Neil H. Buchanan

Stop Denigrating Government: There is No Economy Without It


Thursday, September 24, 2009

The raucous rhetoric (and, one might add, blatant bad faith in far too many cases) that we saw among the anti-health care reform activists this past summer has obscured a fairly consistent core belief on the part President Obama's opponents. Anything that the government touches, the argument goes, it destroys; and thus anything that can be done through "the market" should be set free from the government's clutches.

The argument thus seems to reduce to a simply dichotomy. Is government good or bad? Should we rely on it more or less? Should we expand its reach or starve the beast? This either/or framework is then twisted into an illogical corollary: Anyone who is not against government in all its forms must be in favor of the expansion of government in as many forms as are imaginable. "You're for government or you're against it" becomes "You're for absolutely none of it or you're for nationalizing every industry."

In this column, I argue that such attempts to distort the debate about government's role in the economy fail, because they paint in broad strokes of black and white where only shades of gray are appropriate. Perhaps more importantly, this all-or-nothing mode of thinking also fails on a much more basic point: Having a government is necessary even to have a "free market" in the first place, making the notion of "government versus market" a false and meaningless choice.

We must have a government, and that government will inevitably set rules that will determine who wins and who loses in the economy, as well as what will be produced and who will receive that output and whether the economy shrinks or grows. The government's decisions will inevitably determine whether economic activity adds to environmental degradation or reduces it, harms people and animals or helps them, and expands opportunity or restricts it.

Attacking the government's passage of laws as inappropriately impinging on the market, in other words, misunderstands what markets are and where they come from.

The Death of Nuance: Extreme Descriptions of Non-Extreme Views

One of the remarkable facts about political debate in the U.S. is that there really is no left wing in this country, at least as that term would be understood anywhere else in the world. No Democrat, not even in the lefty-est precincts of the left wing of that party, favors anything close to a government takeover of the economy.

Even the Independent Senator Bernie Sanders of Vermont, who caucuses with the Democrats but who calls himself a Socialist, argues essentially for a limited welfare state, rather than for something out of Ronald Reagan's nightmares. The last time a major political figure in this country called for outright nationalization of an industry was when Rep. Morris Udall (D., AZ) ran for President in 1976 and – in the midst of an unprecedented energy crisis -- called for a government takeover of the oil companies. Needless to say, Udall's call was not taken up, and that view would never gain currency in today's political environment.

Even in the area of health care, where single-payer plans and the Public Option have been portrayed as government takeovers of the largest sector of the economy, it is simply an irrefutable fact that nothing that has been proposed would involve the nationalization of health care (as that term has come to be misused). Under single-payer plans in other countries, the government may directly employ doctors and other workers (the United Kingdom's basic approach), or health care may be insured by the government but provided by private parties (as in Canada). The Public Option would involve even less direct government involvement in the health care markets than the Canadian system – and much less than that of the UK -- with the government offering one non-profit health insurance plan to compete against existing private, for-profit plans.

Notwithstanding American liberals' preference that we continue to rely on private markets as the basic mechanism by which our economy should be organized, their refusal to say that government is always bad has been misrepresented as meaning that we believe that the government is always good. I cannot speak for all liberals, of course, but I suggest that it is the truly lonely American liberal who believes that the government can do no wrong.

If anything, the very core of American liberals' attitudes about government is that the government is one among many corruptible institutions in society, staffed by all-too-human people who are themselves anything but angels. The belief in a mixed economy -- with government filling gaps and attempting to solve market failures -- is really a belief that nothing works as well as we would like it to work. The U.S.'s whistleblower laws, sunshine provisions, and the Freedom of Information Act are all testimony to the suspicion that government agencies must be closely supervised, and that the best approach is to have some tensions within and among the institutions in society, rather than blindly trusting any one of them.

President Obama, moreover, sits astride the middle (or, more accurately, to the right of the middle) of a party that includes some mixed-government believers on the left and outright government haters on the right. In light of this stance, the idea – raised by the right during the health care debate -- that he is proposing policies designed to enable a takeover of the economy by The Government is simply not credible.

Where Does the Market Come From? It's the Government, Stupid!

