- Posted by:
- Economist.com | NEW YORK
- Fiscal policy
WHEN asked my assessment of the government's handling of the financial crisis, I usually say it is too soon to tell. But I am very concerned it is doing too much, too soon and too fast. Their current agenda (not even an exhaustive list): fix financial markets, boost aggregate demand, set up a new regulatory framework, decide how much bankers should be paid, create a market for green technology, repair infrastructure, repair schools, and fix entitlements. That would be ambitious for God to achieve, even given eight days, let alone mere mortals.
Despite the ambitious agenda, the Treasury remains understaffed. Richard Posner reckons that may not be the worst thing.
Obama is extremely able and self-confident and has appointed on the whole very able people to his staff and to the departments; some of them are brilliant. But the capacity of brilliant people, appointed to high positions in the federal government from outside, to screw up is legendary. The danger is amplified when the government tries to do too much. The economist Frank Knight used to quip that although production beyond capacity is a contradiction in terms, it is observed every day in academia—to which we can add, in the U.S. government as well. There is danger that the government is trying to do too much and that the economic consequences will be negative and serious.
The administration seems to suffer from the belief that government can do better by taking control and managing everything. For example, on health care there appears to be a belief that the White House can cut costs and expand coverage. The details of its plans remain uncertain, though the libertarian in me is instinctively sceptical. Health-care spending can surely be more efficient, but it has gotten wasteful because of thick layers of perverse incentives. Lowering costs and delivering effective health care to more people requires re-evaluating what health care is meant to provide. If there was potential for effective cost control from the top, the industry would have reaped the benefits already.
The last thing the American economy needs are more rules and bureaucracy. It needs thoughtful and creative approaches to health care, financial regulation, and taxation. Rather than expanding the scope of government and adding new rules, it would be more productive to set up the right incentives to illicit better behaviour. Getting that right is not a trivial task. Solving any one of the problems on the government's to-do list would be a tremendous achievement, but it seems doing too much at once runs the risk of getting things very wrong."Me:
Don the libertarian Democrat wrote: