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Government: Less or More (Lessons from the History of Economic Thought)

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Presentation for the Colorado Council for Economic Education

Presentation for the Colorado Council for Economic Education

Published in: Technology, Economy & Finance

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  • 1. Government: More or Less? Lessons from the History of Economic Thought Dale R. DeBoer, Ph.D. 2013
  • 2. Tea Party Platform •Allowing free markets to prosper unfettered by government interference is what propelled this country to greatness with an enduring belief in the industriousness and innovations of the populace. • http://www.teaparty-platform.com/
  • 3. J.M. Keynes •Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.
  • 4. Where to begin? • Pre-classical thought - Focus on ethics of outcome
  • 5. Where to begin? • Pre-classical thought • Western economic thought - Emphasis on efficiency of means
  • 6. Where to begin? • Pre-classical thought • Western economic thought • Where is this conflict seen today?
  • 7. https://commons.wikimedia.org/wiki/File:Combination_of_October_2011_global_protests.jpg
  • 8. It's no secret that in New York during the last 30 years there has been a tragic exodus from the churches into materialism, secularism and humanism. -Billy Graham An attitude to life which seeks fulfillment in the single-minded pursuit of wealth - in short, materialism - does not fit into this world, because it contains within itself no limiting principle, while the environment in which it is placed is strictly limited. -E. F. Schumacher
  • 9. Schools of Thought • Mercantilism
  • 10. Mercantilism • Thomas Mun (1571-1641) • Measure of societal wealth • Precious metals http://timerime.com/en/event/828184/Thomas+Mun/
  • 11. Mercantilism • Thomas Mun (1571-1641) • Measure of societal wealth • How can these be obtained? • Discovery • Capture • Trade
  • 12. Mercantilism • Thomas Mun (1571-1641) • Measure of societal wealth • How can these be obtained? • Role of the government
  • 13. Two flaws • The Price-Specie Flow Mechanism • David Hume (1711-1776) • A “hoarding” mechanism? https://en.wikipedia.org/wiki/File:Painting_of_David_Hume.jpg
  • 14. Two flaws • The Price-Specie Flow Mechanism • The wrong source of wealth • Adam Smith (1723-1790) https://en.wikipedia.org/wiki/File:AdamSmith.jpg
  • 15. Two flaws • The Price-Specie Flow Mechanism • The wrong source of wealth • Adam Smith (1723-1790) • It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.
  • 16. Who is mercantilist today? • China • By plan or accident? • Hoarding?
  • 17. Who is mercantilist today? • China • US • Concerns about an undervalued yuan • Legislative “Buy American” provisions
  • 18. Schools of Thought • Mercantilism • Classical liberalism
  • 19. Smith’s role for government • All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.
  • 20. Smith’s role for government • People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
  • 21. Not a minimal role • But limited to situations of market failure • Unfortunately, not well specified during the period of the Classical Liberals • John Stuart Mill (1806-1873) • Were I framing a code of laws according to what seems to me best in itself ... I should prefer to restrict what any one should be permitted to acquire ...
  • 22. Schools of Thought • Mercantilism • Classical liberalism • Neo-classical economics
  • 23. Neo-classical economics • Refinement/mathematization of economic models • William Jevons (1835-1882) • Mariginal utility theory of value https://en.wikipedia.org/wiki/File:Picture_of_jevons .jpg
  • 24. Neo-classical economics • Refinement/mathematization of economic models • William Jevons (1835-1882) • Leon Walras (1862-1910) • General equilibrium theory https://en.wikipedia.org/wiki/File:Walrass.jpg
  • 25. Neo-classical economics • Refinement/mathematization of economic models • William Jevons (1835-1882) • Leon Walras (1862-1910) • Carl Menger (1840-1921) • Founder of the Austrian School • Rejected labor theories of value https://en.wikipedia.org/wiki/File:Car lMenger.png
