There are, of course, good political reasons to beware of government crowding out private suppliers; and there are - at least three - good economic reasons to keep government-as-producer at bay:
is an inefficient producer,
encourages over-consumption, and
brings about tax distortions,
all of which three factors reduce our wealth.
Public provision of goods and services is politically popular because it appears to furnish us with a free lunch, when in fact it is a highly costly way of delivering, where some may receive a subsidy while overall more must be paid.
Inefficient producer: government is politically exempt from the profit-and-loss system that private producers are relentlessly exposed to. The public sector is capable of production that is not economically viable. It is also often removed from establishing the degree of economic viability of its operations. Being insulated from the rationality and pressures of an economic enterprise, public providers of goods and services are not permanently forced to seek new, better, and more efficient ways of operating.
Over-consumption: When the consumer bears the cost of goods and services, demand is self-limiting. You pay as long as something is (a) worth it - i.e. benefits exceeding costs - and (b) within your budgetary means.
Replacing self-limiting consumption decisions by its own centralised discretion, and
being exempted from economic rationality (see "inefficient producer"), which precludes private providers from producing at prices insufficient to cover their fixed and variable costs, while at the same time
under political pressure to keep up the pretense of a free lunch,
government tends to encourage over-consumption.
Tax distortions: Were government an efficient producer and capable of preventing over-consumption, it would still be lagging private providers in that it depends for its financing on taxes, which are
expensive to raise both for government itself and for taxpayers, and
tend to impose further economic costs by punishing and thus discouraging productive economic activities, such as thrift or provision of employment.
In conclusion: substituting public for private spending on providing goods and services is equivalent to shifting more resources to the high-cost producer.
In writing this chapter, I have been leaning heavily on Arnold Kling's "Learning Economics" - Chapter 57: Government: The High-Cost Producer.
The US economy has a competitive intensity problem, and [a] decline in startups is at its core. Startups are the straw that stirs the drink. They generate new innovation (and new jobs) and force incumbents to improve or die. They change everything, creating a healthier, more vibrant economy in the process.
In the US economic ecosystem, startups are wolves. And we need more of them, and the creative destruction they bring, to transform our stagnating economy.
One of the biggest problems worldwide is the absence of state structures capable of protecting economic liberty. Hernando de Soto claims that about 2/3 of the world population are affected by this bad state of affairs. It is incumbent upon those who are conscious of the value of liberty to promote the liberal state in the Third World - and, of course, as the below article shows, at home as well. Free markets do not just happen, they must be politically fought for and defended. Once again: the state is important for liberty, and so is politics.
Writes Mark J. Perry:
In today’s WSJ, Hernando de Soto argues that the cure for terrorism in the Middle East is capitalism, economic empowerment, and private property rights to help rescue “extralegal entrepreneurs” who have become trapped in their own countries as “economic refugees” by cronyism and burdensome over-regulation of market activity. Here’s an excerpt of “The Capitalist Cure for Terrorism” (emphasis mine):
It is widely known that the Arab Spring was sparked by the self-immolation in 2011 of Mohamed Bouazizi, a 26-year-old Tunisian street merchant. But few have asked why Bouazizi felt driven to kill himself—or why, within 60 days, at least 63 more men and women in Tunisia, Algeria, Morocco, Yemen, Saudi Arabia and Egypt also set themselves on fire, sending millions into the streets, toppling four regimes and leading us to today’s turmoil in the Arab world.
These suicides, we found, weren’t pleas for political or religious rights or for higher wage subsidies. Bouazizi and the others who burned themselves were extralegal entrepreneurs: builders, contractors, caterers, small vendors and the like. In their dying statements, none referred to religion or politics. Most of those who survived their burns spoke to us of “economic exclusion.”
