The recent discussion on civil discourse and the sharp distinctions in understanding of liberty and responsibility have highlighted our discussion this month. Two recent blog posts one by Mario Rizzo and a second by Bob Higgs emphasize the responsibility that falls upon those who value liberty. Beyond the issues of debate lie the role of our work as economists. I do agree that we may well be at a tipping point and the opportunity certainly seems to be developing to present the case for a return to the morality of the classical liberal view.
Rizzo contextualizes our opportunity when he writes:
But look around. We are witnessing the clear unraveling of the New Deal legacy. The relative modest beginnings of the New Deal turn out to have been relatively unimportant. What was important were the tendencies that were set in motion. All those unreconstructed Republican opponents of FDR who talked of “socialism,” “the foot in the door,” “fascism,” and so forth had a substantial point. A new world was being set in motion. The pragmatic case-by-case problem solvers were ignoring a whole set of consequences – the dynamics of interventionism. Expanding entitlements became the way that countless politicians, both Democrat and Republican, were elected and re-elected.
While the tendancies predate Hoover and FDR, there can be no argument that the acceleration of the road to public acceptance and expectation of state intervention has continued from this time. To the extent that we are now at a crisis or near one, there is an opportunity.
Where and how to begin? As economists we may well be trained in the method of economic thinking and application of that thinking to institutions, incentives and behavior. But it is clear that the informal institutions of norms, conventions and beliefs will outweigh evidence and analysis. And, as Douglass North points out, the process of changing these informal institutions is extraordinarily long term and little understood, certainly beyond the conception of economists. It is this emergent and evolutionary nature that bedevils policy makers and places most change outside our immediate control.
That said, Bob Higgs this week modeled what, for me, is the approach to be utilized and, if we can broaden the channels of communication and foster a civil discourse then perhaps the broader public will re-examine their firmly and deeply held belief in the power of the state to affect positive change and remediate challenges.
Private saving and investment are the heart and soul of the dynamic market process.
. . . the boom year 2006, about 60 percent of gross private domestic investment was required merely to maintain the economy’s productive capacity, leaving just 40 percent, or $889 billion in net private domestic investment, to augment that capacity.
From that level, net private domestic investment plunged during each of the following three years, taking the greatest dive between 2008 and 2009, when it fell to only $54 billion (in constant 2005 dollars), having declined altogether by 94 percent from its 2006 peak! Last year only 3.5 percent of all private investment spending went toward building up the capital stock. Thus, net private investment did not simply fall during the recession; it virtually disappeared.
Unless this drastic decline is reversed soon, the future will be bleak for the U.S. economy. Without substantial net private investment, brisk economic growth is unthinkable beyond the very short run.
The twin themes that Higgs has emphasized in this work, and examination of the nature and impact of government intervention and the resulting regime uncertainty are reflected in this posting.
I see this as an exemplification of responsible action, for it meets the head on the choice that confronts our society. In a destructive feedback loop, government intervention creates uncertainty which creates a demand from a society that lacks experience and familiarity with spontaneous orders and thus accelerates the tendency that Rizzo outlines.
But is this enough, or even the correct approach. Higgs and Rizzo both call for a rhetorical approach based upon reason. Given the strength of the entrenched belief systems in our country which recogize and demand state intervention and deny individual liberty and responsibility, I am left wondering.
Week in Review: July 22, 2017
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