Wednesday, November 21, 2012

Gintis Gets Back to First Principles

In a book review, Herb Gintis offers an introduction to the modern state:

The "welfare state" that ruins our lives is the modern state that has virtually unlimited power to deliver goods and services outside the market framework, financed by the state's power of taxation. The book [under review] makes three major arguments. First, the state does not deliver services that are in the general public interest, but rather supplies perks to special interest groups and places the burden of financing these perks on others, especially the general taxpayer. Second, taxpayers are not willing to fund these rent-seeking activities, so the state finances its expenditures by borrowing. Third, the build-up of burdensome levels of debt will eventually bankrupt the welfare state.

The first two arguments are correct, but are characteristics of the state in general, not in particular the "welfare state." States, going back to the the thirteenth century, have always delivered perks to favored groups and forced others to foot the bill. And taxpayers have always resisted payment, forcing states to borrow to finance their follies.

The third assertion is probably false. When debt reaches burdensome levels, states usually either inflate their currencies to devalue the debt, or they simply default. Both have negative effects of public welfare and economic growth.

The implicit assumption is that the state is simply a predator, and we can easily limit its activity to protecting private property and supplying essential services. This assumption has not basis in fact. States are tolerated and promoted by voters and citizens because it supplies services that are not properly supplied by the market. There is no advanced society without a very strong interventionist state, and I am certain there will never be one. Standard public economic theory explains why a large, interventionist state is an essential part of economic development. I outline this theory on my web site, under "You Must Read This!", in a short paper entitled "A Brief Introduction to the Theory of Welfare-Improving State."  [Link--ed]

The state, like the market, is subject to corruption, and it is the citizens' task to keep both in line and serving the public interest. ...

1 comment:

bjdubbs said...

What does he mean by "large, interventionist" state? The market failures he lists are pretty minor - regulation of monopolies, utilities, consumer products, organ selling and vote buying, etc. Conservatives would be very amenable to a state limited to the FTC, FDA, SEC and FEC, and it wouldn't include the wealth transfer programs that constitute welfare state. And when says "There is no advanced society without a very strong interventionist state" he is leaving too much out - certainly there have been advanced societies that developed in the absence of a strong state. I don't know if he considers the US circa 1925 as a large, interventionist state, but hard to deny it was an advanced society. And there are a ton of examples of economies that have been strangled in the crib for decades by a too large state, Brazil and India being the largest examples. "Standard public economic theory explains why a large, interventionist state is an essential part of economic development" is another example of his usual argument from expert consensus. "Standard public economic theory" is useless at adjudicating the really big questions he wants it to answer. But the essay on "Math for Humanists" is excellent, thanks for linking to that page.