Back in late November, I posted about a quotation that I have used in classroom lectures and put up on the bulletin board outside my office about the different roles that should be played by government and business. It\’s from from an October 1990 opinion column by Donald Kaul, who was a prominent opinion columnist, mainly with the Des Moines Register, from the 1970s through the 1990s. Kaul wrote:
We have come to rely upon capitalism for justice and the government for economic stimulation, precisely the opposite of what reason would suggest. Capitalism does not produce justice, any more than knife fights do. It produces winners and energy and growth. It is the job of government to channel that energy and growth into socially useful avenues, without stifling what it seeks to channel. That\’s the basic problem of our form of government: how to achieve a balance between economic vitality and justice. It is a problem that we increasingly ignore.
Russ Roberts, who runs the EconTalk portion of the ever-useful Library of Economics and Liberty website, talked with me about differentiating the roles of economics and government in a conversational ramble posted on that website earlier this week. (If you\’re not familiar with EconTalk, it\’s a series of one-hour podcasts that can be listened to online or downloaded with a wide variety of people: for example, the four podcasts posted in January were with Nobel laureate James Heckman, with an expert on the secondary market for collectible sneakers named Josh Luber, with Greg Ip of the Wall Street Journal about his new book Foolproof, and with economist Robert Frank who thinks a lot about economic puzzles in everyday life like \”why grooms typically rent tuxedos but the bride usually buys her gown, why bicycles can be more expensive to rent than cars, the effects of the price of corn on the price of pork, and why scammers who invoke Nigeria keep using the same old story.\”
Well, I guess when I look out there for concerns, for example, about health care or about fair wages or benefits for people, there are just a wide variety of things that–you think about companies where we are always sort of telling them to do these things. You know, we are telling them to, you know, provide job training. We tell the private sector, with the housing permits, to build a certain amount of affordable housing. And to build parking spaces, and to clean up the environment. And it\’s not that the instinct behind those things is necessarily completely wrong. As I was saying at the beginning: I think that there is a role for government regulation of different kinds. But I guess I am often put in mind of the stories about golden geese and eggs and what happens if you don\’t pay attention to your golden geese.
There is evidence out there, the last 10 or 15 years that the rate of startups in the U.S. economy has been steadily diminishing–not just since the Recession, but since the late 1990s. And that a smaller share of the workforce now works for smaller companies than used to, 10, 15, 20 years ago. I think that–I sometimes think to myself: If someone came along like the modern Henry Ford and had an idea for an enormous factory which would provide an enormous number of jobs to the working middle class, where could that modern Henry Ford build that factory? Would they even be able to build it? At least in any urban area in the United States? Or would they be swamped for 5 or 10 or 15 years in permits and regulations and zoning and traffic and on and on and on? And I think that we are in danger of looking at the private sector as that golden goose, that we can just tell it to do things. And what we really want companies to do, we really want them to engage in that capitalistic knife fight. We really want them to focus their energy on: how do you make things, and things better? We really want them to compete with each. We don\’t want them to compete on the basis of who can survive the ordeal of getting a zoning permit. And so–I think we are in some danger of making it much harder for both small companies to get started and also for the companies that we tend to glamorize–you know, the old big auto companies, the companies that had huge numbers of middle class jobs–we\’ve made it very difficult for a company like that to keep functioning, if one did come along and was trying to grow. …
It has to come from someplace
[Y]ou are reminding me a little bit of a conversation I had with an old friend of mine a few years back, a non-economist. We were talking about the minimum wage and I was trying to explain sort of an economic viewpoint of the minimum wage–in a nonpartisan kind of way. So what I was sort of saying was, \’Look, minimum wage, the extra money for that minimum wage, it has to come from someplace. And maybe it comes from hiring fewer workers or maybe it comes from more productivity or maybe it comes from cutting certain job perks or it comes from higher prices to consumers or it comes from lower wages–but it comes from some place. And so, without specifying the place, you have to understand where it comes from. And you have to think about that tradeoff.\’ And my friend looked at me for a long slow moment and said, \’You know, I really don\’t like to think of the world that way.\’ … And I thought to myself, \’That\’s just a perfect answer.\’ Because it was an honest answer and it was an accurate answer. But that sense of:\’ I just don\’t like to think of the world that way\’ seems to me the sort of thing you are talking about. And I guess–we\’re both trained as economists and so we\’re both almost forced by our way of thinking to think about the world in that kind of a way.
[T]here\’s this movie, I don\’t know, maybe 20 years ago now, called Dave. I don\’t know if you remember. It was back in the 1990s. It had Kevin Kline, who I really like. … And at the tail end of the movie–so the movie is kind of doofus ordinary guy ends up as President; comedy results. And then at the very end of the movie he has his big breakthrough, leadership breakthrough; and his leadership breakthrough was he would just pass a law and guarantee everyone a job so there would no longer be any unemployment. … And I remember thinking to myself: Yeah, you know, you don\’t think this has ever occurred to anybody before? It didn\’t occur to anybody in Sweden or Japan or Germany? No other countries figured out: Oh, yeah, if we just passed that law–you just sort of think–I think a lot of people think that way: Why don\’t we just get rid of unemployment and give everybody a job? And of course if you think about the tradeoffs, you think to yourself: Do you have to take the job they offer you? Do you have to take the pay they offer you? Can they make you move? How do private sector employers react to these jobs? What would the cost be of it? Can you fire people? It\’s on and on and on. But as my friend said: \’I just don\’t like to think about it that way.\’ So I think that\’s really an important thing to think about.