In an interesting complement to de Soto, George Will makes a similar argument in today’s Washington Post that America’s “teeth-whitening entrepreneurs” are being denied the right to earn a living, and have become “economic refugees” in North Carolina because of cronyism capitalism, protectionist rent-seeking, and the burdensome over-regulation of market activity. Here’s an excerpt of “Supreme Court Has a Chance to Bring Liberty to Teeth Whitening” (emphasis mine):
On Tuesday, the national pastime will be the subject of oral arguments in a portentous Supreme Court case. This pastime is not baseball but rent-seeking — the unseemly yet uninhibited scramble of private interests to bend government power for their benefit. If the court directs a judicial scowl at North Carolina’s State Board of Dental Examiners, the court will thereby advance a basic liberty — the right of Americans to earn a living without unreasonable government interference.
“The best way to get Keystone XL built is to make it irrelevant ...”
From the Canadian perspective, Keystone has become a tractor mired in an interminably muddy field.
In this period of national gloom comes an idea -- a crazy-sounding notion, or maybe, actually, an epiphany. How about an all-Canadian route to liberate that oil sands crude from Alberta’s isolation and America’s fickleness? Canada’s own environmental and aboriginal politics are holding up a shorter and cheaper pipeline to the Pacific that would supply a shipping portal to oil-thirsty Asia.
Instead, go east, all the way to the Atlantic.
The source, including a useful synoptic map of the new pipeline project.
At The Library of Law and Liberty blog, Michael S. Greve has an intriguing post on "The German Connection". After the collapse of the Third Reich, there was a thorough rejuvenation of the rule of law (Rechtsstaatlichkeit) in Germany, the substantive notion of the rule of law being strongly committed to liberal (European meaning) principles. At a time when progressives continued in renewed waves to turn over the liberal conception of the rule of law in the US, German courts would stubbornly and successfully defend the newly regained liberal legal regime in Germany.
In the late 1960s, courts and then Congress institutionalized so-called “citizen suits” against government agencies. Unlike regulated parties, citizen plaintiffs don’t have at stake anything you’d recognize as a right; they represent broad, widely shared values. (Environmental groups are the prototype.) The idea was that agencies were routinely “captured” by regulated industries, so there had to be a counterweight—parties with legal entitlements to make executive branch agencies obey the purposes of Congress, as embodied in statutory law. To that end, statutory citizen-suit provisions typically authorize “any citizen” to sue the administrator for failure to perform a non-discretionary duty. So when the statute says that the Environmental Protection Agency “shall” regulate and the agency falls short, environmental groups have a cause of action. They’re equal participants in the agency rulemaking process and in court.
At that time, what was then West Germany was also discovering the issue of protecting the environment. People were apoplectic about pollution. Nuclear reactor sites had to be protected with paramilitary force. A Green Party was beginning to form. And, some lefty law profs trooped to Harvard, learned about citizen suits, and tried to import them into their own country. They penned learned articles about the “enforcement deficit” in environmental law, wrote model statutes, and proclaimed that even Amerika has citizen suits, the better to promote law and democratic participation. Why can’t we have that?
Because you can’t, the West German legal establishment responded. The key argument against citizen suits was not that they would disrupt orderly administration, or invite abuse, or overload the courts. It was: what you people are advocating is Nazi jurisprudence. We’ve thought and worked for decades to get rid of that garbage, and you’re not going to undo our accomplishments just because people get upset about—well, garbage. The citizen-suit trial balloon soon shared the Hindenburg’s fate. There’s no trace of the debate in administrative law to this day.
To be absolutely clear, I am not calling U.S. public interest groups and citizen-suit advocates Nazis. My point is that a legal instrument that well nigh everyone stateside accepted, often with great enthusiasm, went down in flames over there, as an intolerable assault on a liberal legal order. To rehearse the German professoriate’s key argument against citizen suits:
The point of law and especially administrative law (they said) is to protect rights against coercive state interference. To that end, we have independent courts that will perform de novo review on law and facts. If we want to keep that up, we must limit the courts to rights protection. They can’t review the legality of governmental conduct outside that context. A plaintiff who sues for that purpose is asking the court to command the performance of his private idea of how public authority ought to be exercised, and that’s not a right he has or courts can enforce. Likewise, it’s not the business of courts to make government and law more “democratic.” There are institutions, such as political parties and parliaments, to safeguard democracy and participation. Courts, in contrast, guard rights—if need be, guard them against democratic demands.
