Saturday, April 03, 2010

Commanding Heights 1

Over the last few weeks I've been slowly making my way through the superb PBS trilogy called "Commanding Heights." It's about economics in the twentieth century going through 9-11. I hope to finish the final episode in the series tonight. The first episode leads up to the rule of Keynes. The second with the Reagan/Thatcher revolution and the reign of Hayek. The third with globalization.

Very interesting. Very helpful. I may post later when I'm done with the final episode, but I found a number of things striking that I was not fully aware of. One is the extent of socialization of things in Britain and even in America until Reagan. All the more shocking because I was alive at the time and voted for Reagan my first time voting in 1984.

This gives me a little perspective. When I was in high school, still during the cold war in the early 80s, we were required in Florida actually to go through a book against communism. And of course the McCarthy trials were in the 50s against "communists" in America. The perspective is basically that those who cry socialism of Obama's health care bill have no perspective on how much more socialized we were at the very time when we were most decrying communism. It's a little like the complaints about rolling back tax breaks that were only enacted at the beginning of the Bush 2 administration.

We can certainly debate the benefit/harm of doing these sorts of things. It sure looks like history has vindicated Hayek big time on the whole. But those who cry socialism and Marxism have lost complete perspective on what America was like before deregulation in the 80s--when our rhetoric against these things was at its height!

It also seems pretty clear to me that the down side of the Freedman/Hayek approach is the potential human toll. The immediate aftermath of opening up free markets is almost always atrocious for the common person for a few years. I don't have the answers but my knee jerk thought is that it is better to have a longer recovery with less human toll than to have a quick recovery with extreme human loss.

Another thought I have is that the best role for the government in economics fits with my more general sense of the best government as one based on a social contract between the people. We agree to live together in a way that gives each individual maximal freedom while setting up certain rules so that our individual freedoms do not impinge on the freedoms of others. So each is free to practice their religion as long as that religion does not impinge on the freedoms of others. We set up the police and the justice system as a way to guard the rules of the social contract.

In economics, then, it would seem that the best role of government is not "central planning" but a policing role. We let the free market run freely as long as it does not impinge on the basic rules of the social contract. We thus set certain standards of minimum wage and prevent monopolies. We set safeguards against price gouging in instances where crisis prevents competition. The government does not own any business but it regulates them, preferably less than more, but enough to let the free market flow without running over the little man.

However, we cannot view capitalism as an end in itself. Indeed, the goal is the overall health of the society, not at all the enrichment of the most successful. A wide gap between the richest and the poorest instead shows that the system is not working as it is supposed to. The primary goal, since we are talking of a contract between all Americans, is the uplift of the whole society, not the enrichment of a few (which ironically undermines the very social contract itself on which America is founded).

Better for everyone to have more and the richest to have less, but ironically, it is the free market that can best accomplish this. Taxation ironically tends to the opposite result.

Fun stuff.


Angie Van De Merwe said...

This seris sounds interesting, indeed!

I read somewhere that the rise of the middle class was what represented a free economic system and our "American Republic". Other forms of government tend to lend themselves to aristocratic, elitist or special priviledge, that undermines the middle class.

Today, it seems that the corporate welfare is protected at the costs of the whole of society, because of the "priviledged positions" of those who make the laws of our land,the power of the lobbyist, the monied, and those who can enforce the law at the costs of the little guy. This is why I questioned why the corporations were being bailed out by the government (taxpayer).

::athada:: said...

Watched that in an IWU econ class. Very informative. However, I remember watching an African child emerge from a mine with a gem for which he was paid $1 (later sold for many, many thousands) made me want to rage against the machine. Fair, perhaps, but it doesn´t seem just.

Bolivia implemented all the prescribed neoliberal reforms promoted by shooting star Jeffrey Sachs (who has since changed a bit). It didn´t seem to help at all, except for Euro/US oil companies. A new ¨21st-century Latin American socialism¨ is now being tried. We´ll see...

(The President´s ´nationalization´of the oil and gas seemed to be mostly a renegotiation of contracts with multinationals. Bolivians got a much better deal, and the multinationals haven´t fled, apparently it still being profitable there. One wonders how much the people were getting gouged beforehand).

Ken Schenck said...

I probably won't post anything on the final piece, but in it there is a de Soto person who travels to third world countries. His claim is that the fact that property rights are not well established prevents individuals from taking out loans and thus prevents capitalism from working.

In the end, I wonder if the problem is the fact that we not only have countless nations at different stages in the industrialization process but that we have countless nations without the protections we developed over time too.

I wonder if Sachs has the macro-picture right but is missing the other piece, the piece that trickle down economics never trickles down to.