Thursday, February 08, 2007

The New Deal Revisited

According to Arnold Kling:

The New Deal gave the American people new faith in large, powerful central government. However, the results of the New Deal did not justify that faith in the 1930s, nor do the results of the welfare state justify such faith today.
Obviously I know nothing of the context of that time, but the premise that government can spend its way out of unemployment or structural economic issues seems to be somewhat erroneous (and has been repeatedly proven many times over since the Great Depression). Of course if you believe this then you also have to believe that the New Deal prolonged and/or worsened the Great Depression instead of its original intentions. But isn't that nearly always the case with top down government solutions?


Brett said...

I agree that Keynesianism has been proven to fail in that the "multiplier effect" Keynes spoke of has never really worked. However, how can the electricity system or urban planning function without some degree of planning and management on the part of government?

Clement Wan said...

The problem with government is not that it exists - in fact, that libertarians have this affinity for anarchy is far from true.

Over time technology has been overcoming problems of needing enough capital to provide such things as electricity. It used to be that public utilities had a good argument that regulated monopolies were necessary to justify the scale of investments and yet this is no longer the case with such companies like AES thriving. Going ahead further, decentralized power like fuel cells and solar hold promise that electricity can be generated locally.

Now in the case of the actual distribution of electricity, I think that's a trickier problem but I think you'll agree that the incentives do and have existed to ensure that the infrastructure investments are made - though they are currently done largely on a public level. When I worked in New York City, it seemed like the roads were always being dug up by whatever new telecom company trying to put in their own fibrenetworks. In a similar way it's possible for electricity - is it feasible? I'll be honest in saying I don't know. The same goes with roads, etc.

I do believe though that government has the responsibility to enforce the social contract we collectively develop in the form of property laws and the like. Where government's role ends and the role of the individual liberty begins is not a clear one but when in doubt, the government should defer to personal responsibility. The alternative is to develop incentives that often are unanticipated (e.g. urban sprawl is arguably the direct outcome of free public highways; Canadians have some of the cheapest electricity rates in the world, so is it a surprise that we also use the most electricity?).