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Warning this is a very long read (by the standards of message board) but I did put in much shorter version at the bottom. If you are interestedin public policy and economics, please read the entire post, you will not regret it. Also, while I do not give homework help this could bailout some of youguys when you have major paper due in the fall semester, if you copy and paste it now. You can thank me six month from now.
Part 1 Introduction
I have found in discussing economic ideas and economic policy with a great many of you that even the smartest and most educated among you guys as well as thepeople, with whom I have spoken in most settings, have little or no nuance, sophistication or desire to be precise when discussing economic policy,particularly the role of government in economic life.
Many people see things in a binary way, either the government should be completely uninvolved and that markets forces should be completely unconstrained andthat there should be little or no forms of government services and redistribution of wealth or income. There is the other side that want government to car forus from cradle to grave and that government should run most enterprises because it will not only be more just but will be more efficient because the market isseen as stupid and unresponsive compared to government planners. There are a great many who are more moderate in there outlook and who wants some welfare andbenevolence programs and some public ownership.
What is key is that people tend to bundle the many types of government intervention in the economy. What is important to realize is that government control orintervention in the economy is not one homogeneous lump that can or should be adjusted to an appropriate level. There are a few major forms of governmentintervention.
Harmful
-It can use classical socialism, which involves government control and/or ownership of the means of production (which also include communications,entertainments, the news media and the financial system) this is also known as central planning.. There is also its more limited cousins subsidies that favorcertain firms or unions as well as quotas and tariffs on imported goods. These two items as well central planning all add up to industrial policy.
-government authorities having ease when it comes to the seizure of private property
-there can be price controls (which includes maximum or minimum rates of interest, wages or rent).
-aggressive monetary policy which will generally disregard stable currency in favor of full employment or keeping the currency friendly to exports
Can Be Helpful Or Harmful
-regulation on what business legally can and cannot do.
-provisioning public goods, which can range from neighborhood parks to providing national defense
Helpful
-various forms of insurance (usually mandatory like social security) or benevolence (programs that aim to move wealth from those with more to those with less)or fluid income supplementing programs which would be either a minimum income or better yet a negative income tax that is on sliding scale instead of beingbased on brackets.
-Providing law and order and an impartial judicial system which defends property rights and allows for redress in the cases of force, fraud or other harms likenegligence or bad externalities (like noise and pollution) being inflicted on another person.
Part 2 "Capitalism" and "Socialism"
When most people argue for or against a form of government intervention, the arguments tends to become arguments about the idea of and the legitimacy or thepros and cons of all government intervention as a whole. In these discussions the pro and anti government side has good points to make and strong examples tocite. It seems odd that certain countries that are "socialist" can have such different standards of living, how is that people in Scandinavia andCanada and Germany have lives that are as good as our own, almost as good and by some measures, better than our own but North Korea is a hell on Earth and theSoviet Union did not produce a much better standard of living nor has Cuba. The same is true of "capitalist" countries, Countries like the US andAustralia have very high standards of living but many countries in Latin America claim to be capitalist but have standard of living that is about the same asthe desperately poor island nation of Cuba.
The reason for the disparity about the "capitalist" and "socialist" nations how weakly applied or more fundamentally, how the blanket terms"Capitalism" and "Socialism" simply are not able to specific the half dozen or so forms of government control of an economy. The list oftypes of government intervention in the economy is arranged so that the most damaging policies are at the top and as the list descends, the policy is lessdamaging and after the first break, the two items that are listed can be helpful and can be harmful and after the second break, I have the list of the twothings government can do that makes life better for its citizens and the final item, of law and order and a dependable system of courts is a must for a countryto have a good standard of living.
Part 3 What Government Does That Works
The countries with a good standard of living almost always provide the law and order and respect for property right that accompany it. This final and mostimportant item on the list is a common trait in all countries with what would be called G7 or First World levels of wealth and productivity. The second to lastitem is seen throughout every First World Country with many of the European nations that are called socialist redistribute wealth and provide a stronger socialsafety net than does the US.
