State Authoritarianism

Over the past two years, Boyes and I have explored the dynamic free market, the static public sector and the apparent evolution in our society toward the former. This stimuli for this evolution are far from clear, although we have discussed the role played by intellectuals and pundits, the success that interventionists have played in controlling the commanding heights of formal institutions - media, government and academy, as well as the possibility that security may be a higher value than freedom for a broad segment of society.

Boyes poses the following questions based upon the recent ASET book club:

"Why do so many myths surround the leftists and not the free markets types?" This led to the question of "Why do so many countries follow the leftist road rather than toward free markets and liberty?" This led to the real question we have to face today: "Why aren't there any societies like the U.S. in the late 18th century and early 19th century?" Is it inevitable that societies tend to move toward larger government no matter where the society begins? I think, sadly, it is.

The current posting over on 5 books speaks to these points.

Dambisa Moyo is author of New York Times bestseller Dead Aid. In 2009 Moyo was named by Time magazine as one of the “100 most influential people in the world”, so she seems to be a public intellectual working within the mainstream media. Her work suggests a thoughtful consideration of the tradeoff between freedom and security as well as an informed analysis of the alternatives of capitalism and, what she calls state authorianism.

She makes the following point in the above blog posting:

Do you sympathise with his idea that state authoritarianism has advantages?

Yes, I’ve written about that. But when you say advantages, it depends what you’re talking about. If you’re asking me if democracy is a prerequisite for economic development, clearly it’s not. China is not democratic, nor is Singapore, nor was Chile in the manner in which we define democratic process. There are numerous countries around the world that have achieved long-term, sustained economic growth and lifted millions of people out of poverty without living in a classical democracy. So that’s not up for debate. The question is, as a long-term strategy is it possible for countries to have sustained economic growth with a large role for the state? Also, what happens when you have a large, critical middle class who demand greater political franchise? We don’t know what the answer to that is.

In taking a longer view, I think the argument can be made that free markets are a relatively new institutional framework and authoritarian systems that vest control centrally have been the dominant organizational form over the past 2000 years. Looking at the past 500 years there does seem to be evidence that free markets stimulate growth for some parts of the world. Of course, the challenging factor here is time and the inability to impose the institutional support for free markets. In particular, the informal institutional support for free markets seems to have preceeded the actual development of capitalism in both formal institutions and practice.

This beening the case, I wonder if free markets may be the exception rather the rule in human experience.

I am not certain if this is related to the questions raised by Boyes, but an interesting tidbit was posted over on Greg Mankiw's blog. Some years ago, Boyes spoke at the ASET conference on causes of the "Great Recession". In a presentation that anticipated the subsequent events, Boyes centered on the immorality of rent seeking as an expansive government worked to shape macroeconomic conditions through intervention in specific sectors of the economy. To advance this argument, Boyes used Barney Frank and, I believe Chris Dodd as examples along with Freddie and Fannie Mae/Mac and other "quasi" or actual government agencies.

Mankiw reports

Perhaps because Barney Frank is my congressman, I took a special interest in this interview of Gretchen Morgenson, New York Times reporter and coauthor of Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon:


DAVIES: What's fascinating about this story is that you have this entity [Fannie Mae], which you said became the largest and most powerful financial organization in the world, you had this entity, which has government guarantees and government subsidies, although perhaps indirect, but it engages in major political contributions and lobbying expenses. How big a player were they in terms of contributing to politicians and lobbying?
Ms. MORGENSON: They were very large. The numbers might not seem large in today's terms, but they were extremely shrewd and, you know, took great care, especially of the congressmen that were on the House Financial Services Committee and the senators on the Banking Committee.
They knew that these were very important people to their livelihood and to maintaining the government perquisites as they were.
One of the really big beneficiaries, albeit indirectly, was Congressman Barney Frank of Massachusetts. Back in 1991, when Congress was writing the legislation that would, you know, enhance or improve the oversight of Fannie Mae, or so they thought, Frank actually called up the company and asked them to hire his companion, who had just gotten an MBA from the Amos Tuck School of Business.

Of course the company was happy to provide a job for his companion and rolled out the red carpet in a series of interviews with a variety of executives, and it ultimately did hire the man. And he stayed there for I believe seven years.

So that was an example of the kind of thing that Fannie Mae would do. Now, when I asked Mr. Frank about this, I asked him, did it have any impact on his approach to the company. You know, was it a conflict? Did he feel that it had been a conflicted, put him in a conflicted spot? And he said absolutely not, that he didn't really remember being interested or having much to do with the 1992 legislation.

But the record shows that he was very aggressive and really tough on those who were testifying in Congress about reining in Fannie Mae and Freddie Mac. He was very aggressive to, for instance, the head of the Congressional Budget Office at that time, who was trying to call for increased capital requirements and to call for a focus on safety and soundness at Fannie Mae, that Frank really took him apart in testimony.

DAVIES: Right, and you write there were a number of occasions on which he defended Fannie and their record of promoting home ownership but in the end had a different view of the company, right?
Ms. MORGENSON: Well, after the taxpayers had to take it over, he, you know, came around, finally. But by then it was too late. He said: Well, we should shut them down. But, you know, it really was far too late, and he had been such a vocal supporter for so long that it was sort of an odd turnabout.

I share this not to argue that Boyes was right early on. Rather the reaction to Boyes keynote at ASET illustrates, I think, the informal institutional antagonism to capitalism and active willingness to sacrifice liberty in favor of hoped for security by a wide segment of society. Certainly at my institution of "higher" learning the response to Boyes was critical and negative. The chief academic officer at my institution, a Phd in history, considered Boyes' presentation to be "insane". This measured response was shared by a number of the participants, many of my students who attended and some of my colleagues in economics.

If this is the response to a reasoned critique of the state at a conference in which one would hope to find open minded consideration of the tradeoff between liberty and perceived security, then it would appear our society has moved rather far down the road to serfdon.