Who governs?

Tim Worstall sometimes gets sloppy when he wants to score points.

No individual runs the economy. No individual can. No bureaucracy, no centralized point can run the economy. The best we can hope for is that a Chancellor doesn’t screw it up.

Whoever is Chancellor makes decisions that have a huge impact on the economy. Some of them good (eg the change in monetary policy in 1997) some of them bad (eg the Lawson Budget of 1988). 

Saying that the Chancellor does not "run" the economy because "no centralized point can" is like saying that Sven Goran Eriksson does not "run" the England football team because he cannot control every pass, tackle and shot.

We want more than a Chancellor that does not screw it up.  Good economic policy-makers also make decisions to improve the functioning of the market economy.  We need a Chancellor who adjusts taxation in the light of new evidence (such as raising tax on environmental taxes), and who responds to problems that would persist without action (eg raising benefits to lift children out of poverty).

Of course, knowing when not to do anything is an important talent too.

15 comments on “Who governs?”

  1. Do you think that you might be accused of the same crime, Owen?For example, 

    We need a Chancellor … who responds to problems that would persist without action

    do you mean that, or do you really mean government action? i’m not sure you acknowledge that lack of government involvement is not the same as lack of action.

  2. But letting market forces operate, or letting cultural institutions to flow is not "doing nothing". I’m objecting to your classification of government involvement as "action" and government uninvolvement as "to do nothing".

    Owen replies:  Whatever. I don’t think it is relevant to the argument.

  3. I thought the argument is "who governs?" You’re implicitly assuming that only government can govern, and that therefore the voluntary sectors efforts at alleviating things like child poverty is "doing nothing". Therefore your argument isn’t based on observable reality (and the effect policy has on the economy) but on prior assumptions.

    You’re accusing Tim of sloppiness, but there is a difference between running something and having an effect. You’re complaining that he’s taken the conclusion too far, but your own analysis is tied up in your assumptions , and (I think) equally sloppy.It perpetuates the myth that absent of government policy there would be no solutions to problems. Regardless of whether there’d be sufficient solutions, it’s wrong to paint government as the only possible hope.  I think that on a debate about government responsibilities, your argument would be stronger if you treated government intervention as one of many mechanisms that can produce social change. It shouldn’t be the definition of action.

    Owen replies: I am assuming nothing of the kind.  There are some problems for which government intervention is a solution, possibly the best solution.  That does not mean that government is the only solution to all problems, and I never said, or implied, anything of the kind.

  4. Using "action" and "government action" interchangeably does imply that they’re the same thing. That’s all i’m saying – you’re being sloppy

  5. There are some problems for which government intervention is a solution, possibly the best solution. "  Yes, but they are usually problems caused earlier by government action, aren’t they?

    Owen replies: Lots are not.  Reducing negative externalities (eg environmental damage), providing public goods (eg contract enforcement) and redistributing income (which I am in favour of) are all types of activity that would be needed if there was no previous government action.

  6. Owen, would you agree that some functions of government are consistant with classical liberalism (state as referee) such as internalizing externalities and providing contract enforcement. Other functions of government are inconsistant with classical liberalism (and treat the state as player) such as taxes and subsidies designed to benefit specific interest groups?The former are not interventions in a market economy – they’re the foundations of a market economy. But the latter are.By claiming that environemental damage and contract enforcement are "government interventions" is  – if deliberate – a very dishonest thing to do, since it suggests that those people who argue against special interest politics are also arguing against government itself. It paints classical liberals as anarchists – which isn’t true.I think that redistribution of income is indeed a government intervention, but whilst the other two are "interventions" they’re not intervening in a market economy – they’re producing one. I was under the impression that you agreed with this distinction between types of government policy.Is that a fair comment?

  7. Anthony – no, that’s just a naiive piece of sophistry.  If you define all government interventions of which you approve as "foundations of a market economy" and all government interventions of which you disapprove as "government interventions", then by definition you reach the conclusion that all government interventions are bad.  But that is a conclusion with no content at all.  

    Reasonable people disagree about what interventions are needed for the market economy to function, and what are merely "special interest politics".  Furthermore, even if there is agreement that an intervention is needed – for example, to prevent environmental degradation – reasonable people disagree about the extent and nature of those interventions.  You cannot define that substantive discussion away.

  8. Owen – you’re causality is the wrong way around. I don’t look at the world and and define good things as "foundations of a market economy" and bad things as "government intervention". On the contrary, I make a distinction between two types of government activity: that which creates the institutions necessary for a market economy to operate, and that which seeks to alter the outcomes of a competitive market process. I then apply it to the real world. In your examples above you mixed both types of activity as "government intervention". This implies that one can only be an anarchist, or is forced to admit that all government activity is potentially beneficial and on the table. Indeed reasonable people do disagree about the finer points, but show me someone who’s read and understands economists who study the market process that would disagree with what i’ve said.All i’m saying is that there’s a distinction between types of government activity (which I believe you agree with), and it’s wrong for you to label them all as "government intervention".  You should use the term "government activity" because by "intervention" you imply that it’s intervening with a market economy, and this is a dishonest rhetorical trick.

  9. AJE- As a non economist  I get a headache trying to work through the difference between government activity and government intervention. Which ever way you cut it surely amounts to the same thing. If government, rightly in my view, wishes to prevent the creation of monopolies then whether you call that "action" or "intervention" the result on a competitive market is the same. The argument ought to be  the extent to which the government "acts".

  10. Tony, thanks for the comment.

    If government, rightly in my view, wishes to prevent the creation of
    monopolies then whether you call that "action" or "intervention" the
    result on a competitive market is the same.

    I disagree – There’s different ways to prevent the creation of monopolies, and i think a distinction between "action" and "intervention" is helpful in deciding which is most suitable. If a state is doing it’s proper job of "creating the institutions necessary for a market economy to operate" then it will ensure that competing firms are free to enter the market in question. I think that this is fundamentally different for it to "seek to alter the outcomes of a competitive market process" and order one firm to break up into different parts, fine it, or subsidise potential competitors. The former is consistant with a market economy, the latter is intervening in one.The best way I think we can distinguish between these two seperate features of government (one of which a classical liberal would support, the other they wouldn’t) is to be clear about terminology. As Owen appears to accept, I think most economists’ understand that such a distinction exists, despite disagreement about the finer details.   

  11. Anthony- I may be as thick as a whale omlette, but you seem to be accepting the result of government whateveryoucallit is the same yet it is the teminology makes the difference?I fear we’re into Schroedinger’s cats!  

  12. Reducing barriers to entry will have vastly different consequences than ordering a firm to break up, fineing it, subsidising other firms etc…  sorry not to be clearer but i’m saying that the effects are very different, and therefore we shouldn’t call them the same thing

    Owen replies:  Anthony: There is no clear distinction of the kind you propose.   Governments can and should do a number of things to promote competition.  Reducing barriers to entry – for example, by requiring BT to allow ISPs to connect IP switches in the local exchange – is not very different from breaking up a firm – for example, by requiring BT to spin off its broadband wholesale arm.  They have similar purpose, similar effects, and similar risks.

  13. if such a distinction doesn’t exist then either all government activity is consistant with a competitive market economy, or none of it is. I’m taking the moderate/semsible position of saying some is, and some isn’t.Where do you stand? 

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Owen Barder

Owen is Senior Fellow and Director for Europe at the Center for Global Development and a Visiting Professor in Practice at the London School of Economics. Owen was a civil servant for a quarter of a century, working in Number 10, the Treasury and the Department for International Development. Owen hosts the Development Drums podcast, and is the author Running for Fitness, the book and website. Owen is on Twitter and