There are two prevailing interpretations of the recent financial and economic unpleasantness. Liberals tend to blame the Reagan/ Conservative order which, they say, has prevailed since the 1980s. The financial collapse shows it to be a failure, they say. Others suspect the true cause is that the New Deal Order, which Reagan et al did not really change, is no longer viable. Walter Russel Mead has some intersting thoughts on the latter thesis. In the 1970s, he says, the private sector side of that order fell apart:
As the old system dissolved, companies had to become more flexible. As industry became more competitive, private sector managers had to shed bureaucratic habits of thought. Lifetime employment had to go. Productive workers had to be lured with high pay. The costs of unionization grew; in the old days, government regulators simply allowed unionized firms to charge higher prices to compensate them for their higher costs. The collapse of the regulated economy (plus the rise of foreign competition from developing countries) made unions unsustainably expensive in many industries.
But the government side did not. It is crashing now. It simply costs more than we can afford, and does not deliver goods and services nearly as well as do private companies. (Perhaps I should say truly private companies, and not ones that are overly regulated, like health insurance companies).
The collapse of a social model is a complicated, drawn out and often painful affair. The blue model has been declining for thirty years already, and it is not yet finished with its decline and fall. But decline and fall it will, and as the remaining supports of the system erode, the slow decline and decay is increasingly likely to bring on a crash.
Meanwhile, Arnold Kling argues,
that there is a discrepancy between trends in knowledge and power. Power in the United States is remarkably concentrated. We are creating increasingly specialized knowledge, which means that the information needed to make good decisions is located outside of Washington, D.C. And yet we have a central government attempting to do for 300 million people what governments in places like Singapore, Hong Kong, Denmark, and Switzerland do for many fewer people. . . .
These days, most of the people who complain that the U.S. is ungovernable are looking for solutions that would allow progressive technocrats to be even more powerful. I believe that the solution is to decentralize government.
To push things a bit further. Reagan did what was politically feasible in the 1980s. As a result, he gave the New Deal Order an extra twenty or thirty years. Finance became an industry in and of itself, rather than the industry that supports and enables the others. Manufacturing in the U.S., meanwhile, remains difficult thanks to a regulatory structure that is out of date. The goal should not be simply to scrap these anachronistic regulations, but rather to change them to make them less onerous. Obama is right, we need a new politics. The trouble is that the "new" politics he wants is an extension of the the old politics that got us in trouble in the first place.
When will people realize that Pat Buchanan is correct..."free" trade is killing us. Every year I've seen our economy become ever more fragile and services oriented. We have an enormous blue collar work force...they must have employment if the republic is to endure!
Time to stop importing everything...tariffs are the only answer.
For an economy with a sophisticated apparatus for the collection of direct taxes, tariffs are useful as bargaining chips, and that is it. The state has as one of its functions urban planning and the construction of public works. Other than that, it should stop attempting to allocate capital.
The trouble with Arnold Kling's assessment is that there are some economic and social problems whose address benefits from large actuarial pools. That would include disaster relief, underwriting the banking system, and general maldistribution of income. There are components of public infrastructure that cross state lines. There are also industries for whom highly fragmented regulatory regimes are inhibiting (manufactured housing, for example).
Art. Is Kling saying that there's nothing that ought to be done centrally, or simply that we're rather far away from finding the proper balance between national and local solutions?
Dr. Kling gives not one indication in his discussion of what he thinks would be a function of the central government. He makes specific mention of devolving responsibility for public medical insurance on county governments and for devolving responsibility for social insurance on more particular units. People are not as mobile as is commonly assumed (about 65% of the population lived in the state to which they are native, last I checked), but they do move around and national frontiers (Switzerland') are a barrier to movement in considerably greater degree than provincial or cantonal frontiers. The portability of benefits would be an issue. Differences in per capita income between one state and another and one metropolitan region and another would also be an issue. Congress is witlessly officious in its treatment of state and local government and the state legislatures replicate this behavior. We might start by recalling some of Richard Nixon's criteria and goals in his (failed) program of devolution:
1. One should remove conditions on inter-governmental transfers.
2. The inclination to devolve responsibility for a public program should be proportional to the degree to which the program is labor intensive. Public works projects are labor intensive; Social Security is not.