Government Intervention in the Economy

This is probably not the first time I started a thread on this topic. In fact, I know it isn't.

But given the current state of a looming election in the United States, it wouldn't be absurd of me to consider it to be on some level a judgement on the economic policy of President Obama. One of the main criticisms that people will make of his policy is that it's too invasive. Some would argue that his administration has involved the government too much into the economy, thereby stifling free markets.

And at least since the Washington Consensus of the 1980s, the rhetoric was very much "the freer the market, the freer the people". Government interventionism was seen as creating a reliance on the government in the economic sphere.

Still, I find it necessary to point out that ever since the Washington Consensus, the movement of economies has been in the direction of trade liberalization and an increasingly hands off policy of governments in regards to the economy.

We can view the struggle here as a basic contrast between interventionism and the true spirit of a free market. How much should an economy contain some form of socialist elements? Our mixed economies lean far more heavily toward the free market than the command economy.

Economic metrics comparing the so called "Golden Age of Capitalism" (the period following the Second World War up until the financial crisises of the 1970s, which saw low unemployment and high growth) and the period of the Washington Consensus (1980s until the Great Recession of 2008) suggest that we've become too liberalized in regards to market policy.

Metric	Golden Age period	Washington Consensus period
Average global growth	4.8%	3.2%
Average global inflation	3.9%	3.2%
Average Unemployment (US)	4.8%	6.1%
Average Unemployment (France)	1.2%	9.5%
Average Unemployment (Germany)	3.1%	7.5%
Average Unemployment (Great Britain)	1.6%	7.4%

This is data freely available through the International Monetary Fund.

In his 2009 book Keynes: The Return of the Master, economic historian Lord Skidelsky has a chapter comparing the performance of the world economy between the Golden Age period of 1951–1973 where Keynesian policies were dominant with the Washington Consensus period of 1981–2008 where free market polices were adopted by leading governments.

The high global growth during the golden age was especially impressive as during that period Japan was the only major Asian economy enjoying high growth – it was not until later that the world had the exceptional growth of China and other emerging economies raising the global average. Lord Skidelsky also comments that the golden age was substantially more stable – comparing slightly different periods, Martin Wolf found that in 1945–71 (27 years) the world saw only 38 financial crises, whereas in 1973–97 (24 years) there were 139.

Skidelsky also reports that inequality was generally decreasing during the golden age, whereas since the Washington Consensus was formed it has been increasing. He notes that South America has been an exception to general rise in inequality – since the late 1990s inequality has been falling there, which James Galbraith explains as likely due to the region's early "retreat from neoliberal orthodoxy".

Discuss.

This may come as a shock to some people, but I am totally in favour of this. Sure, nationalising companies left and right is a bad thing, but there are many products that need to be supplied by the government. Not just for moral reasons (healthcare and education being the biggest members of this category), but because some products would be under supplied if left by the private sector. Some items, if left to the private sector to supply, will be in so little demand that prices would skyrocket.

I'm looking at you, defence industry. Everything was so much better when the shipyards and small arms factories were run by governments...in 1937, 5 battleships and 6 aircraft carriers were laid down by British shipyards. We are struggling to build 2 carriers today.
I don't care about the morality of selling weapons. I think it is fine as long as it is for governments. But the modern defence industry is so inefficient that it cannot be allowed to carry on by itself. Or else you get cock ups like the new Queen Elizabeth class aircraft carriers.


Oh yeah and Keynes had it right on how to deal with unemployment and ♥♥♥♥.

This may come as a shock to some people, but I am totally in favour of this.

*NeoCon brofist*

I'm looking at you, defence industry. Everything was so much better when the shipyards and small arms factories were run by governments...in 1937, 5 battleships and 6 aircraft carriers were laid down by British shipyards. We are struggling to build 2 carriers today.

And the cost overrun is quite ridiculous.

I don't care about the morality of selling weapons. I think it is fine as long as it is for governments. But the modern defence industry is so inefficient that it cannot be allowed to carry on by itself. Or else you get cock ups like the new Queen Elizabeth class aircraft carriers.

