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Thursday, February 24, 2005

Populist Economics

Ezra Klein has a post up in which he argues that new entitlement programs would promote entrepreneurship and economic growth:

On risk, I've been slapping this donkey for awhile, and have only grown more convinced that it's the right move to make. The role of the government should be to grease the market and reduce risk to the worker. Universal Health Care, Social Security, universal day care -- all this needs to be implemented so workers aren't tied down to a particular job and stuck in a situation that doesn't fully utilize their abilities. Further, if the government takes responsibility for security, Americans have the freedom to be entrepreneurs. Anyone want to argue the good of entrepreneurship? Thought not.
There is a degree of validity to this argument. I am willing to entertain the notion that some of our wealth transferring programs provide a net gain to the economy. Certainly, reduction of risk is something that can promote risk taking and therefore economic growth. That being said, Ezra fails to make that case here. First off is the simple fact that the money has to come from somewhere. Any money spent on Universal Health Care, or universal day care is money that isn't being spent somewhere else. Unless you can prove that economic growth from the entitlement is greater than what you would get if that money was spent in the ways people would otherwise choose to spend it, you havn't even begun to address this issue. Now, I suppose you could argue that the money is being spent on these activities in any event so the net cost would be zero. This would require a basic premise that government is at least as efficient in allocating resources as the private sector is. Something I find laughable, but perhaps someone could prove me wrong. I expect that there would be a net economic loss due to the implementation of these programs, partially because I am convinced that government is less efficient than the private sector. Even more significant is this basic fact: any such schemes would be based upon a transfer of wealth from rich to poor. This would of course entail taking resources from people who have proven themselves to be successful entreprenuers and giving it to those who are, at best, unproven. This doesn't seem like a smart business practice to me. Moral cases for the programs can be made, arguing that the cost is worth it, but I don't think that a very good economic case can be made. Update: Matt Singer has posted on this and offered some criticisms of my ideas. He hasn't convinced me, but I believe that all arguments should be heard.

5 Comments:

Blogger honestpartisan said...

I'll start with this. If you know that you have a basic degree of economic dignity because of Social Security, wouldn't you be more willing to take (investment) risks than if you thought that all you had to live on in retirement was your investments? If it was the latter, could you fault someone for putting their fortune into Treasury bills? Doesn't it help economic growth if you have more encouragement to invest in something not so safe?

2/24/2005 03:49:00 PM  
Blogger Dave Justus said...

Sure it would help.

If I was gauranteed my present income I would certainly quit my job and probably decide to be a 'professional blogger'.

Doesn't mean that my blogging contributions would produce as much benefit to society as what I am currently getting, but hey, I get the same anyway right? No risk.

Further, as I pointed out, the money for this sort of thing has to come from somewhere. If the cost of my entitlements comes from a Venture Capitilist who otherwise would have been able to fund the 'next big thing' then the I will be hard pressed, no matter how willing I am to take risks, to equal that contribution.

2/24/2005 04:36:00 PM  
Blogger The probligo said...

"First off is the simple fact that the money has to come from somewhere. Any money spent on Universal Health Care, or universal day care is money that isn't being spent somewhere else. "

Heh, try telling that to a politician.

I can recall a very well known left wing politician in Auckland (he has just been appointed Ambassador to London after some 30 years in Parliament) telling an election rally that "it is not the concern of the taxpayer where the money is coming from."

I suggest that for an example of the politician's idea of budgetting, look to the internal fiscal deficit of the US.

2/25/2005 01:25:00 AM  
Blogger Cubicle said...

Of course the same situtaion already exists.


If you want to take risks with you life you can.

you can take out a loan, get a college degree.

I have a hard time why the goverment has to take on the risk.

Why should be goverment act as an insurance policy for every single possible contingency in my life.

2/25/2005 07:06:00 AM  
Blogger Dave Justus said...

One of the problems with a safety net is that it is very easy for it to become a hammock.

Probligo: That is a key problem. However, deficit spending (while not something I like) is less of a problem in and off itself than total spending.

It doesn't matter so much how you finance your spending (deficits or taxes) as it does that you don't spend more than your means. Obviously, deficit spending makes it attractive to spend more than you can afford too, but the core problem is spending too much.

2/25/2005 01:41:00 PM  

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