Tuesday, May 29, 2012

The Role of Government

David Brooks' column in today's NY Times discusses Hamilton's approach to government, arguing that it was a healthy one. I don't know enough about Hamilton, and presume that when people use a historical figure as a model, they often convert the historical figure into the image they want.  Even so, I think Brook's arguments are interesting.  He sees the problem as one in which government has over reached several times in the past, which has led to a more antigovernment approach by the current Republican Party, especially the Tea Party members in it. Instead of focusing on government as good or bad, Brooks argues for discussing what government can do, which I presume also means what government cannot do well.

I take the approach that people are people.  The people who go into government are not less self-interested than people who go into business. Constraints are needed on them.  In the economic sector, competition provides the needed constraints. In the government sector, compeition is also involved, but so is the structure of govenrment. Hence, the need for separation of powers and a reliance on federalism.  The end result for me is that the private sector does a lot of things well, but also needs basic support from the government in terms of property rights, rule of law, and so on. There remains things that government can contribute, with obvious ones like national defense.  For the rest, more discussion on the level of government that should be involved for a particular program would be helpful.  The federal government should not always be the first option.

My mentor, Harold Demsetz, wrote an article in which he argued for a comparative institutional approach. In situtaion where we recognize that the market system is not functioning as well as we would like, we should not automatically turn to government for a solution. We have to examine the actual solution government would provide (rather than some ideal solution), and determine which is better. I would add, we also need to look at what level of government would actually be providing the solution. In a world of information costs, asymmetric information, an uncertain future, and so on in the real world, the information problems and uncertainty apply to business and government personnel.

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