth to power. That power has become far too concentrated in the contemporary United States, with increasingly harmful consequences for the vulnerable and for the commonweal.

How is it possible that in the richest nation in the world, we find ourselves continually short of funds for primary education?  Why is there an orchestrated effort to reduce support — both ideational and fiscal — for higher education, a backbone of post-World War II American economic achievement?  Why, despite the crumbling of infrastructure so vital to future economic growth, are we not stepping up investment to meet this challenge?  Why are access to health care access and outcomes – along with access to educational opportunities — so unevenly distributed across the country?

The fundamental premise of this blog is that we have sufficient national resources to generously fund education, infrastructure and other endeavors which will advance the long-term prosperity and global standing of the U.S. We do not do so because of a massive misallocation of resources – of public policy effort and funding. This Great Misallocation both reinforces and is the product of a grossly skewed distribution of wealth and the distorted politics that accompany this distribution. According to the U.S. Federal Reserve, the top 1 percent of the distribution held 38.6% of all wealth in 2016, and the next 9 percent held 38.5%. This left 22.8% in the hands of the remaining 90 percent of Americans, a lower share that at any time since before World War II.

At around the same time that we last witnessed similar levels of wealth inequality in the U.S., Karl Polanyi, the Austro-Hungarian economic historian, published The Great Transformation. Polanyi showed with brilliance and stunning depth of historical perspective that markets do not regulate themselves. Measures to govern markets enable them to function more effectively and are an organic outgrowth of the requisites of humanity. Put simply, markets can only function with good rules, and humans can only thrive when markets are tamed. Sadly, this deceptively profound insight is entirely perverted in the contemporary political discourse in the United States, in which politicians peddle the notion that government must “get out of the way” so markets can thrive. This is a pernicious simplification enabling endless abuses of consumers, the environment and the vulnerable – and, for some, justifying a government shutdown that is harmful, costly and wasteful.  As political columnist E.J. Dionne has written in the Washington Post, “The price of our collective amnesia about the moments when public action kept capitalism from flying off the rails is very high. Once a crisis is over, extreme forms of deregulation return to fashion, and our political discourse falls lazily into cheap government bashing.”

One irony of popular misperceptions about the role of government in structuring markets is that some of the richest and most powerful peddlers of the “government should get out of the way” thesis invest heavily in gaining control over government policy making. This is another crucial dimension of the Great Misallocation. In 1982, the political economist Mancur Olson released The Rise and Decline of Nations — an extension of his powerful and classic work, The Logic of Collective Action. Olson argued that over time, stable democracies acquire more extensive webs of interest associations lobbying for private goods; these associations invest resources (money and time) that could instead be used toward productive activity, and they distort policy outcomes. Recent examples of such distortions — which I will discuss in blog posts in the next few weeks — are the recent Republican tax bill and the disproportionate share of federal financial aid that is directed to for-profit education enterprises.

Inequalities of wealth and power are inevitable, a presence throughout American history; economic inequality arguably can serve positive functions, like encouraging entrepreneurship. But in the contemporary U.S., an excessive imbalance in the distribution of wealth has distorted political power and policy effort to the grave detriment of our collective welfare and national cohesion.

7 thoughts on “No, Government Should Not “Get out of the Way”

  1. THOMAS BANCHOFF

    Very timely, and a great title for the blog.

    I agree with everything you have put forward here, but imagine the critics asking: misallocation, perhaps, but who decides what is amiss, if not the economic and political marketplace? Is there some other moral authority or ideal to which we can appeal? A core problem in the US context is an impoverished ideal of equality — merely as political equality in the abstract, or as (often mythical) equality of opportunity. How can we advance a richer ideal of social equality in our political culture?

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    1. Thanks for the comment, Tom. I think some critics would challenge the fundamental “misallocation” premise on two grounds: efficiency and democracy. Markets allocate benefits efficiently, rewarding effort and risk, and policy decisions follow from electoral outcomes. Since, as I discuss in the post, market outcomes depend on the rules governing markets (Polanyi), a wide range of distributional outcomes are possible in market economies. Put differently, the distribution we observe is neither inevitable nor optimal/efficient in any absolute sense. And the close relationship between economic resources and policy outcomes challenges the democracy argument (Olson). I deliberately sidestep the moral dimension of what constitutes “fair” or “equal” to underscore the collective material costs of the Great Misallocation.

      But I entirely agree that the prevailing sense of equality is impoverished – a dynamic that may just make the recent Republic tax bill more popular than it deserves to be from a policy perspective, as I will discuss in my next blog post.

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    1. Thanks for following, Seth, and thank you for commenting and sharing your blog post. I’ve read your post and agree that the current assault on government is the product of a prolonged political campaign. The terrible irony is that the people now in control of governing institutions are not simply interested in reducing the size of government; they have turned those institutions to their own political ends, including sowing division and profiting personally from the country’s assets. This should be intolerable to all, regardless of political affiliation.

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      1. sethkahn

        One would think…. “This should be intolerable to all, regardless of political affiliation.”

        Unless your political affiliation is I-Can-Do-Whatever-I-Want-Until-You-Stop-Me. Call it the Machiavelli-Misread Party. 🙂

        Like

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