June 03, 2013
Actually he made the claim about the government, telling readers:
“Since World War II, American government has assumed more responsibilities than can reasonably be met. Some are unattainable; others are in conflict. Government is, among other things, supposed to: control the business cycle, combat poverty, cleanse the environment, provide health care, protect the elderly, subsidize college students, aid states and localities. There are more. Most are essentially postwar commitments. As I’ve written before, government becomes almost “suicidal” by pervasively generating unrealistic expectations. The more people depend on it, the more they may be disappointed by it.”
It’s not clear which items on this list are unattainable — cleanse the environment, protect the elderly, aid state and local governments — we’ve done all of these things with a fair amount of success over the last five decades. Other countries provide health care and have done a much better job of combating poverty and supporting colleges students. Samuelson doesn’t present any evidence that people in the United States are less competent than people in Germany, Netherlands, or the Nordic countries. Why should we think we can’t follow their examples?
As far as controlling the business cycle, some of us have been (following Keynes) calling the shots pretty well in terms of the severity of the downturn from the collapse of the bubble, the difficulty of the recovery, and the impact of cuts in government spending. If Samuelson’t point is that Keynesians have been kept from controlling policy, he’s right, but that’s just saying that people who share his view of the economy may not be able to control the business cycle, but they have enough control of the political situation to keep Keynesians from setting policy.
In short, there is not much here. Samuelson has zero evidence that the government can’t carry through the responsibilities people have come to expect from it. Other governments do quite successfully. In fact, Samuelson’s whole framing of the issue is deceptive since we don’t have much choice about government involvement in many areas. What would health insurance look like without the government regulation? Would insurers pick up six figure annual bills for cancer victims if they need not fear the heavy hand of the state?
Just as Apple has been able to expand from being a computer manufacturer to being a cell phone company, and a provider of on-line music and books, there is no obvious reason that the government can’t take on additional responsibilities through time. The serious question is how best to set the role of government in various sectors, not to repeat a line, like something your parents told you, that “government is too big.”
One other point, Samuelson again expresses his admiration for Volcker’s use of a recession to attack inflation. He tells readers:
“The subduing of double-digit inflation triggered a 25-year economic boom. As important, it demonstrated that government could govern. Seemingly intractable problems (in 1980 runaway inflation was the country’s No. 1 problem) could be mastered. Optimism revived.”
There are two data points that make Volcker’s accomplishment look less impressive. Inflation fell everywhere in the world in the early 1980s, including in countries that did not have as severe a downturn as the United States. A major factor was the collapse of world oil prices, which presumably would have happened with or without Volcker’s recession, although the reduction in demand certainly hastened the fall.
The other data point is that the “25-year economic boom” was not quite as impressive as Samuelson might have us believe. Economies generally grow, the issue is the rate of growth. In the years from 1981 to 2007 growth averaged 3.1 percent a year. In the prior 25 years it averaged 3.5 percent. (I took 1981, the prior business cycle peak because it doesn’t make sense to measure growth from a trough which measures the severity of the downturn. That approach would make Volcker’s boom look better if he had engineered a more severe downturn.)
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