In (qualified) defense of the state

Updated: Found the link! http://www.youtube.com/watch?v=79ZosnxGKgk

This is the first of a series of articles I plan on writing to refine, for myself, what my political and economic philosophy is.

I was on Youtube recently (hell, I’m on there a lot), and an interesting ad caught my attention. I actually sat through the entire 2:30 spot, which is a credit to the designers of the ad. At some point I figured out that it was a Libertarian advertisement, and indeed, it was for the Liberty Institute. Cleverly, they combine an authoritative speaker (unfortunately reading the text from somewhere slightly offset from the camera) and cartoons. It’s worth a look. But it inspired this post because I think it ultimately provides a one-sided view of top-down regulation.

But here’s the premise. The speaker is stating that he knows how to get a free suit – he’ll charge a suit from Macy’s, and then tear up the bill when it arrives. However, it means he can’t get another suit from Macy’s. But then he’ll go to JCPenney and charge a suit there. He then goes on to say that Macy’s and JCPenney share information about fraud, even though they’re competitors. That’s because they determined that its in their best interests to cooperate, and they did this without government intervention. Therefore, it seems that a lot of things are handled by the market/individual firms, suggesting that government regulation is unnecessary to achieve good results.

This can be true in a lot of areas. However, let me use a counterexample. Let’s say you need to buy food for the week. While food suppliers in America are ostensibly in competition with each other, they recognize that it’s in their own best interest to avoid a price war. Therefore, they’ll cooperate (technically, collude) to ensure a price that is significantly above the cost of production – which is what they would get in a completely free market. Because the demand for food is inelastic (in other words, we need to eat to survive, and will pay whatever it takes to eat), price increases are born mostly by the consumer, and not the producer. Consequently, because of self-interest, you have higher food prices, and possibly societal starvation and unrest. Remember, an increase in food prices was perhaps the real driving factor behind the Arab Spring.

Similar arguments lead to conclusions about the necessity of countercyclical fiscal policy and some areas of R&D. Basically, any case where what is individually rational leads to results that are bad for everyone suggests a collective action problem, and therefore a role for government. (Salient example: if everyone saves a lot, then the economy contracts, which leads to layoffs, which in turn leads to more saving out of fear, which leads to more lost jobs...)

My general point is not to defend state regulation, or, heaven forbid, corporativism. It’s to state that the pure libertarian case just doesn’t hold water. Neither does the pure corporativist argument - that the state should have control of all aspects of life. (Mussolini, Hitler, Stalin, etc.) So let's ditch the extreme arguments - they lend clarity of purpose and energy, but are pretty immature ways of going about actually organizing ourselves.

What’s more productive is to argue about specific areas, and to be data driven. History shows that deregulation of utilities lead to higher prices for consumers. Also, a lot of promised efficiencies and cost savings for consumers for large mergers never materialize. There is a role for the maligned state, and in fact, we should be trying to rehabilitate the attitudes toward public service and civil servants. 

By all means keep them honest. But let’s not delude ourselves into thinking the state is the dragon that needs to be slayed. The state is our guard dog. Improperly trained and guided, will turn on us. But with proper training and guidance, it will keep the thieves from breaking in.