The Road to Medicare, not The Road to Serfdom

Here is my latest NYT column, which they titled "The Pendulum Swings Back to Austerity."  Excerpt:

The unfolding of the financial crisis has also changed the public’s sense of where change is needed, both in the United States and Europe. The tragedies of 2008 were represented by Bear Stearns and Lehman Brothers – both private-sector institutions. In 2010, the financial crisis has spread to sovereign debt, with Greece as the most obvious example.

All of these developments are part of one broader story of overreach and complacency. Yet the 2008 crises were attached more directly to market institutions, while the 2010 crises are more closely linked to governments. Because politicians and voters are more influenced by the latest developments than by news from two or three years earlier, a cautious attitude toward public-sector spending has been further cemented.

And this:

Democracies, like markets, have some self-correcting mechanisms, and we are now seeing those at work in the United States and many European countries. (Spain and Britain, for example, are pursuing fiscal austerity aggressively.)

The lessons are straightforward. First, to paraphrase the French moralist La Rochefoucauld, things are never as good, or as bad, as they seem. Second, the Obama reforms, like the Reagan revolution, are turning out to be radically incomplete, which should come as no surprise.

Finally, effective political ideas are those that can still do good in half-baked form. We have neglected this insight in designing financial reform, and it remains to be seen if we can apply it successfully to climate change.

Overall, I believe we are headed toward slower growth and a larger public sector, but I do not believe we are headed down the road to serfdom.  At the same time, I am aiming at a different target.  Critics of incrementalism are usually too focused on the single issue at hand — where they are sure they know best — and not sufficiently aware of the efficiency properties of the broader system, which introduces self-correction mechanisms to counter or limit most major changes.

If I had to stress one sentence from the piece, it would be this one:

Finally, effective political ideas are those that can still do good in half-baked form.


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