As I pointed out on Skype. Leaving the construction of military hardware and tools to private companies is a very bad idea. Not only in terms of finances (they're expensive), or geopolitics (if you're motivated by profit, selling to foreigners for the right price is quite possible), but also security (private profit isn't constrained by the public interest).

Originally Posted by Great White North

Washington Consensus (1980s until the Great Recession of 2008) suggest that we've become too liberalized in regards to market policy.

You mean this period of inequality began when Thatcher and Reagan entered their respective positions?

Gonna try to understand this as best I can. Well, uh, I think we start to have problems when we relieve taxes on the wealthy under the assumption that this will encourage economic growth. If the aftermath of Reaganomics shows anything, this is not the case.


The solution seems to be to increase taxes on the wealthy so the gov'ment has more money. I'm not much of an economist so I'm not really sure where it would go from there, but I trust the government enough that I'd think they'd spend it properly as to benefit all of us.

Also lets like, uh, fix some of those dumb loopholes that take away jobs and/or aid in corporations accumulating wealth. Like outsourcing. It's not good.

If the aftermath of Reaganomics shows anything, this is not the case.

Well, that's not exactly true.

When we consider the effects of tax cuts on the wealthy, yes of course it stimulates the economy. If a rich guy has money, he will keep some and invest some. Cutting the taxes he pays makes him keep more and invest more.

The issue with using tax cuts as a form of market stimulus is 1) That it's far less effective than employing government stimulus. Tax cuts are the least action you could take. And 2) If you simply cut taxes every time you need some form of stimulus, eventually taxes will go to zero. Then what do you do?

Keynesianism recommends counter-cyclical policies. An example of a counter-cyclical policy is raising taxes to cool the economy and to prevent inflation when there is abundant demand-side growth, and engaging in deficit spending on labour-intensive infrastructure projects to stimulate employment and stabilize wages during economic downturns.

Classical economics, on the other hand, argues that one should cut taxes when there are budget surpluses, and cut spending—or, less likely, increase taxes—during economic downturns.

Keynesian economists believe that adding to profits and incomes during boom cycles through tax cuts, and removing income and profits from the economy through cuts in spending and/or increased taxes during downturns, tends to exacerbate the negative effects of the business cycle.

This effect is especially pronounced when the government controls a large fraction of the economy, and is therefore one reason fiscal conservatives advocate a much smaller government.

If we actually think about the causes of the 1970s period of runway stagflation, it had very little to do with economic policy at all and everything to do with geopolitics.

Reagan and Thacher's policies on economics were vindicated by the period of expansive growth that followed the introduction of the Washington Consensus. However, this accreditation was ultimately false. The World Economy boomed not because of the introduction of neoliberal policies, but rather because of reduced reliance on oil due to the embargo and an overproduction of that oil on an underconsuming market following the end of the embargo.

A Keynesian's solution to the stagflation would not have been to cut taxes. It would have been to raise taxes on the rich (who would be massively profiting from the rapid inflation as people had to spend more and more for basic services), and to use that money to invest in massive infrastructure projects that would develop alternative sources of oil and/or energy in response to the embargo.

I believe that, as the number one responsibility of any government is to care for its people, regimes should actively involve themselves with their economies. Such regulation and intervention could prevent financial distress and avoid inflation and other issues.

The free market is great, but an anarchic economy, in which the government has no input, isn't the best idea.

Originally Posted by Great Conservative Cock

Well, that's not exactly true.

When we consider the effects of tax cuts on the wealthy, yes of course it stimulates the economy. If a rich guy has money, he will keep some and invest some. Cutting the taxes he pays makes him keep more and invest more.

Or he could just keep it all and invest into something he knows will make him the maximum amount of profit. Trickle down theory is purely guessworks. As in, you're guessing when you say that the rich guy is going to invest.

Which is why I've identified it as the least effective form of stimulus

That I understand. I just wanted to add my own tidbit.