Despite what many conservatives and libertarians say, government forms of insurance (especially with unemployment insurance) and benevolence/redistribution hashad many success stories when judged from a stand point of increasing the level of utility, happiness, among the population. It can cause some distortedincentives and reduce productivity (which is serious matter because productivity closely correlates with standards of living) but because so many people areboth risk averse and unwilling to save enough voluntarily, well run insurance and redistribution and benevolence reduce stress and bring about peace of mindwhich increases happiness.
The only legitimate critiques are that these schemes centers on their process and execution. Programs such as social security end up taking wealth from lowerearners and serving as welfare for the middle class and upper middle class. All welfare programs can be abused and can be costly to police and finally, certainprograms, especially pension programs, are too costly and unsustainable. The key is to execute and build these programs properly and to structure them properlyand unlike central planning, doing so has proven to be quite feasible.
Part 4 What Sometimes Works
The items on the middle of the list have the potential to improve consumer welfare but have also reduced standards of living in a country. Regulations can makelife better for consumers. The best forms of regulation are not the ones that severely limit choices but the regulations that require clear and fulldisclosure. It is very good, on balance, to give consumers a chance to avoid fraud before it happens and to not be swindled by sellers who will take advantageof fine print. Certain minimum safety regulations can be in order because workers may be unaware of difficult to observe workplace risks and consumers, whogenerally should be allowed to buy whatever they want and deny repeat business to the makers of bad products, could get killed or maimed so there would be noway for the normal market mechanism to work in the case of firms making very dangerous products.
Regulations can also be abused and are frequently corrupted to basically block the entry of competition and benefit the producers of a good but increase thecost for consumers. The same dichotomy exists in public goods. Things like public parks, a police force, fire fighters, public infrastructure and a militaryall do useful and sometimes indispensible things but in all cases they tend to be quite costly to provide because of institutional inefficiencies.
Part 5 What Usually Fails
The block of bad items are things that have either never worked or have almost never worked. Monetary policy that seeks to ensure full employment was tried inalmost every industrialized nation after World War II and starting in the 1970's, up through the 1990's those policies were cast a aside in favor ofinflation targeting, monetarism and greatly increased central bank independence, which makes apolitical monetary policy possible (other countries such as NewZealand have other institutional devices such as a statute that will fire everyone who chairs the New Zealand Central Bank if inflation is allowed to riseabove 2% annually). The results have generally been much sounder currency, more stability and less inflation. What is bitterly ironic is that European andother industrialized regions of the world modeled their new, independent central banks on our own Fed and now have central banks that are more much detachedfrom politics, more disciplined, more willing to control inflation and our Fed, whose independence is not nearly as great as many believe, is being pressuredby politicians to inflate, with potentially catastrophic results over the horizon.)
Price controls have always failed to achieve their goal, rent control makes apartments less available and usually less affordable, minimum wage does not helpthe poor, interest rate caps shut down payday lenders and pushes the poor over to loan sharks, who charge even higher interest rates and break legs ascollateral. Government sponsored price floors on agricultural goods make life more costly for all Americas, especially poorer Americans for whom food is abigger part of their budget then it is for others. Price controls on gasoline were tried and it created long line, gas stations that were sold out, verylimited hours at the stations and quasi black market tactics (like over paying for an oil change and getting a "complimentary" tank of gas) or outright bribery and black market selling of gasoline. It is sad to see people making less money than would allow them to live with any comfort or dignity andthat and other social problems that can arise in a free market is to take a tactic from the "good portion of the list and use negative income taxes andother forms of assistance to this person whose skills and level of productivity currently do not allow him enough money to be able to not be homeless and/orsuffer very real and severe material deprivations.