It is possible, of course, that the rhetoric hurled by the right against the President and his party is not to be taken literally. Perhaps this is merely a matter of exaggerating the differences, with those who believe in relatively less government within a mixed economy allowing themselves to engage in a bit of excess, tarring their opponents as Government Lovers for effect.

If that is the intent, however, it is being hidden extremely well. To listen not only to the people shouting and carrying signs, but also to elected government officials on the right, the government is per se the enemy of the economy. Among the more pithy formulations of that argument is the idea that "the government should stop taking your money," as former President George W. Bush frequently and memorably put it.

The problem is that the very notion of "our money" -- the money that we would own in the absence of a government -- is fundamentally incoherent. Professors Liam Murphy and Thomas Nagel, two philosophers on the faculty of the New York University School of Law, offered an especially clear explanation of this point in their 2002 book The Myth of Ownership.

Thinking about the nature of a modern economy, Murphy and Nagel noted that virtually everything that we teach in law schools in the area of "private law" – through classes on torts, contracts, property, and so on -- is a manifestation of the government's role in the economy. There can be no ownership of property without a government to arrest someone who tries to take your property away from you. Indeed, the property is only yours, in the first place, because there is a government to which you can turn to validate your ownership rights.

In that fundamental sense, therefore, the economy is already made up of nationalized industries. If a person wants to sell a product, he or she will operate his or her business under the rules that governments have enacted to regulate commerce. Agreements with suppliers and marketers will be governed by contract laws that vary slightly among the states (as they are passed by state governments) but that must adhere to national standards. Moreover, how much waste a business can produce, and how much responsibility it bears for cleaning it up, will be based on various laws that have been passed over the years.

An important implication of the Murphy/Nagel approach, furthermore, is that it is quite possible for governments to change the winners and losers in society with seeming to "meddle in the economy" or "nationalize" a business at all. Imagine that nuisance laws ceased to exist, or that it became easier, under corporate law, for shareholders to challenge management decisions. This would not make the government more "intrusive" in the economy in the usual sense of that term, but the effects on people's lives and fortunes would still be massive.

In addition, there is no "state of nature" baseline from which we can measure the government's degree of intrusion in an economy. There is no imaginable world in which we could have no government and also enjoy anything but the most primitive might-makes-right economy. Thus, the laws that we pass are all simply choices among many that define the economy. Will we have "adverse possession" (the right to take over unused property under certain conditions) as part of our property laws? Will we allow people to sue for injuries, and will we allow them to receive punitive damages in some cases? The answers to such questions can change the entire economy, or large parts of it.

Extending this point, the Murphy/Nagel analysis makes it clear that there is no zero-tax world to which we can meaningfully refer. Even more interestingly, there is similarly no tax-minimizing world to which we can refer, because we cannot say that a government that has, say, courts of equity separate from courts of law is any more "natural" or basic than a government that sets up an economy with the two combined -- or that opts for a civil law system, rather than a common law system. Each of those systems would require different numbers and types of government institutions and employees, requiring different levels of taxes. And none of those levels is per se the correct level of taxes.

Who Owns What, and How Do They Know They Own It?

The provocative conclusion of this analysis is that people cannot be said to "own" what they earn before taxes, because those taxes support a government that is essential to their very ability to own anything at all. This does not, however, mean that it is the government that owns what people earn, either. In fact, the key point is that there is no "it" when we talk about what we would own in the absence of government. Government is necessary if we are even to have a modern economy. So is private initiative. Imagining one without the other is a meaningless exercise.

We should, therefore, stop denigrating government as if it were the enemy of progress and prosperity. It is not possible to have a capitalist economy that is not a government-run economy in a truly basic sense. Those who propose to change the way the institutions of government interact in the economy are not "pro-government" or "anti-government." Rather, we are simply aware that people's creativity can be turned into commercial prosperity only with a set of rules created and enforced by governments. The job is not to increase or decrease government's role in the economy, but to improve it.

Neil H. Buchanan, J.D. Ph. D. (economics), is a Visiting Scholar at Cornell Law School, an Associate Professor at The George Washington University Law School, and a former economics professor.

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