Thursday, December 11, 2008

We've far from used up all the positive NPV government investments

Hi again, with short term deadlines looming, I haven't posted in a while, but I have been actively commenting. I consider that like dinner discussion, so I do it a lot faster, with a lot less double checking and polishing. Anyway, I made one comment today that I think is worth posting (with some polishing).

I was noting that serious pure free market problems like externalities, etc, have long been established in economics (scientific academic, not self-proclaimed), and J. Thomas responded:
One view is that while markets do have their serious intractable problems, government is even worse. I have heard this attributed to the GMU school -- while free markets have insoluble problems which are pretty much guaranteed to lead to disaster, still every other alternative is even worse. So we might as well advocate unfettered free markets despite the evidence.
This get's into the "market failure versus government failure" issue, so how to respond? Certainly there's not time, the readers or mine, here and in most situations, to go into the mountain of theoretical and empirical evidence for a great increase in high NPV government investments (and there's tons of them). So what's a good way to explain this briefly?

I think what I came up with is good:
So it's best to have no government spending at all and thus no government at all? Obviously that would devastate national productivity and wealth, with no public police and military, no public schooling, vaccinations, sanitation, etc., etc.

There's a far better alternative to 100% pure free markets, a mixed economy with predominantly free markets, but a great deal of smart regulation and government investment. You greatly over-rate the problems of the government and under-rate the problems of the pure free market.

Let me put it this way:

The next time there's a bill to spend billions on basic scientific research into quantum computers, or basic scientific research related to solar, or on universal preschool, or decoding cancer genes and placing the results freely on the internet, so every scientist in the world can use them, rather than the tiny fraction who could if they were decoded by a private company and kept secret from competitors (you can't practically patent and widely sell this), the next time there's a bill for the government to spend billions on these things, will you oppose it, preferring that the billions instead go to tax cuts for the rich, so instead of the above things we get more and bigger yachts and mansions, and predominantly close to zero-sum-game prestige arms race goods?

If half the government investment money is flushed down the toilet (and nowhere near that fraction will be wasted relative to the waste of a typical private business -- in a Democratic administration that wants to do government well and believes in thinking and competence), the other half that's spent on these things will still provide massively greater growth and total societal utility over the long run.
For more on this, please see here.