The final item on the list is the triumvirate of public ownership and/or control of the means of production, subsidies and trade restrictions which make up thethree horsemen of poverty, failure and usually tyranny and serfdom. Public ownership of the entire economy or significant parts of it have never failed to makethe people of nations who try worse off every time. It can sometimes kill people, as was the case with famines in the 20th century in the countries wheregovernment took control of the farming. It can turn the nation's leading industry into a drain on the public treasury as was and is the case with petroleumin Mexico, sugar in Cuba, rice in North Korea and coal in Britain. Public ownership, central planning and it inevitable companions of subsidies and severetrade restrictions were practiced nearly everywhere on Earth after the Second World War.
The former colonies in Africa and Asia and Latin America all hoped to catch up with the West by using central economic planning, which claimed to efficientlyuse the nation's resources and supposedly not just create a fairer system but a more productive and wealth enhancing system. The conventional wisdom wasthat markets were too clumsy and short sighted to make investments and improve standards of living over time. Virtually the same perverse logic was used in thecommunist nations, who confidently predicted that it would surpass the US and the West with a decade or so. The West for the most part, also adopted publicownership and central planning as well.
The idea of wanting to create a just society was noble one but centralized government planning failed on that count The notion that central planning couldbetter allocate resources than the price mechanism, was really very foolish. In a world where a simple pencil is made by the price coordinated actions ofmillions of strangers in all corners of the globe, it is simply hubris to believe that one man or a small committee of people, even people with degrees fromMIT or the LSE cannot replicate the level of coordination on the part of those millions of far flung strangers. Central planning and industrial policy is toeconomics what intelligent design is to biology.
Part 6 What This All Means
Our current foray into picking winners and loser, using the treasury to prop up firms and then micro managing them and becoming hostile to the fact thatcapitalism works best when inefficient firms disappear and leaner firms get a bigger market share and/or completely new firms come in to employ the idle laborand capital left behind by the poorly run company. Zombie Banks and Government Motors are a drain on our Treasury and on the resources that could be flowinginto the more productive and leaner firms that would be predominating or emerging right now, if the government let the market work and do what it does best,allocate and use resource very efficiently.
Given the many tools in the government's kit, It seems prudent to use those tools properly and judiciously and to see that some are almost always worthless(except in extreme situations, such as a full scale war where price controls, intense minting of new currency and government directing the means of productionheavily into the war effort), other can be very useful but need to be use every carefully and other that are often times under utilized and will only causeharm if they are clearly mishandled. With this in mind, with the experience of centuries and from scores of nations it is clear that government intervention inthe economy should be done to varying degrees based on its type.
The best system that we can have, to maximize happiness and wealth is to be laissez-faire in some areas have moderate government control in some areas and tohave government be active in other capacities. We need a laissez-faire policy with regards o business decision making, it should be largely free fromgovernment control and certainly should not be operated by government, let the best ideas emerge and thrive and let bad ones disappear, let resources beconstantly moving so they can be with there highest valued user. Do not use price controls, prices reflect under lying realities of supply and demand at thetime and changing prices by decree not only fail to solve the problem but make it worse by causing shortages or overproduction and wasted resources. Finally,Central banks should either be forced to commit to low inflation, price stability or they should have to compete with privately issued currency.
Government should have regulations for consumers and workplace safety; for preventing, ex ante, very serve accidents or externalities and most otherregulations should not control what producers or consumers do but rather what producers/sellers have to disclose and how they have to disclose it to consumersor business partners. This moderate approach should be applied to public service and public goods but they should be over used because they can be very costly.
Part 7 Conclusion
Finally, government should do more of what it does or can do well. It should have a fairly robust negative income tax as well as a decent guarantee minimumincome, if we did not have bailouts and corporate and farm subsidies and a social security system that gives lots of money to well off seniors, we couldsupplement wages of low income earners and provide welfare those who are disabled. Not only can we be a more compassionate society but we can substitutegovernment programs of redistribution for many current and counter productive forms of government economic intervention.
