Geopolitical economic planning, or, just a gut feeling?

I have hesitated to pontificate in detail on the macro-economic and financial storm that is lashing us all for the simple reason that I do not fully understand the details.  My ignorance is shared by virtually all the world's political and financial leaders, including potential leaders like McCain and Obama.  Of course, that is not to say that they don't all have opinions on the subject but it should never be forgotten that they don't really know what they are talking about!  As I have remarked before, in such a confused and confusing maelstrom, it is very human to reach for a touchstone, a cherished idea, an ideology, upon which you base your world view, even as you are buffeted this way and that by "Events, dear boy, events!"  Thus it is with them, and thus it is with me.

I base my own entire world view on the premise that governments should come with a government health warning!  Almost everything governments do is usually wrong, or badly executed, and is always more expensive than it need be.  Unfortunately there are certain activities which only governments can do and one must simply grin and bear it.  However, the imperative is always to keep what governments do to an absolute minimum.  I hasten to add that were my principles to be enacted (don't hold your breath!) Nirvana would not be created, life would still be pretty much of a mess, but it would be less of a mess than it is under the present system of increasing governmental powers which, I should add by way of warning, are now being strongly reinforced by an even higher level of power in the proliferation of global governmental institutions.

Given all of that, you will understand my deep suspicions concerning the rush by governments to interfere in the market place.  Apart from anything else, they hardly ever rush back again when the emergency is over, it takes a Reagan, or a Thatcher, or a Clinton - er, 'Bill the Bright', that is, not 'Hill the Pill' - to actually retract governmental power.  It seems to be an economic 'given' that in these straitened(*) times it is essential that money be spent on a huge scale in order to re-stimulate the economy.  The question is, who should spend it, the government or us?  Instinctively, without too much thought, relying entirely on my gut, my answer is us, the people.  My detailed knowledge of economics is roughly the equivalent of a primary school pupil who has just mastered a "John and Janet" book, so it is a relief to see my opinions given intellectual weight by a very considerable expert, indeed.

The WSJ has recently published an essay by Arthur B. Laffer, he of the famous curve that I find infinitely more alluring than anything on a Hollywood starlet!  (I have been pointed to his article by too many bloggers for me to 'hat tip' them all.)  The essence of his belief (and my faith) is summed up, thus:

"And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved."

In an American context he gives this chilling warning:

"If you don't believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they'll do with Wall Street."

"Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity."

Alas for poor America with McCain and Obama as their only options, but I cannot spare too many tears when I view with trepidation the huge accretion of power by the utterly useless, bumbling, bullying, deceitful, psychotic, power-mad, nail-biting, nose-picking Jock who now runs more of my country than even Clement Attlee dreamed of!  I turn in terror to the Tories - only to see more of the same.  A bunch of Old Etonian twits caught like rabbits in the headlights without any philosophy to guide them beyond what I might call, with justification, 'Blairism', which can be summed up, thus: there is only one aim in our political vision, and that aim is to keep us in the top jobs for as long as possible. 

In the circs, I have only one thing to say . . .

HEEEEEEEEEEEEEEEEEEEEEEEELP!

(*) You write 'straitened' I write 'straightened', let's call the whole thing off!  I am obliged to Andy M, see comments below, for straightening me up - again! (Take a hundred lines, Duff!)

Comments

[Andy M]

Ah, Duff - you're always good for a belly laugh, even - or especially - in these straitened times. (Sorry - can't resist an English language point: I presume you mean 'straitened' as in 'restricted' and not 'straightened' as in 'corrected').

Can't actually disagree with anything in this post. The current maelstrom looks to me like Hurricane Katrina. The powers that be took a laissez faire attitude when all was going well, and now, as we watch the waters destroy everything we have built, they sit around wondering why we don't trust them any more.

Actually, in my view, this was all got up by Bush and the Republicans who knew they couldn't win another election and so decided they'd just wreck the place before the new guy got in. You think I'm crazy? Just wait a few weeks, and I confidently predict I won't be the only one saying this.

Anyway, keep on keepin' on, old buddy. I'll see you in the shelter, with a hoarded tin of sardines and a copy of the Racing Post.

[Martin Kelly]

David,

The error in Laffer's worldview was very succintly critiqued by John Kenneth Galbraith in 'The Affluent Society', published over half a century ago. If it is believed that government is sterile an uncreative, then the private ownership of cars assumes greater political importance then the public maintenance of the roads on which they are driven.

[David Duff]

Andy M, good to hear from you again and I trust you are well. I have added a 'mea culpa' to the post. I was tempted to wriggle off (nearly typed 'of'!) your grammatical hook by pleading the difficulty of editing oneself but the embarrassing fact is that my error never even occurred to me. Please, please, keep monitoring me - I just had to spell-check 'monitoring/monitering' - says it all, really!

Martin, welcome to 'Duff & Nonsense'. As I write I have only had time to skim your blog but it is now up on my 'Favourites' list for further and regular reading. I cannot speak for Laffer, only for myself, but it seems to me that there are two orders of things. There is the natural activity of trade, using that word in it's widest sense, which is (or should be) left to the private sector; and there is the activity of *facilitating* trade which is the job of government - which is why I say above that there are certain things which only governments can do. You analogy of privately-owned cars and government-run roads is a case in point.

I'm not sure what you mean by "political importance" as between the two. I should have thought that the 'political' aim of private ownership of cars is of prime importance to any government and thus the building and maintainence of roads as a means of encouraging it should also be a priority.

I think the point Laffer was making is that when a government steps beyond its remit to facilitate trade and instead indulges in trading activities itself, the result is nearly always badly done and very expensive, see: NHS, state education, the old BT, etc. Finally, I would remind you that one of the most important things a government should do is to *regulate* trading activities and not the least of the causes of our current difficulties is their falure to do that properly.

[Dan]

The road/cars analogy is a good one... if you forget the question of who funds the government's control of the roads and don't ask the question, 'Could no private organisation do the same job (minus the huge expense and suffocating bureaucracy that comes with government control)?

Repeat after me: EVERYTHING governments do is affected by waste, mismanagement, incompetence, stupidity and short-termism. (Some of these things affect private business, too, they just tend to be less expensive.)

[TDK]

Interesting post.

Not that I'm defending Herbert Hoover but conventional wisdom has it that Roosevelt saved America when in reality he prolonged the depression

[David Duff]

Dan and 'TDK', welcome to Duff & Nonsense.

Dan, I am not unsympathetic to the thrust of your argument but I am not an extreme Libertarian. There are matters which should be the responsibility of government, not least because private industry would find it insufficiently profitable to undertake, or, because there might be strategic reasons, both economic and military, for certain things to be done. Deciding the border-line between them should be the stuff of day-to-day politics.

'TDK', your second link is fascinating and I urge everyone to read it. Alas, without detailed knowledge, I have never admired Roosevelt's 'New Deal' and always suspected that the recovery could have been handled better with better policies. It was good to read a scholarly analysis of its failings.