Over at Price Roads, Lewis Lehe has a great post: Economists get what they want:
“Over at Marginal Revolution, Tyler Cowen says:
Voters are getting more or less what they want, which is some spending restraint, mostly holding the line on taxes, not too much trust in government as a way of moving forward, and a love of entitlements. One can find that objectionable, and indeed I do across a number of fronts, but there you go. We are not going to elect a new people anytime soon, and in this odd sense you can see all the recent political gridlock as reasonably democratic, more so than its critics would like to admit (I know I’ll generate a bunch of criticisms citing poll data about how Americans really want this, that, or the other but I’ll hold my ground on this one).
Cowen has bemoaned the trend of declining public investment and rising entitlements. He says this in line with voter preferences. I disagree. Declining public investment and rising entitlement spending is exactly what we would expect from a government run by policy experts over the last 40 years. Nearly everyone would rather the government directly spent less in the domain of her expertise.”
For most of the 20th century, government had more public provision and more regulatory cross-subsidy than it does now. Economists hated this situation because it wasn’t pareto optimal. Government housing created hellholes so bad as to inspire movies like Candyman, so economists pushed for less spending and more direct aid. Price controls and protectionism (regulation), like the Interstate Commerce Commission and tariffs, created such yawning deadweight losses that economists pushed for free enterprise and direct aid for the ‘losers.’ These ‘swaps’ were better off for nearly everyone.
But both swaps will lower investment as a share of public spending.