Price controls that are meant to help the poor, can be substituted with more generous food stamps and vouchers for gasoline as the market price increases.Generous unemployment benefits can substitute for the disastrous policy of trying to ensure full employment through inflating the currency and debt spendingover the long term. Those benefits also reduce the pain and uncertainty and anxiety caused by a dynamic economy that does create and destroy jobs at a fasterpace than centrally planned one. Helping people pay for insurance and healthcare and out right paying for it for poor or very sick people is a way of notkilling the high quality of our healthcare, that our somewhat market driven system delivers, but it also allows for access for those who currently cannotafford much of it right now.
A very good social safety net can be compliment to capitalism. Capitalism needs to be largely unbridled and when it is set free it produces far more wealth,especially over time where the cumulative gains add up year after year. The freer the market the more efficiently resources are allocated and every fraction ofpercentage point of growth compounds with every time period and when ever we can substitute policies that cause inefficiency with good, well executedredistribution programs we allow capitalism to work at it optimum levels while protecting ourselves from the short run difficulties that it can create, when itis allowed to function at it optimum levels.
My own economic philosophy, as you can see, is to be socialist in some areas, moderate in others and laissez-faire in others. To those who are interested, whatdo you think of my analysis?
Shorter Version: There are many different types of government intervention in the economy but those distinctions are not often times made. People bundlewhat should be separate discussions, for instance, it is assumed that if you opposed the bailouts, you opposed unemployment benefits for those who get laid offif GM or Chrysler liquidated. I proposed a Social-Market system, one that lets markets work in a fairly unencumbered fashion, and one that produces lots ofwealth should be combined with a government that is active in helping individuals who are poor or who have fallen on hard times. By operating this way, we canuse various forms of welfare or government insurance programs to be a much more effective and cost effective substitute for disastrous policies such as minimumwage, price caps on gasoline, government bailouts and inflationary monetary policy which are meant to avoid unemployment at a far greater cost that providingsignificantly more generous unemployment benefits. This pattern of substituting welfare and insurance for other types of government intervention is much morehumane and effective solution to our current economic woes.
Part 1 Introduction
I have found in discussing economic ideas and economic policy with a great many of you that even the smartest and most educated among you guys as well as thepeople, with whom I have spoken in most settings, have little or no nuance, sophistication or desire to be precise when discussing economic policy,particularly the role of government in economic life.
Many people see things in a binary way, either the government should be completely uninvolved and that markets forces should be completely unconstrained andthat there should be little or no forms of government services and redistribution of wealth or income. There is the other side that want government to car forus from cradle to grave and that government should run most enterprises because it will not only be more just but will be more efficient because the market isseen as stupid and unresponsive compared to government planners. There are a great many who are more moderate in there outlook and who wants some welfare andbenevolence programs and some public ownership.
What is key is that people tend to bundle the many types of government intervention in the economy. What is important to realize is that government control orintervention in the economy is not one homogeneous lump that can or should be adjusted to an appropriate level. There are a few major forms of governmentintervention.
Harmful
-It can use classical socialism, which involves government control and/or ownership of the means of production (which also include communications,entertainments, the news media and the financial system) this is also known as central planning.. There is also its more limited cousins subsidies that favorcertain firms or unions as well as quotas and tariffs on imported goods. These two items as well central planning all add up to industrial policy.
-government authorities having ease when it comes to the seizure of private property
-there can be price controls (which includes maximum or minimum rates of interest, wages or rent).
-aggressive monetary policy which will generally disregard stable currency in favor of full employment or keeping the currency friendly to exports
Can Be Helpful Or Harmful
-regulation on what business legally can and cannot do.
-provisioning public goods, which can range from neighborhood parks to providing national defense
Helpful
-various forms of insurance (usually mandatory like social security) or benevolence (programs that aim to move wealth from those with more to those with less)or fluid income supplementing programs which would be either a minimum income or better yet a negative income tax that is on sliding scale instead of beingbased on brackets.
