Monday, June 14, 2010

Big Government Doesn't Work

The great delusion of our modern age is that politicians and bureaucrats can run an economy just like the village Big Man in a remote village in New Guinea.

Earth to liberals: they can't. That's why President Obama, True Believer in politics and bureaucratic administration, is making such a poor fist of the presidency.

Today we have a couple of readings in big government folly. First of all, David Warren:

We learned a simple thing this week: that the BP clean-up effort in the Gulf of Mexico is hampered by the Jones Act. This is a piece of 1920s protectionist legislation, that requires all vessels working in U.S. waters to be American-built, and American-crewed. So while, for instance, the U.S. Coast Guard can accept such help as three kilometres of containment boom from Canada, they can't accept, and therefore don't ask for, the assistance of high-tech European vessels specifically designed for the task in hand.

Oh really. Who would have thought that the dear old Jones Act would still be doing its damage. (By the way, Obamis, here's a chance to blame Republicans. The Jones Act was passed in 1920 by a Republican Congress--and a Democratic president.)

Then there's Gerald P. O'Driscoll in the Wall Street Journal on the failure of regulation in the Gulf:

By all accounts, MMS operated as a rubber stamp for BP. It is a striking example of regulatory capture: Agencies tasked with protecting the public interest come to identify with the regulated industry and protect its interests against that of the public.

Of course it did. If BP followed all the rules to the letter it would never be able to drill a well.

Let's turn to the financial meltdown:

Boston University Professor Laurence Kotlikoff counts over 115 regulatory agencies for financial services. If more hands in the pot helped, financial services would be in fine shape.

Who knew? 115 financial regulatory agencies, and still we got a meltdown.

Then O'Driscoll hauls out Hayek. Friedrich Hayek, you'll remember, was the chap who identified the Knowledge Problem. To run a central-planning economy, he argued, the planner must know everything out there in the economy, so he can make decisions that usually would be made on the spot by local actors with local knowledge.

Of course, that is impossible. No planning manager, no central planning agency can possibly know enough to run an economy. The result, on a nationwide level, is the Soviet Union. On a tin-pot dictator level, the result is Venezuela, where thousands of containers of food have been discovered rotting in Venezuela's ports. Venezuela has a government food distribution and retail system.

On an industry-wide level, writes O'Driscoll:

Regulatory practice represents islands of central planning in otherwise decentralized market economies.

And the result is failure, just like at the national level. And that is why we are reading over the weekend that we won't be able to keep our health insurance as President Obama promised. Over 50 percent of health insurance plans won't meet regulatory requirements.

"Regulatory capture" is just a theory. The "knowledge problem" is just a theory. If you don't believe the theories then you have to wait for experience to confirm or deny the theory.

Conservatives maintain that these theories have already been amply proved by experience, again and again. But our liberal friends don't seem to agree.

It looks like only one thing will persuade our liberal friends of the validity of these theories: to be out of political power for a generation.

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