Politics

What so few economists know, but nearly all the good legal scholars understand

Free Photo: Stacks of Tires in a Rubber Factory

Many of the blogs I’ve enjoyed most over the years feature recurring motifs. One of Kevin Drum’s hobbyhorses is the relation between the phasing out of lead in the United States beginning in the 1970s and the drop in violent crime over the last two decades. If a prominent article proposes an explanation of the fall in violent crime (for example, arguing that “broken windows” policing was responsible) without mentioning the possibility that Americans are less violent because they’re no longer being poisoned by lead at an early age, Drum will chime in. Similarly, Paul Krugman returns again and again, both in his blog and in his columns, to failed predictions of runaway inflation by commentators on the right. Whenever a new warning against “printing money” and the risk of hyperinflation appears, Krugman posts a response. Likewise, Sanford Levinson (at Balkinization) circles back repeatedly to the criticism of political analysts who fail to recognize the harmful political effects of the undemocratic, hardwired structural provisions in the U.S. Constitution, such as the malapportionment of the Senate, the selection of the President by the electoral college, and life tenure for Supreme Court justices.

If I were going to have a hobbyhorse, it would probably be the failure to recognize the role of government in the economy. Not the role of government in regulating the economy. The role of government in constituting the economy. Progressive legal scholars have been hammering away at this point for nearly a century, at least since Robert Hale’s “Coercion and Distribution in a Supposedly Non-Coercive State” (1923), but it has never gotten through to the public consciousness. It has never shaped the way that the American public thinks and talks about the economy. And that’s a tragedy for our national economic conversation.

One reason that the progressive legal scholar’s view of the economy as a government creation has not gotten through to the general public may be that the public (naturally) looks to economists for guidance on how to think about the economy. Unfortunately, even most progressive economists today talk about “the market” as something that exists in opposition to the government, rather than as something created by the government. Whether on the left or right, mainstream economists tend to share the basic conceptual framework of the Reagan era when it comes to the economy, the framework I criticized in an earlier post on Greg Mankiw.

Consider Joseph Stiglitz’s recent remark in Harper’s: “Of course, there is no such thing as a ‘purely’ capitalist system. We have always had a mixed economy, relying on the government for investment in education, technology, and infrastructure.” These statements may sound progressive at first glance, but they adopt some of the central and most damaging assumptions of the Reagan era.

When Stiglitz says that there is “no such thing as a ‘purely’ capitalist system,” he’s right–but not in the sense he intends. The reason there is no such thing as a “purely capitalist” (or “purely free market”) system is not that all modern governments engage in infrastructure spending and the like. The reason is that “capitalism” is not a concept that has an essence or a core. We can talk about pure water–water with all the impurities removed, water that is nothing but H2O. But it simply makes no sense to talk about “pure” capitalism if this means something like capitalism with all traces of government removed. Markets without government aren’t markets at all, at least not in any sense we would recognize today. If the government plays no role in the economy, then there are no property or contract rights–and surely private property rights are one of the features of every economic system that we would call “capitalist.”

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