-Providing law and order and an impartial judicial system which defends property rights and allows for redress in the cases of force, fraud or other harms likenegligence or bad externalities (like noise and pollution) being inflicted on another person.
Part 2 "Capitalism" and "Socialism"
When most people argue for or against a form of government intervention, the arguments tends to become arguments about the idea of and the legitimacy or thepros and cons of all government intervention as a whole. In these discussions the pro and anti government side has good points to make and strong examples tocite. It seems odd that certain countries that are "socialist" can have such different standards of living, how is that people in Scandinavia andCanada and Germany have lives that are as good as our own, almost as good and by some measures, better than our own but North Korea is a hell on Earth and theSoviet Union did not produce a much better standard of living nor has Cuba. The same is true of "capitalist" countries, Countries like the US andAustralia have very high standards of living but many countries in Latin America claim to be capitalist but have standard of living that is about the same asthe desperately poor island nation of Cuba.
The reason for the disparity about the "capitalist" and "socialist" nations how weakly applied or more fundamentally, how the blanket terms"Capitalism" and "Socialism" simply are not able to specific the half dozen or so forms of government control of an economy. The list oftypes of government intervention in the economy is arranged so that the most damaging policies are at the top and as the list descends, the policy is lessdamaging and after the first break, the two items that are listed can be helpful and can be harmful and after the second break, I have the list of the twothings government can do that makes life better for its citizens and the final item, of law and order and a dependable system of courts is a must for a countryto have a good standard of living.
Part 3 What Government Does That Works
The countries with a good standard of living almost always provide the law and order and respect for property right that accompany it. This final and mostimportant item on the list is a common trait in all countries with what would be called G7 or First World levels of wealth and productivity. The second to lastitem is seen throughout every First World Country with many of the European nations that are called socialist redistribute wealth and provide a stronger socialsafety net than does the US.
Despite what many conservatives and libertarians say, government forms of insurance (especially with unemployment insurance) and benevolence/redistribution hashad many success stories when judged from a stand point of increasing the level of utility, happiness, among the population. It can cause some distortedincentives and reduce productivity (which is serious matter because productivity closely correlates with standards of living) but because so many people areboth risk averse and unwilling to save enough voluntarily, well run insurance and redistribution and benevolence reduce stress and bring about peace of mindwhich increases happiness.
The only legitimate critiques are that these schemes centers on their process and execution. Programs such as social security end up taking wealth from lowerearners and serving as welfare for the middle class and upper middle class. All welfare programs can be abused and can be costly to police and finally, certainprograms, especially pension programs, are too costly and unsustainable. The key is to execute and build these programs properly and to structure them properlyand unlike central planning, doing so has proven to be quite feasible.
Part 4 What Sometimes Works
The items on the middle of the list have the potential to improve consumer welfare but have also reduced standards of living in a country. Regulations can makelife better for consumers. The best forms of regulation are not the ones that severely limit choices but the regulations that require clear and fulldisclosure. It is very good, on balance, to give consumers a chance to avoid fraud before it happens and to not be swindled by sellers who will take advantageof fine print. Certain minimum safety regulations can be in order because workers may be unaware of difficult to observe workplace risks and consumers, whogenerally should be allowed to buy whatever they want and deny repeat business to the makers of bad products, could get killed or maimed so there would be noway for the normal market mechanism to work in the case of firms making very dangerous products.
Regulations can also be abused and are frequently corrupted to basically block the entry of competition and benefit the producers of a good but increase thecost for consumers. The same dichotomy exists in public goods. Things like public parks, a police force, fire fighters, public infrastructure and a militaryall do useful and sometimes indispensible things but in all cases they tend to be quite costly to provide because of institutional inefficiencies.
