10.1.05

REINVENTING THE WELFARE ECONOMICS PARADIGM? Elizabeth at Left2Right suggests it is time to discard ancient classifications of belief systems.
Here's another legacy of the Cold War that should be discarded: the convention of classifying the systems of economic organization on a continuous spectrum from left to right, with communism on the far left, then socialism, then the so-called "mixed" economies of Western Europe and North America, and, on the right, the laissez-faire capitalist minimal state, and on the far right, anarcho-capitalism. We should know this spectrum is in trouble when we recollect that when fascism was still considered a serious alternative, or threat, it was represented as the far-right position.
What you mean, "we?" Fascism travelled in Germany under a much more accurate name, "national sozialistische," and I recall Keynsian professors in the early 1970s describing the German economic recovery of the 1930s as the correct amount, if not best applied, of fiscal stimulus. But perhaps I quibble too much. Let's go here.

Now that communism is thankfully dead, along with such lamentable economic ideas as centralized economic planning, state ownership of major industries, and comprehensive wage and price controls, which were tried by many "mixed" economies as well as communist regimes, we should start reflecting on the economy we have with a clearer eye. The key features of the economy that amount to departures from laissez-faire are:

1. State provision of public goods, such as roads, public health programs, and schools.
2. Centralized banking.
3. Regulation of the environment, securities markets, food and drugs,auto safety, etc.
4. Social insurance, and, to a much smaller extent, "welfare."
5. Laws enabling labor unions (weak in the U.S., but much stronger in Europe).

We still have barriers to trade, to be sure, but the long-run trends here are definitely in the direction of reduction, even in the stubborn area of archaic agricultural subsidies, which should certainly be eliminated. (Here right and left ought to enjoy real common ground. The (libertarian) right hates them because they involve departures from free-market principles. Some parts of the left (e.g., NGO's such as Oxfam), including myself, hate them because they impoverish poor countries that could improve their economies if they were free to export their agricultural products, textiles, and cheap manufactures to rich countries without barriers. Alas, neither element of left or right is numerically dominant in domestic U.S. and European political institutions. But the WTO may force the hands of the U.S. and Europe anyway: chalk one up in favor of sovereignty-compromising global institutions.)

That sounds pretty much like the Welfare Economics Paradigm with market "failures" warranting government "correctives." (It also anticipates the outline of my public policy course; fortune favors the prepared.) Whether or not one wants to get away from the "mixed economy" meme as Professor Anderson suggests, there is much to commend her post.
My point is rather that these five should be seen as developments internal to the dynamics of democratic capitalism itself, rather than borrowings from fundamentally alien economic systems. So it makes no sense to call economies that have them "mixed," as opposed to advanced variants of democratic capitalism. Public provision of infrastructure and education, and sponsorship of science research, has long been a great engine of capitalist development. Even if socialism and communism had never existed, it would have been necessary to invent centralized banking to moderate the effects of capitalism's business cycles. (By contrast, socialists and communists had always hoped to eliminate business cycles through centralized planning.) Regulation of private sector actions to reduce pollution, ensure public safety, etc. was brought to capitalism by popular demand. (By contrast, communism never tried to repair its catastrophic environmental policies and its workplace safety record is disastrous, nor was environmentalism ever much of a socialist issue until capitalist economies embraced it.) Ditto for social insurance and independent labor unions, neither of which were part of the imaginary communist utopia, nor happy in the dreadful communist reality (recall the wretched state of health care in ex-communist Europe, and Solidarity in Poland). Socialists and progressive liberals can take the historical credit (or blame, depending on your point of view) for some of these five.
Precisely the point of the upcoming course. Government actions have the potential to address some outcomes from some kinds of markets. Whether those policies work properly, or achieve allocative efficiency, or some kind of equity, or might be done more effectively by other means, remains an open question.

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