From the website, Nanocivics (August 28, 2012):
Would you make economic policy with this man?
Photo Credit: Chris Lake
The theme of the solutions section of your book is utilizing market structures to regulate entities in the market. Which of your ideas do you think is most likely to be adopted? Why?
To be honest I think that none of my solutions is very likely to be adopted in the very near future. For a solution to be adopted, there must be a powerful group lobbying for it. A group will lobby only if it receives a disproportionate benefit. So in the current political dynamic only biased proposals, which greatly favor a group at the expense of everybody else, are likely to be endorsed and adopted. My proposals are balanced and fair. So it takes a change in the way politics is done for my proposals to have a chance. That is exactly the reason why I wrote the book, to create the awareness that the way politics is done should be changed.
Why ban subsidies and what’s the alternative?
There is a perverse political dynamic in subsidies. The beneficiaries have great incentives to lobbying for them, hiring the most talented advocates to convince Congress and the public at large of the social benefits of these subsidies. The taxpayers are dispersed and disorganized and have no interest or resources to fight back in this battle, so they tend to lose all the time. Yet, whatever social benefit can be obtained with subsidies, can also be obtained with taxes on competing goods: a subsidy to corn syrup has similar effects on a tax on sugar. Targeted taxes, however, are very unappealing: they have the opposite political dynamic. The payers are very concentrated and powerful and the beneficiaries (the taxpayers) dispersed and powerless. That is the reason why I want to restrict government intervention to take the form of taxes rather than subsidies: it will occur less often and only when the social benefits are very large.
One criticism of your work would seem to be that if we don’t prop up our home grown businesses, then government supported entities around the world will out-compete ours. If other countries support their automobile manufacturers, why shouldn’t we?
It is a very dangerous argument many businesspeople use to justify their request for protection and subsidies. First, if other countries really resort to subsidies that alter competition we have a way to respond. The WTO agreements allow a country to introduce tariffs in response to “unfair” competitive practices, but the unfairness is to be assessed by international judges, it is not enough that is claimed by the local industry. Second, if taxpayers in other countries are subsidizing the products we buy, should we worry so much?
You conclude with a chapter on the difference between being pro-market and being pro-business and hold some hope that academics can push us in that direction. Is there a country that’s mastered this? Did their academic sector take a leadership role?
No country is perfect. European economists, who work in State-financed universities, tend to be pro-government intervention, not pro market. By contrast, American economists, who are more pro-market, tend to be too cozy with the interest of business. Yet, the more intense competition present in American academia fosters a healthy debate that favors pro-market solutions. Competition works the best when there is a level playing field. Public disclosure of economic data, including the regulatory decisions, is the best way to create this level playing field.
It’s a fun and highly recommended read, here’s the book: A Capitalism For The People
Born in Italy, University of Chicago economist Luigi Zingales witnessed firsthand the consequences of high inflation and unemployment—paired with rampant nepotism and cronyism—on a country’s economy. This experience profoundly shaped his professional interests, and in 1988 he arrived in the United States, armed with a political passion and the belief that economists should not merely interpret the world, but should change it for the better.
In A Capitalism for the People, Zingales makes a forceful, philosophical, and at times personal argument that the roots of American capitalism are dying, and that the result is a drift toward the more corrupt systems found throughout Europe and much of the rest of the world. American capitalism, according to Zingales, grew in a unique incubator that provided it with a distinct flavor of competitiveness, a meritocratic nature that fostered trust in markets and a faith in mobility. Lately, however, that trust has been eroded by a betrayal of our pro-business elites, whose lobbying has come to dictate the market rather than be subject to it, and this betrayal has taken place with the complicity of our intellectual class.
No comments:
Post a Comment