Tag Archives: rigidity

A Fair And Balanced Economy

I have seen a fair number of articles recently suggesting that–if elected–Biden should pattern his economic approach on that of FDR.

Historians tell us that FDR was no ideologue; to the contrary, he was pragmatic. When he assumed office, he was faced with an economic situation for which there were no obvious remedies, and as David Brooks recently reminded us,

New Dealers were willing to try anything that met the specific emergencies of the moment. There was a strong anti-ideological bias in the administration and a wanton willingness to experiment. For example, Roosevelt’s first instinct was to cut government spending in order to reduce the deficit, until he flipped, realizing that it wouldn’t work in a depression.

“I really do not know what the basic principle of the New Deal is,” one of his top advisers admitted. That pragmatism reassured the American people, who didn’t want a revolution; they wanted a recovery.

One of the things about Joe Biden that I personally find reassuring is precisely that lack of rigid ideology, and what I perceive as a willingness to respond to the challenges of the moment. Sometimes, a proper response will be ambitious, sometimes cautious.

It depends.

There are two very different approaches to economic policy displayed in the comments readers post to this blog. There are those who have a favored economic system that they insist is “the” answer to every problem, and there are those who– recognizing the ambiguities and complexities of economic life– have come to terms with the fact that neither capitalism nor socialism is a one-size-fits-all answer to what ails us. Both systems are subject to distortion and capture, and both are destructive when they operate in economic areas for which they are unsuited.

Every successful economy currently operating is a mixed economy. That includes Scandanavia, which on several measures has a more robust free market than the U.S. According to research from the World Happiness Report

What exactly makes Nordic citizens so exceptionally satisfied with their lives? This is the question that this chapter aims to answer. Through reviewing the existing studies, theories, and data behind the World Happiness Report, we find that the most prominent explanations include factors related to the quality of institutions, such as reliable and extensive welfare benefits, low corruption, and well-functioning democracy and state institutions. Furthermore, Nordic citizens experience a high sense of autonomy and freedom, as well as high levels of social trust towards each other, which play an important role in determining life satisfaction. On the other hand, we show that a few popular explanations for Nordic happiness such as the small population and homogeneity of the Nordic countries, and a few counterarguments against Nordic happiness such as the cold weather and the suicide rates, actually don’t seem to have much to do with Nordic happiness.

The benefits of a comprehensive welfare state–the “socialism” element–are well documented. A reliable “floor” gives citizens a basic sense of security that research tells us mitigates crime and conflict, among other things. Taxes are high (although not as much higher than ours as Americans think), but citizens get real value for that money–they save what Americans must pay for education and health care, for example.

As economists will confirm, other than their generous welfare states, the Nordic countries are mostly free market economies–in fact, they rank high on several indexes of economic freedom. Businesses are not run by the state, nor are their employment practices dictated by the government. (That isn’t to say that there isn’t reasonable regulation of Scandanavian markets–the sort of reasonable regulation that America has largely abandoned.)

The bottom line is that any successful economy must be a mixture of appropriately-regulated capitalism and judiciously socialized public goods.

As I have noted many times, in order to operate properly, a market requires a willing buyer and willing seller, both of whom can access all information relevant to the transaction. We “socialize” police and fire protection and infrastructure provision, among other things, because that description doesn’t fit those services. (It doesn’t fit medical care, either.)  It does fit the production and purchase of consumer goods.

The challenge facing Joe Biden (and hopefully, a Democratic House and Senate) in the wake of the Trump administration’s destruction of both the economy and social trust, is to strengthen the social safety net and return a level playing field to a market that has been corrupted by crony capitalism.

That’s harder and more complicated than one-size-fits-all economic ideology. But properly implemented, it works.