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markets vs government debate

Page history last edited by Brian D Butler 12 years, 5 months ago

Table of Contents


 

Related pages from GloboTrends:

 

see also:

 

 

 

 

Question of "Efficiency"

 

"Nothing government does is ever cheaper than the private-sector version. Economists speak of the "Rule of Two." This is a rule of thumb meaning that anything done by government will cost twice what it would if it were done by the private sector.  Sometimes, we choose to pay double because government is recognized as the only legitimate provider of some services. These include courts, police and defense. To pretend that these activities are not more expensive as a result, however, would be absurd. The fact that private-sector schools and prisons, for example, operate at half the cost of government equivalents, while yielding superior results, is sufficient evidence."  source: Patrick Cox "The Ultimate Hedge in Economic Crisis"

 

 

Business and development

Sep 30th 2010, 16:40 by Schumpeter

"ANN BERNSTEIN'S new book, "The Case For Business in Developing Economies" (Penguin) is one of the best books on business and development in recent years. Ms Bernstein demonstrates, beyond doubt, that companies, rather than governments or aid agencies, hold the key to prosperity in the developing world; she also lays numerous body blows on anti-business NGOs, aid tsars, soft-headed academics and whingeing do-gooders (I should say that I was one of several people who blurbed the book)."  Read more from The Economist.com here

 

 

Big vs Small Govt debate

from globotrends blog:

 

A hotly debated topic these days is in regards to the proper role of government in stimulating the economy.  The worry on one side is that without government spending, the economy would fall into a deep recession.  The worry on the other side is that government would become overbearing and crowd-out private enterprise.  In my opinion, both arguments are compelling, and probably each are ½ right.

 

To defend the position of increased government spending, I previously argued that if private investors only wanted to give their money to the government (by pouring money into Treasuries, and shunning all forms of risky investments), then the government had a responsibility to recycle those funds and reinvest them back in the private sector.  I also argued (here) that if the credit markets were frozen and if the financial system was broken (as it was), then traditional monetary policy wouldn’t work, leaving only the only tools of fiscal policy to shock the economy out of a crisis.

 

But, to defend the second position (that fiscal stimulus was dangerous in the temptation to increase the size of government, and decrease the role of free enterprise), I also argued repeatedly that the stimulus plan (as passed) was (a) not going to work, (b) too small and misdirected, and (c) just a bandaid: a temporary measure to buy time to fix the root of the problem: the deleveraging of the financial system.  See my suggestions of what to do here.

 

In addition, I also would like to add that I believe there is too much wasteful spending which is being attributed to “Keynes” without much true economic justification for that spending (other than to quote “Keynes”).  Supporting this position, I welcome my readers o see an article here from Benn Steil.  This point was recently driven home personally when I visited my wife’s aunt (who is a local artist in the NE of Brazil), and saw that she was reading an article on Keynes and his justification for spending to stimulate the economy.  At that moment, I knew we were experiencing a Keynes-bubble in the popular press (globally), and my conclusion was that this fascination with Keynes must be unhealthy for true discussion on economic theory by serious professionals.

 

Another insightful analysis comes from Amity Shales here about FDR and the new Deal…questioning the rise of big government (and the resulting decrease of free enterprise).  Read both carefully, and see if you don’t hesitate before signing up for the next spending plan based on either “Keynes”, or on “FDR/ new deal” economics.

 

The debate of big vs small government (fiscal vs monetary policy) is intense, real, and probably just heating up.  I expect to see more philosophical debates along these lines over the coming months / years.  At the moment, the momentum seems to be tipping (temporarily) away from free markets and toward big government stimulus.   While this debate dates back generations (see Wikipedia articles on both Keynes and Friedman), the more recent trend seems to be one in which Keynes is back in fashion, and the monetarist’s influence has faded slightly…  Time will tell, but Ill bet the pendulum will eventually swing back.  This debate is old, ongoing, complex and not done yet…

 

Part 2 of this article is coming soon…

 

 

 

From Martin Wolf article

here:  http://www.ft.com/cms/s/0/c6c5bd36-0c0c-11de-b87d-0000779fd2ac.html

Yet bigger events shaped this epoch: the shift of China from the plan to the market under Deng Xiaoping, the collapse of Soviet communism between 1989 and 1991 and the end of India’s inward-looking economic policies after 1991. The death of central planning, the end of the cold war and, above all, the entry of billions of new participants into the rapidly globalising world economy were the high points of this era.

 

In the west, the pro-market ideology of the past three decades was a reaction to the perceived failure of the mixed-economy, Keynesian model of the 1950s, 1960s and 1970s. The move to the market was associated with the election of Reagan as US president in 1980 and the ascent to the British prime ministership of Margaret Thatcher the year before. Little less important was the role of Paul Volcker, then chairman of the Federal Reserve, in crushing inflation.

 

Today, with a huge global financial crisis and a synchronised slump in economic activity, the world is changing again. The financial system is the brain of the market economy. If it needs so expensive a rescue, what is left of Reagan’s dismissal of governments? If the financial system has failed, what remains of confidence in markets?

 

It is impossible at such a turning point to know where we are going. In the chaotic 1970s, few guessed that the next epoch would see the taming of inflation, the unleashing of capitalism and the death of communism. What will happen now depends on choices unmade and shocks unknown. Yet the combination of a financial collapse with a huge recession, if not something worse, will surely change the world. The legitimacy of the market will weaken. The credibility of the US will be damaged. The authority of China will rise. Globalisation itself may founder. This is a time of upheaval.

 

...

 

Remember what happened in the Great Depression of the 1930s. Unemployment rose to one-quarter of the labour force in important countries, including the US. This transformed capitalism and the role of government for half a century, even in the liberal democracies. It led to the collapse of liberal trade, fortified the credibility of socialism and communism and shifted many policymakers towards import substitution as a development strategy.

 

read the rest here:  http://www.ft.com/cms/s/0/c6c5bd36-0c0c-11de-b87d-0000779fd2ac.html

 

 

 

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