That is Deepak Lal’s new book, the subtitle is The Case for Classical Liberalism in the Twenty-First Century. I rarely call myself a classical liberal, for fear the title has become musty and for realization that the feasible set today is quite different from that faced by Cobden and Bright. That aside, here is what I think classical liberalism should become for the 21st century.
1. The welfare state is not going away. But it is imperative that we avoid Western European levels of taxation through the explosion of Medicare liabilities. Don’t forget that the United States is a — should I say the — generator of global public goods par excellence. Going down the path of France or Sweden would mean disaster.
2. What recipes lead to both strong markets and decent governance? The not-yet-developed countries of the world all face this problem. Simply deregulating does not itself solve the governance problem, as we have discovered many times in the last fifteen years. Our understanding here is backward but much is at stake.
3. We face a variety of critical issues involving decentralization: how to deal with pandemics, natural disasters, or terrorists with nuclear weapons, to name but a few. None of these are areas for laissez-faire. Yet for all the squawking about the need for government, most of the real solutions "on the ground" will emphasize voluntary action and the private sector. When faced with these problems, how can we do better rather than worse? Note the close connection between this problem and #2; for instance in Indonesia the government won’t allow transparent communication about the nature of the avian flu problem.
Overrated classical liberal ideas are privatization (sometimes useful, but it often replicates old problems in a new regulatory guise) and abolishing foreign aid.
Your take, Alex? Other classical liberal bloggers?
For Lal’s vision, well…you have to read his book. You can start with the book’s web page and sample chapter here.
Have you read Brin’s ‘The Transparent Society’? I’m not entirely comfortable with his ideas, but massive transparency (enforced at all levels) does solve a lot of governance problems…
Maybe you need to define better what you think “classical liberalism” means. Does it just mean “libertarianism”? If it does, then using the term “classical liberalism” is pointless becaues a better word to describe it exists.
Unless it means something more. Was Teddy Roosevelt a “clasical liberal”? Or just a regular modern “liberal”?
I’m not sure that we don’t *have* Western European levels of taxation, when all of the different types of taxes that exist in the US are taken together, at least here in NY.
“The welfare state is not going away.”
Not with that attitude it’s not.
When you say “global public goods” (GPG), what do you mean? A lot of the banality that comes from Hollywood? Mission Impossible 3 et al. can be said to be boring! A lot of innovative American movies, books, etc. come from small firms that are easily reproducible (if they
don’t exist already) in the neighbourhoods/regions of metropolitan Milan or Osaka or Winnipeg.
The NIH research apparatus in Bethesda may be an ideal example of GPG. However, given that this is a government initiative does it not violate the ideal of small-scale individual initiative that
it supposed to represent the “best side” of libertarianism.
Frankly, the pattern of US government use military has been a disaster after 1945 –bloated, predatory, unable to comprehend or counter Third World nationalism. The US seems far more
willing to use its military to bolster regimes it favors (South Vietnam, pre-1979 Iran) or overthrow those it doesn’t like (Grenada) than for truly humanitarian efforts (Bosnia comes
the closest). The US has cried wolf one too many times (Gulf of Tonkin, linking Saddam to Osama, etc.).
How do US (or British/Canadian/Australian) libertarians who vote Republican (Tory, etc.)
reconcile their supposed love of small government with spending tens of billions (if not
hundreds) on an oversized national security state?
“Going down the path of France or Sweden would mean disaster.”
Sure, especially if your not one of the millions of uninsured. I guess all of the people who have had to file for bankruptcy due to overwhelming medical costs should take comfort in the terrific R&D being done.
Global public goods will ultimately have to be supplied by a global government. The confusion implied by your vision of the future comes out of 2 contradictory trends that are both operating today. One, the key “public goods† like defense have to be supplied globally not nationally to work. Two, the welfare state is failing to supply adequate health care, education, etc. while progressively strangling the economies where it is well developed.
The effective units of government are going to have to get bigger, if not global, but government has to reduce the range of problems it tries to address. Fair or unfair, good or evil, the welfare state will go the way of the communist economy. It is just a question of how fast and with how much suffering. Certainly communism fell with much less violence than everyone feared.
I still find it remarkable that anyone would have swallowed ANY recipe for number 2, much less the one that believes that deregulation would solve governance problems! You would simply have to be ignorant of all history and psychology. It is a clear-cut case as any, of scientists taking one equation for a whole system. The hedgings and provisos throughout Milton Friedman’s “Capitalism and Freedom” should have been clues enough.
This page has also had recent postings about Coase, and about what economics will do in the future. I think it is going to go partly in his direction. But as Coase wrote, the understanding will be far different than economists now believe it to be.
Coase argued that “institutions” can greatly reduce frictions and transactions costs, and increase productivity. That was his explanation for the existence of “business firms.” Because otherwise, if market transactions are always the most efficient, then employees would self-organize via market transactions, and the firm would not be necessary. Nobody would ever think of creating a firm. (“The Nature of the Firm,” 1937.)
As Coase later pointed out, the government itself is an institution, a sort of “super-firm” he called it — enormously dangerous to think so, perhaps, but still sometimes providing clear advantages:
“…From these considerations it follows that direct governmental regulations will not necessarily give better results than leaving the problem to be solved by the market or the firm. BUT EQUALLY, THERE IS NO REASON WHY, ON OCCASION, SUCH GOVERNMENTAL ADMINISTRATIVE REGULATION SHOULD NOT LEAD TO AN IMPROVEMENT IN ECONOMIC EFFICIENCY.” (“The Problem of Social Cost,” 1960, Part VI, my emphasis.)
I would guess that we are about to see an explosion along this avenue of thought, for distributional and external reasons. Why? Distributional: we are 250 years into our new era of plenitude, and some people are still left behind. External: innovation and raw-material substitution appears to be staying ahead of population growth (though perhaps barely,) BUT we are already clearly running out of “waste sink” to receive our energy waste — while erasing the remainder of wild nature under the human footprint.
So I believe we’re going to see targeted social programs in profusion: Social Security, Medicare, global warming, energy use, etc. They will be constantly re-evaluated, in the press and at the polls. But it should be very clear that institutions can greatly reduce frictions and transactions costs, especially non-monetized costs of space and time, and increase everyone’s productivity, even while providing more equal outcomes on life’s necessities.
The “need for government” vs “voluntary action” is an argument never to be concluded; or rather, it will be evaluated and re-evaluated for each separate issue in each new time period. Because when information changes, it also reorganizes. Human beings, and their outer environment, are not as simplistic as economics would wish to have, for its classical mathematics.
Dan Landau writes, “Global public goods will ultimately have to be supplied by a global government.”
Why do you believe the people in a global government would actually provide public goods? Recall that the economic theory of public goods suggests that people will free ride when they can. Does this theory only pertain to people outside of the government?
Tyler, look at the history of the Johnstown Flood. People committed funds at the drop of a hat. Or for that matter, look at the 9/11 or tsunami fund-raising activities. People respond to disaster in proportion and don’t need to be forced to help. Or for a counter-example, look at how the USG response to Katrina was pitiful, and how governments at every level interfered with citizen organization.
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