Friday, June 5, 2015

Beyond Laissez-faire? Seriously?

As I noticed, posting will continue a bit slow for a while. So this is a bit old. Noah Smith suggests that the profession is leaning in a liberal, meaning moderately lefty, direction. He tells us, however, that:
"although there’s a growing consensus that something about U.S. economic policy needs to be changed in a more liberal direction, there isn't any consensus on what. Laissez-faire may have reached the end of its shelf life, but we don’t yet know what is going to replace it."
He praises Reagan-Thatcher's policies for their simplicity. I guess Occam's Razor is the criteria here. Not uncommon, as I noted before, that was Krugman's defense of free trade not long ago. He might be right on the lack of consensus on what to do, even though his minimal program from the discontented seems plausible enough, more fiscal expansion, less free trade agreements, higher wages (start with the minimum) and more regulation of finance.

Note, however, that this policy consensus, is open to a lot of dissensus, and not only on details of policy (e.g. more fiscal expansion where, infrastructure, health, defense? Do we increase the taxes on the wealthy too? And so on). The vast majority of those that now defend these policies do it from an essentially unreconstructed marginalist view (mostly New Keynesians). So the policy defense does not stem from different models (Mankiw, a New Keynesian as much as Krugman and DeLong would not endorse any of these 'left' policies), but from their policy preferences. I would suggest that left leaning economists using mainstream models have a harder time showing that their policy prescriptions are coherent with their theory (they need all kinds of imperfections, and ad hoc assumptions).

But that's not the surprising thing in Noah's piece, at least to me. He's nonchalant about the assumption that the shelf life of laissez-faire policies has somehow expired. It is true that Keynes had suggested that laissez-faire was dead long ago, in 1926. But that proves exactly the policy resilience of laissez-faire. In fact, I would argue that the theoretical persistence of misguided (illogical and lacking evidence) mainstream positions often results from the advantage that these models provide for defending laissez-faire.

So laissez-faire is doing fine. And note that austerity is doing fine, in the US, in Europe, in Latin America, and is still being pushed by the IMF in their actual programs (forget the research department suggesting that sometimes it doesn't work; these views never apply to the real world). FTAs are also doing fine, and pushes for increasing the minimum wage or for more regulation of finance continue to be contested and fought back fiercely. We're far from the end of laissez-faire.

1 comment:

  1. One need only casually review the struggle between Herbalife and William Ackman [and his friends] to realize that the legal infrastructure of contemporary capitalism precludes the referential success of the term laissez faire.


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