In Economic Policy, First Do No Harm

The response of today's politicians to the financial crisis is a kind
of activist government policy that depends on a spend-our-way-to-
prosperity approach crisis and appears consistent with Keynesian
economics. It is an approach that is supported by both the Democrats
and Republicans. President Bush has pushed for huge government
programs and spending of all kinds, and now in response to the
economic crisis the current spending by government will be the
largest in history. In spite of its staggering size, it has amazingly
widespread support.

The total spending the government has obligated is $7.8 trillion. So
far it has spent $1.4 trillion and has guaranteed about $8 trillion
in investments, loans, and deposits. To put this economic stimulus
program in perspective, it is easily larger than all the following
programs, that is, the combined total of all these
programs:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3
billion

• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost:
$217 billion

• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost:
$237 billion

• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion

• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion

• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost:
$500 billion (Est)

• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion

• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion

• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

This kind of thinking has parallels with the thinking of the 1930's
and 40's. What is interesting is that historically, the theoretic
basis for the general theory and policy of the 1930's and 40's was
discredited mostly by Milton Friedman but other free market
economists as well. They effectively destroyed the empirical and
theoretic basis of Keynesian economics, and supposedly put it to
rest. It was a consumer side type of economics that was hostile to
business, and many economists who have since analyzed FDR's big-
spending and regulating New Deal policies give evidence the New Deal
policies actually prevented economic recovery until after the war
when many of the policies were reversed.

On the other hand, Kennedy and Reagan used "supply side" economics
and applied across-the-board supply-side tax-rate reductions to get
America moving again. These pro business policies emphasized the role
of producers, not consumes, for increasing wealth production.
Increasing production and not increasing consumption produces
prosperity. Now it is hard to suggest that massive bailouts of
business reflects a hostile attitude toward business. However, it is
the activist role of government in managing the economy that the
current approach shares with Keynesian economics. But the basic
reality is that there is no clear evidence in history from any nation
that massive government spending or management helped an economy
recover or prosper. So why exactly does activist government and
Keynesian economic thinking keep arising?

The answer may lie in the more general and controlling framework of
people's ideas of how to explain and produce human progress; it may
be a kind of ideological framework or paradigm that lies beneath
their choice of position on many specific policy issues. It may be
that people don't begin with fact or theory by which to choose a
policy but they can only begin from within their existing framework
of how human society works. It may be this more or less subconsious
which guides their "choice" of facts and theories which they think
reflect the truth as they see it. So the two types of thinking, pro-
government or pro-freedom may represent a deeper framework of
thought, and quite clearly most of our political leadership believes
that solving problems lies in activist government, not the free
activity of citizens.

In formulating public policies, if one believes in government and
central planning the idea of raising taxes and using government to
create jobs, regulating wages and prices by unionization and forcing
producers into cartels, restricting free trade, creating government
regulatory and spending agencies and justifications using Keynesian
economic theory as happened in response to the Great Depression will
have great appeal.

On the other hand if one believes in free market economics in setting
public policies, then tax reductions, increasing rather than
contracting the money supply, deregulation of industries, lowering
trade barriers, promoting the expansion ofd business, and free market
economics will have great appeal.

It appears the pro-government framework may also account for support
of government entitlement programs such as universal health care,
Medicare, Medicaid, Prescription Drug program, Social Security,
welfare programs including education, subsidies such as Ethanol and
farm subsidies, and rent seeking regulations of all kinds that
promote one industry over others or regulations supporting one cause
over others. But it also accounts for foreign intervention, law and
order, military, and issues of morality such as drug enforcement and
pro-life policies. What seems apparent is that there is not one but
two pro-government sub positions. The liberal position seems to
emphasize government activism in matters of social justice whereas
conservative position seems to emphasize issues of government
protection. Each side at least somewhat supports free activity by
citizens in certain arenas but their respective arenas tend not to
overlap. Their fundamental differences seem to lie not in whether
they are pro-government control or pro-free activity of citizens but
in the differences in arenas to which they would apply pro-government
or pro-freedom policies. Thus both modern liberals and conservatives
tend to be pro-government in one form or another. But this
classification is amorphous and appears to change over time. The only
distinction that remains useful for a clear classification is that
between pro-government and pro-freedom—the pro-freedom position
marked by the consistent limitation of government and defense of free
activity in every arena.

As a result, the pro-freedom framework seems to account for choice
and deregulation in all kinds of arenas in order to "use" the free
market to award benefits for value produced and establish prices to
consumers for those valuable products. So this framework promotes
education vouchers, free trade of human organs, removal of trade
barriers and tariffs, protection of tort rights and contracts, and
where necessary entitling the needy directly with negative income
taxes, vouchers for needed services, food coupons, lifting licensing
restrictions for starting a business, disclosure in place of safety
and regulatory standards, all in place of creating government programs.

In discussing issues, these frameworks are seldom analyzed. Each
person mostly argues from within his own framework either to try to
show how things work or how they don't work both of which are
opposite to the views of someone in the other framework. But the
frameworks themselves are not discussed, and th reason may be that
most citizens are unaware of them, they are too abstract, they are
too deep, they take time to get into. Most discussions aren't
sustained inquiries into something. They are one-time discussions.

Yet beneath most policy debates are the fundamental differences
between the two frameworks and those differences are controlling. As
a result almost always debate among citizens or politicians is
limited to arguing within an underlying framework either as reflected
in those who argue for a government response to a problem or in those
who argue against government and for more freedom. One side says
government is the solution, the other says government is the problem;
one side says freedom is the solution and the other side (at least
often appears) to come close to saying free activity is the problem
(as in "unfettered" markets or allowing the rich to get richer and
the poor to get poorer). And both sides find it easy to denigrate the
other's position (as is displayed in the blogosphere). If the two
positions are controlled by an underlying framework, then at heart it
is not the issues or positions we should discuss. We should try to
get at the frameworks themselves, and that, by its complexity, time
required, and demands on the ability to conduct analytic thinking
eludes us.

So as to the current crisis and responses, my hypothesis is that
theory and fact clearly are not controlling or even relevant, the
ideological framework is. The politicians want to do something, think
they should do something, believe in something, that leads them to
act in disregard of how little they actually know of the science of
economics or the history of political economy. As a result, their
continued ignorant and thoughtless conduct means that no matter how
destructive it may be in the long run or how unfair it is, or how
much it costs to we citizens and particularly our children who will
have to pay the debt and live with the consequences they will impose
their "solutions" with utter disregard for the ethical principle,
"first, do no harm."