Part 5 What Usually Fails
The block of bad items are things that have either never worked or have almost never worked. Monetary policy that seeks to ensure full employment was tried inalmost every industrialized nation after World War II and starting in the 1970's, up through the 1990's those policies were cast a aside in favor ofinflation targeting, monetarism and greatly increased central bank independence, which makes apolitical monetary policy possible (other countries such as NewZealand have other institutional devices such as a statute that will fire everyone who chairs the New Zealand Central Bank if inflation is allowed to riseabove 2% annually). The results have generally been much sounder currency, more stability and less inflation. What is bitterly ironic is that European andother industrialized regions of the world modeled their new, independent central banks on our own Fed and now have central banks that are more much detachedfrom politics, more disciplined, more willing to control inflation and our Fed, whose independence is not nearly as great as many believe, is being pressuredby politicians to inflate, with potentially catastrophic results over the horizon.)
Price controls have always failed to achieve their goal, rent control makes apartments less available and usually less affordable, minimum wage does not helpthe poor, interest rate caps shut down payday lenders and pushes the poor over to loan sharks, who charge even higher interest rates and break legs ascollateral. Government sponsored price floors on agricultural goods make life more costly for all Americas, especially poorer Americans for whom food is abigger part of their budget then it is for others. Price controls on gasoline were tried and it created long line, gas stations that were sold out, verylimited hours at the stations and quasi black market tactics (like over paying for an oil change and getting a "complimentary" tank of gas) or outright bribery and black market selling of gasoline. It is sad to see people making less money than would allow them to live with any comfort or dignity andthat and other social problems that can arise in a free market is to take a tactic from the "good portion of the list and use negative income taxes andother forms of assistance to this person whose skills and level of productivity currently do not allow him enough money to be able to not be homeless and/orsuffer very real and severe material deprivations.
The final item on the list is the triumvirate of public ownership and/or control of the means of production, subsidies and trade restrictions which make up thethree horsemen of poverty, failure and usually tyranny and serfdom. Public ownership of the entire economy or significant parts of it have never failed to makethe people of nations who try worse off every time. It can sometimes kill people, as was the case with famines in the 20th century in the countries wheregovernment took control of the farming. It can turn the nation's leading industry into a drain on the public treasury as was and is the case with petroleumin Mexico, sugar in Cuba, rice in North Korea and coal in Britain. Public ownership, central planning and it inevitable companions of subsidies and severetrade restrictions were practiced nearly everywhere on Earth after the Second World War.
The former colonies in Africa and Asia and Latin America all hoped to catch up with the West by using central economic planning, which claimed to efficientlyuse the nation's resources and supposedly not just create a fairer system but a more productive and wealth enhancing system. The conventional wisdom wasthat markets were too clumsy and short sighted to make investments and improve standards of living over time. Virtually the same perverse logic was used in thecommunist nations, who confidently predicted that it would surpass the US and the West with a decade or so. The West for the most part, also adopted publicownership and central planning as well.
The idea of wanting to create a just society was noble one but centralized government planning failed on that count The notion that central planning couldbetter allocate resources than the price mechanism, was really very foolish. In a world where a simple pencil is made by the price coordinated actions ofmillions of strangers in all corners of the globe, it is simply hubris to believe that one man or a small committee of people, even people with degrees fromMIT or the LSE cannot replicate the level of coordination on the part of those millions of far flung strangers. Central planning and industrial policy is toeconomics what intelligent design is to biology.
Part 6 What This All Means
Our current foray into picking winners and loser, using the treasury to prop up firms and then micro managing them and becoming hostile to the fact thatcapitalism works best when inefficient firms disappear and leaner firms get a bigger market share and/or completely new firms come in to employ the idle laborand capital left behind by the poorly run company. Zombie Banks and Government Motors are a drain on our Treasury and on the resources that could be flowinginto the more productive and leaner firms that would be predominating or emerging right now, if the government let the market work and do what it does best,allocate and use resource very efficiently.