  • 26. Neo-classical economics • Refinement/mathematization of economic models • Final model assumptions • Many actors • Homogenous products • No barriers to market entry/exit • Symmetric information • No external costs/benefits
  • 27. The role of government • Limited • Correction of market failures • Imperfect competition • Sherman Act, 1890
  • 28. The role of government • Limited • Correction of market failures • Externalities • Henry Sidgwick (1838-1900) https://en.wikipedia.org/wiki/File: Henry_Sidgwick.jpg
  • 29. The role of government • Limited • Correction of market failures • Externalities • Arthur Pigou (1877-1959) https://en.wikipedia.org/wiki/File: A.C._Pigou.jpg
  • 30. The role of government • Limited • Correction of market failures • Asymmetric information • George Akerlof (1940- ) https://en.wikipedia.org/wiki/File: George_Akerlof.jpg
  • 31. The role of government • Limited • Correction of market failures • Was this universally accepted? • Walras • Nationalization of land
  • 32. What was missed? • Instability • Inequality
  • 33. Schools of Thought • Mercantilism • Classical liberalism • Neo-classical economics • Socialism/Marxism
  • 34. Which Socialism? • Utopian • Anarchist • Market • Fabian • Marxist
  • 35. Focus • Social justice, not efficiency • The limits of neo-classical thought
  • 36. Marx and Marxism • Karl Marx (1818-1883) • Stages of development https://en.wikipedia.org/wiki/File:Karl_Marx_001.jpg
  • 37. Government in the final stages • Socialism • “The proletariat seizes from state power and turns the means of production into state property ...” • The state as the agent of coercion
  • 38. Government in the final stages • Socialism • Communism • “The state is not 'abolished'. It withers away.” • A maximal state as tool to obtain a minimal state
  • 39. Schools of Thought • Mercantilism • Classical liberalism • Neo-classical economics • Socialism/Marxism • Keynesian
  • 40. J.M. Keynes • 1883-1946 • Father of modern macroeconomics • Failure of aggregate demand https://en.wikipedia.org/wiki/File:John_Mayna rd_Keynes.jpg
  • 41. Stabilization policy • Short-run stimulus • Austerity debate
  • 42. Schools of Thought • Mercantilism • Classical liberalism • Neo-classical economics • Socialism/Marxism • Keynesian • Chicago School
  • 43. Chicago School • Intellectual forebear • Friedrich Hayek (1899-1992) https://en.wikipedia.org/wiki/File:Friedrich_ Hayek_portrait.jpg
  • 44. Chicago School • Intellectual forebear • Founder • Milton Friedman (1912-2006) https://en.wikipedia.org/wiki/File:Portrait_o f_Milton_Friedman.jpg
  • 45. Chicago School • Intellectual forebear • Founder • Opposition to “naive Keynesianism” • Complexity of stabilization policy
  • 46. Chicago School • Intellectual forebear • Founder • Opposition to “naive Keynesianism” • Importance of monetary policy • Monetary growth targeting
  • 47. Schools of Thought • Mercantilism • Classical liberalism • Neo-classical economics • Socialism/Marxism • Keynesian • Chicago School • (Social) Welfare Economics
  • 48. (Social) Welfare Economics • Amartya Sen (1933- ) • Redistribution policies • Equality of capabilities https://en.wikipedia.org/wiki/File:Amartya_ Sen_NIH.jpg
  • 49. Where are we now? • No closer to an answer • Austerity debate • Short-term gains vs. long-run costs
  • 50. Where are we now? • No closer to an answer • Austerity debate • Redistribution • “We are the 99%”
  • 51. Where are we now? • No closer to an answer • Austerity debate • Redistribution • Pollution • Global warming • Fracking
  • 52. Where are we now? • No closer to an answer • Austerity debate • Redistribution • Pollution • Competition policy • Apple and the DoJ • TTIP
  • 53. Why? • The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty. • J.M. Keynes • Are these always compatible?
  • 54. In the end ... • Politics trumps economics though economic reality will eventually have its say