Tuesday, October 08, 2013

On the Government Shutdown. Who Needs Governments, Anyway?

The government shutdown is a good time to think about the roles of governments.  We get far too many images of the government as a family, especially from the Republicans in the US but also sometimes from president Obama and other Democrats.  Thus, we are told that just like a family the government must live within its means, that there must be belt-tightening during bad times, that a balanced budget each and every year is the ideal for the government just as it is for families.

But of course families borrow money at certain times, for housing, for education and for larger purchases, and families accrue positive net savings at other times.

More importantly, a government is NOT like a family.  It's a government.  It controls military troops, it maintains law courts and police departments, it has an important role to play in coordinating the fight against epidemics and in guaranteeing clean water and safe infrastructure for all.  The environment and its protection need coordination and that coordination needs organizations which have the power to enforce the agreed-upon rules of cooperation.  Those are called governments.

And that paragraph is only about those parts of the government which even the conservatives support.  I'd argue that the role of the government in its insurance aspect (the safety net aspect) is much larger, because such safety nets are necessary under the trapeze artists we are forced to become in the free-market-experiment.  A great entrepreneur might not become an entrepreneur at all in a country where health insurance is tied to working for someone else, especially if she or he has a family and someone in the family is chronically ill.  Poorly fed and poorly educated people are not good workers, and neither are people who spend all their energy in struggling against abject poverty.  In the simplest of all senses, markets need buyers with money and the energy to use for buying.

Note how it's possible to defend the government from the side of the "free market" gods, too.  For markets themselves operate within structures and frameworks which are created by governments.  Even though firms complain about government oversight, in a more fundamental sense it is the government which provides the foundation for those markets to exist and also the rules which stop them from turning into pure anarchy. 

All these long and boring mutterings came about because I was thinking of the role of trust in social and economic interactions.  If you want to eat chicken tonight, you want to be reassured that the chicken won't give you salmonella.  And most of the time it is the role of the government to make sure of that.  Markets won't do it on their own, because fly-by-night firms have an incentive to unload their salmonella chickens on your plate, and because firms have the short-term incentive to cut costs wherever they can do so, and that includes quality control.

So one important government task is to uphold that trust we have, the belief that if I sign a contract to buy a house, on a mortgage, both the house will be turned over to me and the mortgage will be paid by me over time, according to the agreed-upon rules.   That's one narrow aspect of trust which the explosions in the housing and financial markets have reduced.  I now ogle all offers with great skepticism, and I no longer even know where my mortgage is held.  The people who hold it I might not have selected.  Thus, my trust is reduced, and that decreases my willingness to participate in the markets.

I'm sure you can think of other aspects of trust which have similar roots.  Those who believe that governments are so irrelevant that they can be drowned in bath-tubs should have a look at Somalia's recent trials and tribulations.  But there are examples closer to home, and I fear that we may learn more such examples if the government shutdown continues.

None of this means that governments can't be turned to evil or that any amount of government intervention is a good thing, of course.  But there are real and valid reasons for having a fairly large government section in modern societies.