Given the many tools in the government's kit, It seems prudent to use those tools properly and judiciously and to see that some are almost always worthless(except in extreme situations, such as a full scale war where price controls, intense minting of new currency and government directing the means of productionheavily into the war effort), other can be very useful but need to be use every carefully and other that are often times under utilized and will only causeharm if they are clearly mishandled. With this in mind, with the experience of centuries and from scores of nations it is clear that government intervention inthe economy should be done to varying degrees based on its type.
The best system that we can have, to maximize happiness and wealth is to be laissez-faire in some areas have moderate government control in some areas and tohave government be active in other capacities. We need a laissez-faire policy with regards o business decision making, it should be largely free fromgovernment control and certainly should not be operated by government, let the best ideas emerge and thrive and let bad ones disappear, let resources beconstantly moving so they can be with there highest valued user. Do not use price controls, prices reflect under lying realities of supply and demand at thetime and changing prices by decree not only fail to solve the problem but make it worse by causing shortages or overproduction and wasted resources. Finally,Central banks should either be forced to commit to low inflation, price stability or they should have to compete with privately issued currency.
Government should have regulations for consumers and workplace safety; for preventing, ex ante, very serve accidents or externalities and most otherregulations should not control what producers or consumers do but rather what producers/sellers have to disclose and how they have to disclose it to consumersor business partners. This moderate approach should be applied to public service and public goods but they should be over used because they can be very costly.
Part 7 Conclusion
Finally, government should do more of what it does or can do well. It should have a fairly robust negative income tax as well as a decent guarantee minimumincome, if we did not have bailouts and corporate and farm subsidies and a social security system that gives lots of money to well off seniors, we couldsupplement wages of low income earners and provide welfare those who are disabled. Not only can we be a more compassionate society but we can substitutegovernment programs of redistribution for many current and counter productive forms of government economic intervention.
Price controls that are meant to help the poor, can be substituted with more generous food stamps and vouchers for gasoline as the market price increases.Generous unemployment benefits can substitute for the disastrous policy of trying to ensure full employment through inflating the currency and debt spendingover the long term. Those benefits also reduce the pain and uncertainty and anxiety caused by a dynamic economy that does create and destroy jobs at a fasterpace than centrally planned one. Helping people pay for insurance and healthcare and out right paying for it for poor or very sick people is a way of notkilling the high quality of our healthcare, that our somewhat market driven system delivers, but it also allows for access for those who currently cannotafford much of it right now.
A very good social safety net can be compliment to capitalism. Capitalism needs to be largely unbridled and when it is set free it produces far more wealth,especially over time where the cumulative gains add up year after year. The freer the market the more efficiently resources are allocated and every fraction ofpercentage point of growth compounds with every time period and when ever we can substitute policies that cause inefficiency with good, well executedredistribution programs we allow capitalism to work at it optimum levels while protecting ourselves from the short run difficulties that it can create, when itis allowed to function at it optimum levels.
My own economic philosophy, as you can see, is to be socialist in some areas, moderate in others and laissez-faire in others. To those who are interested, whatdo you think of my analysis?
Shorter Version: There are many different types of government intervention in the economy but those distinctions are not often times made. People bundlewhat should be separate discussions, for instance, it is assumed that if you opposed the bailouts, you opposed unemployment benefits for those who get laid offif GM or Chrysler liquidated. I proposed a Social-Market system, one that lets markets work in a fairly unencumbered fashion, and one that produces lots ofwealth should be combined with a government that is active in helping individuals who are poor or who have fallen on hard times. By operating this way, we canuse various forms of welfare or government insurance programs to be a much more effective and cost effective substitute for disastrous policies such as minimumwage, price caps on gasoline, government bailouts and inflationary monetary policy which are meant to avoid unemployment at a far greater cost that providingsignificantly more generous unemployment benefits. This pattern of substituting welfare and insurance for other types of government intervention is much morehumane and effective solution to our current economic woes.