Tuesday, January 31, 2012

A Healthy Economy

     The ideas presented here are excerpted from the book, “The Price Of Civilization” by Jeffrey D. Sachs. I highly recommend reading the entire book.

      Not surprisingly, President Obama's recent State of the Union Address was his opening shot across the bow of the presidential campaign, but if examined from a high enough level of abstraction, it spelled out the requirements of a healthy economic system. I hate to think the whole thing was just campaign rhetoric, but based on his past performance I am inclined to take a “wait and see” attitude concerning progress in that direction.
     Generally speaking, there are three major attributes of such a system: efficiency, fairness and sustainability.

     Efficiency:

     Ronald Reagan was partly right – too much government control of the economy causes problems, but he was also partly wrong – uncontrolled free markets also lead to trouble.
     The relationship between government and free markets is not one of opposition – it should be complementary. If both limit themselves to performing those jobs they are best equipped to handle, overall efficiency is promoted. Where there are many customers and many suppliers for products, the free markets, by means of Adam Smith's “invisible hand,” will weed out the inefficient and reward the efficient. At the same time the customers will receive the benefit of lower prices through competition.
     But the free market model breaks down in other situations, e.g., take the case in which a single product or service is required for many customers. Society does not need competing armies, courts and legal systems, police forces, power grids or highways. These are tailor-made for government control.
     While free market entrepreneurs provide financing for “applied” research, “basic” research is a function best performed by the government. The United States will be competing with China and others in technologies that may presently be on the drawing board, and the free market does not normally invest in such areas. In addition, some are so expensive, e.g., space technology and nuclear physics, that no private enterprise could afford to finance them.
     As long as the major incentive for the market is the bottom line, certain aspects will require some oversight. Such things as toxic waste disposition and the emission of climate-changing fumes, e.g. carbon dioxide, must be controlled, and the free market cannot be expected to police itself.
     Lastly, sellers often have information that is not available to buyers, which is a recipe for fraud and waste. Doctors can run unnecessary tests to increase fees, and wall street financiers can sell “toxic” assets to unsuspecting investors. For these and other reasons, government and free markets need to perform functions which they are best equipped to perform.

      Fairness:

      Of course, one aspect of fairness is in the way the government treats its citizens, including levying taxes, awarding contracts, distributing transfers, etc. Fairness requires that the rule of law treats all citizens fairly; money should not buy justice.
     Fairness also refers to the distribution of income and well-being within the general population. According to a recent poll by the Pew Research Center of the People and the Press, 63 percent of Americans agree with the statement, “It is the responsibility of government to take care of people who can't take care of themselves.” It is unfair that some people are super-rich while others are homeless and children are starving.
     This is not to say that assets should be confiscated from the rich and given to the poor, a la Robin Hood. Whether by taxation or other means, such transfers need to be made under due process. But with our resources, no one in the United States should be homeless, and no child should go to bed hungry.

      Sustainability:

      Sustainability requires that resources should be available not only for the current generation, but for generations to come. Society should not rape the earth to the detriment of our descendants' well-being; it should not foul their air with poisonous gases, nor their waterways with toxic chemicals. Sustainability requires stewardship. It is the product of a healthy society – a society which cares about the future inhabitants of planet Earth.
     Can we create such a society? Only if we can break the cycle of sending money to Washington in exchange for power, and using the power to send money back to those who already have plenty.
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     My books, “There Are Only Seven Jokes” and “The Spirit Runs Through It” are available in paperback, or at the Kindle Store.

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