Markets fail. Use government.
This is the underlying belief held by those who think it’s a good idea to expand the role of government to fix problems.
Arnold Kling gets credit for this simple counter:
Markets fail. Use markets.
Kling calls this Masonomics, after the classical/libertarian economics department of George Mason University. As Kling explains:
Masonomics worries much more about government failure than market failure. Governments do not face competitive pressure. They are immune from the “creative destruction” of entrepreneurial innovation. In the market, ineffective firms go out of business. In government, ineffective programs develop powerful constituent groups with a stake in their perpetuation.
In the Wall Street Journal this week, David Malpass wrote about why we should pay some heed to Masonomics as grasshopper governments are looking for ants to bail them out, so they can keep acting like grasshoppers:
Across Europe and the United States, the fiscal crisis is setting up an epic battle among government services, pensioners, government employees, creditors and taxpayers. There is simply not enough money coming in to pay all the promises politicians have made. The shortfalls and fights are challenging our democracies and shifting wealth from the private sector to ever bigger government.
The hope has been that Europe’s debt crisis would force government downsizing in time to meet cash flow requirements. Newfound fiscal discipline would provide a silver lining to the debt crisis. But that’s not working out.
Germany’s insistence on centralized fiscal discipline for the euro zone will lead to a massive expansion of bureaucracies in Brussels, Frankfurt and Berlin. They’ll include temporary and permanent bailout funds, dangerously intrusive powers for the International Monetary Fund and the European Central Bank, endless summits, new taxes on property, and recessions.
With Europe’s government structures assured of getting even bigger, the U.K. reacted immediately by opting out. U.S. lawmakers are already objecting to the European plan to expand the IMF. As in Greece, IMF programs are antigrowth, imposing austerity on the private economy, not the government. Greece has raised value-added and property taxes, then projected revenue increases that never materialize in order to keep payments flowing to creditors and the government’s entourage.
Governments on both sides of the Atlantic are trying to use the crisis to grow rather than shrink. News of Europe’s fiscal incompetence abounds, but Washington had no budget at all in 2010 or 2011 and the federal deficit grew at record pace. President Obama sailed through 2011 without any significant spending cuts or government downsizing.
It’s a shame that the U.S. government has been turned into a grasshopper government. My Grandpa used to express his concern for the future:
If these kids are going to be our next leaders, we’re in trouble.