Friday, September 10, 2010

A Fatal Conceit

I was watching BloggingHeads, and this week's liberal vs. libertarian banter included Ann Lowrey, who basically argues we should spend more on everything (presumably via the logic of the government multiplier, which implies a free lunch to deficit spending). Alas, economists are responsible for allowing this kind of wishful thinking to be intellectual defensible (though, I believe, wrong).

There's this gem from Matt Yglesias, who claimed an attempt to limit government spending as a percent of GDP was 'idiotic', back in March 2010:
The appropriate level of overall government spending should be determined by adding up the level of specific spending on worthwhile things. Programs that are ineffective, or whose impact is small relative to the impact of the taxes needed to pay for them, should be cut or eliminated. Programs that are good should be maintained or expanded. Settling on an arbitrary number first and then making unspecified cuts to reach the target is ridiculous.

The key issue is the presumption that ineffective programs would be cut or eliminated. This happens only very rarely, and via strong opposition. AFDC and busing were only tossed because of Republican action, there was no internal re-assessment by the original Democratic proponents. Basically, no political movement admits when in oversteps, making it very rare.

Amtrak? NASA? The Department of Education? The mohair subsidy? Who, after the housing crisis, would extend mortgages to borrowers with only a 3.5% down payment? The US government, of course, who is quickly becoming the primary guarantor for homebuyers with mortgages under $300k! The government, like most liberals, think the solution to any failed policy is to double down.

Once government gets into something, the size of the loss is irrelevant, because there's always some speculative spill-over effects that can act as a pretext to maintain some patronage system.


Dave said...

In semi-defense of Matt Yglesias, he has argued elsewhere for higher taxes on the non-rich to pay for more government spending. He is a fan of Scandinavian welfare states where government spending comprises a much higher percentage of GDP than here, but he also acknowledges that that spending is paid for by higher taxes on everyone there, including the middle class.

Yglesias has also explained his love of government spending elsewhere. His view is that higher government spending as a percentage of GDP results in less income inequality. I forget whether he sketched out a causal rationale for that, or whether he was just observing correlations between income inequality here and in European countries with higher levels of government spending.

tradeking13 said...

Only up to $300k? Hardly.

Charles said...

Two more issues: there usually are no objective criteria for determining if a program is good and the taxes or borrowing that fund government are not tied to specific programs.

There is an inherent bias that favors most government programs in a democracy. The benefactors are few and organized, the losers are many, weak and dispersed.

Iglesias thinks there is a common welfare that the political class can and will identify and maximize. Of course he identifies with this political class.

In effect a limit on total spending reflects a negotiated agreement between the political class and the great mass of people who have little time for politics because are busy solving their own and their families' problems. Then the political class can fight over the spoils.

More effective than spending limits is a constitution that effectively limits the scope of government, especially at the national level. We used to have such a constitution.