If you want to mobilize courts as engines of law-enforcement and democracy (the argument continues), they can’t be independent. If you want them to do the will of the people, go make them instruments of that will—and stop the pretenses about individuals’ rights.
Germany took that path once: in 1934, the Reichstag authorized a version of the allgemeine Buergerklage—the general citizen suit. It did so for obvious reasons. The inherited Weimar bureaucracy might not always enforce the new authorities’ race laws with the requisite speed or resolve. What was needed were actions by private informers or Citizens United for the Separation of Jews and State to enhance public participation and ensure obedience to law. That meant, however—and alongside the enormities recorded by history—the end of an independent judiciary. You cannot surrender the exercise of law to “democracy,” nor can you surrender the Staat to a “movement.” Not if you want to have a liberal Rechtsstaat and a judiciary that is institutionally disposed to protect rights.
An excellent book, brief, to the point, a great help in focusing on the essential, and a powerful and incisive refutation of the errors in fashionable/progressive constitutionalism. Though focusing on specific issues like "judicial activism", Sandefur provides a comprehensive account of the basic tasks and features of the Constitution.
Particularly interesting are his accounts of
the tug-of-war on the issue whether to vest citizenship and sovereignty in the states or on the federal level,
how state precedence was an important shield for the anti-abolitionists,
how the 14th amendment was intended to bring about an appropriate balance between state and federal power that would give citizens, in Madison's words, "a double security" as "the different governments will control each other,"
by giving the federal government "power ... to protect by national law the privileges and immunities of all the citizens of the Republic and the inborn rights of every person within its jurisdiction whenever the same shall be abridged or denied by the unconstitutional acts of any State," [p.63], and
"the Slaughter House Court removed the most potent protection against state overreaching and threw that double security out of balance." (p.70)
I am looking for similar books, preferably not too voluminous, that give the reader a concise notion of the essence of the American Constitution and the arguments behind it. I will be grateful for recommendations in the comment section.
Chris Berg of Australia's Institute of Public Affairs discusses "Too Big To Fail", and comes to a different conclusion than I do. He argues that the problem cannot be solved because it is an inherent concern of politicians to protect certain companies or institutions from terminal collapse.
I would argue, that only politics can change the present state of affairs. However, if libertarians are unwilling to participate in politics, eschewing the competition for political dominance of the state, matters are indeed bound to linger on in their unsatisfactory condition.
"Too big to fail" describes financial institutions, mostly banks, which have become so large and so deeply integrated into the financial system that if we let them collapse they would take everything else with them.
If a corporation is too big to fail, then, it follows, taxpayers have to bail them out.
It's quite a problem. A market economy is supposed to be dynamic, full of entries and exits. Firms that add economic value thrive. Those that do not go broke.
So bailing out failed companies makes the economy less efficient. More gallingly, it redistributes money from the poor to the rich. And it creates "moral hazard" - a belief by management that ultimately they won't have to pay for their mistakes.
Moral hazard is a particularly severe problem for banks. Banks trade on risk. A bank's basic job is to transform short-term highly liquid deposits into long-term extremely illiquid loans. Too much of the latter will prevent redemption of the former.
Too big to fail encourages banks to make riskier loans. Why wouldn't they? They're not the ones bearing the cost of failure. Taxpayers are.
So it would be great to get rid of too-big-to-fail. Or at least limit it somehow. The Murray Inquiry has a few ideas: higher capital requirements for bigger institutions, for instance, or new procedures for when banks do fail.
But the question isn't what should we do about too-big-to-fail but what can we do about it.
And the answer to that question is almost certainly nothing.