The Case for Big Government

Since the global financial crisis accelerated into something approaching a financial armageddon with no bottom in sight there has been a great deal of finger pointing at the discipline of economics and the economists who missed the catastrophe.   In reality, the critique of neo-classical economics, “the quants” and general positivistic bent of the discipline has been ongoing for quite a while.  Few people listened.  In fact, one could argue that the majority of the world experienced the failure of economic thinking with the miserable outcomes of early structural adjustment policies inflicted on much of the developing world in the 1980s.  But we shouldn’t be surprised if few lessons are learned this time around as well.  Too many business careers, tenured faculty positions, journalistic columns and punditocracies who have benefitted from the past and current dysfunction.  Furthermore, on the other side of the debate we see far too few prescriptions for “an other economics”.  Of course we have the Dani Rodriks of the world who have interesting reformulations of the existing economic paradigms but I’m not convinced they’ll get us far out of the dire straits we’re in.

One interesting read, however, is Jeff Madrick’s  “The Case for Big Government”.  Madrick’s book is a critical analysis of the work of Milton Friedman and the monetarist school that has dominated both conservative Republican and Democratic Party politics for the last 30 years.  Some of the most interesting observations point to how Friedman’s claims that “big government” has been a drag on productivity and economic growth are not supported by the economic evidence.  For the historical periods that Friedman uses to make his case the data actually show the inverse.  Growth of the US economy has actually occurred during periods of substantial government spending.   Madrick then goes on to document the ways in which the conservative ideology has gotten in the way of smart economic programs and the consequences have been rather disastrous.  Middle and low-income households in the US have become far more vulnerable.  These observations are not new and are supported by others such as Jacob Hacker. I won’t go into all of Madrick’s economic history of the US here but it is well worth reading to obtain a more accurate picture of economic policy in the US beyond the pundits and members of Congress and the political class that banter around policy prescriptions with little data or analysis. The general point is this, the consumer economy that developed in the late 20th century that is now held up as a tremendous symbol of ‘progress’ and ‘freedom’ took the heavy hand of the state to create. This was not the product of laissez-faire economic policy. However, the economic impact of laissez-faire doctrine in the last 30 years has caused the median demographic to stagnate. I’ll be looking at the prescriptions for change that thinkers such as Madrick, Amar Bhide (The Venturesome Economy) and juxtaposing these works with some of the work on innovation in health care in the coming weeks to see how we might open up new ways of thinking about health, innovation and economics. Note: the omission of “health economics” is intentional.

In case you’re interested, Madrick has the following proposals for how the government might stimulate the economy while addressing some of the structural weaknesses created over the past few decades (his assumption is that deficits can be tolerated provided that spending is directed toward public investment that will have some return in the future):

  • investment in high-quality pre-K education (these improve long-term educational outcomes, reduce crime rates, lower welfare enrollment, etc.)
  • energy investment along the lines of the  Apollo Alliance, or investment in what Van Jones (here and here) has called “The Green Collar Economy”
  • adopt a serious minimum wage program
  • re-regulation of the financial sector (but we need more details here)
  • policies to support households, particularly single family households
  • a universal health care system
  • subsidies for college education
  • higher minimum wage for care-givers
  • public funding of elections
  • investment in the tranportation and water systems
  • global agreements on fair wage and environmental policies to level the global trade playing field

In each of these areas the devil is in the details, obviously. I’ll be trying to fill in some of the gaps with readings from the health, urbanism, technology and innovation arenas in the coming weeks.  I also plan to post links from my Twitter feed that are relevant to all of these debates as well.

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