Kinsley on Reagan
Here.
Now I realize that some of us around here (glances darkly toward Los Angeles) like Reagan, and I didn't really intend to get all that going again, but, as you know, I don't think very highly of the man. I mean, honestly I think he seemed like a decent guy on a personal level. But I believe him to have been a bad president. Anyway, Kinsley hits some of the high points here. But what I really wanted to say was something he only bumps off of briefly: a clear view of one of the reasons conservatives revere RR actually shows him to have been a better president than one would think if one listened to the conservative hagiographies. More specifically: Reagan was actually less of a conservative ideologue than conservatives make him out to have been. So that, at least, goes in the plus column.
Here.
Now I realize that some of us around here (glances darkly toward Los Angeles) like Reagan, and I didn't really intend to get all that going again, but, as you know, I don't think very highly of the man. I mean, honestly I think he seemed like a decent guy on a personal level. But I believe him to have been a bad president. Anyway, Kinsley hits some of the high points here. But what I really wanted to say was something he only bumps off of briefly: a clear view of one of the reasons conservatives revere RR actually shows him to have been a better president than one would think if one listened to the conservative hagiographies. More specifically: Reagan was actually less of a conservative ideologue than conservatives make him out to have been. So that, at least, goes in the plus column.
posted by Winston Smith at
7:59 AM
27 Comments:
Or, Reagan was actually less of a conservative ideologue than the left makes him out to have been. It's also a slander that Reagan was a vacuous actor. He paid a lot of dues, not just as a two-term governor of the most populous state, but in the years afterward, developing his thoughts and political philosophy.
http://www.nybooks.com/articles/19910
On government spending discipline, Kinsley ignores that Reagan largely had a Democratic congress and Clinton a Republican one. But it's also true that Reagan thought spending was a battle he couldn't win, and consciously surrendered it for the sake of furthering the rest of his agenda.
Well, in his second term Reagan became something of a nuclear arms dove. He genuinely wanted to reduce missiles, and he gave Gorbachev some cover in cleaning things up in the Soviet Union. His first term was pretty bad.
And Tom: as for cutting taxes without matching cuts in spending: it is a very bad idea, with huge moral hazards. My mother didn't let me eat dessert without first eating my vegetables. Did yours?
That proposition assumes economics is a zero-sum game, and ignores the fact that tax cuts grow the economy. The alternative can be a deepening recession resulting in the same deficits, and a lot more suffering by everybody.
Now, I don't think tax cuts come completely in the clear as revenue-neutral, much as some or many Reaganauts would like to believe.
It could be that the cuts have the same Keynesian effect as increased government spending. [The size of the Reagan and Bush deficits indicate that to me.] However, I'd expect the growth effect to be more profound when money follows the invisible hand of the market rather than the iron hand of the government.
Tom, your contentions simply aren't borne out by the facts:
http://delong.typepad.com/sdj/2008/01/new-york-time-7.html
http://www.eriposte.com/economy/other/demovsrep.htm
And tax cuts can't have the same *Keynesian* effect as government spending because the proximate goal of Keynesian spending is to increase aggregate demand, and unless it's things like EITC or direct subsidies to those more likely to spend than save their marginal dollars, the effect of tax cuts would tilt more heavily toward increased savings and investment.
That being said, tax cuts, targetted correctly and harmonized properly with the business cycle, can have a stimulative effect, although mostly with a longer time lag than spending.
Which is why this bi-partisan election-year $150B stimulus package to me seems bogus. Seems inflationary, feeding the demand side.
Contained in your pithy middle paragraph is the dirty secret that "tax cuts for the rich," which are saved or invested, not spent, are the true gateway to economic growth. Supply-side economics.
But as a piece of social engineering, I think we all like the earned income tax credit, which subsidizes those in low-paying jobs. Anything that makes work pay better than welfare seems an ace idea.
The real reason that the stimulus package is bogus is not that it addresses the demand side. That part is good. Consumers (2/3 of the economy) are tapped out, having achieved a negative savings rate, depleted their homes like an ATM run, dealing with higher health care costs (increased premiums, co-pays and other out-of-pocket costs), spiraling energy costs, and stagnant real wages. Anything at all that might help consumers is good; the problem was the size of the putative stimulus; it's really a fart in the wind compared to the real work that needs to be done.
And inflation is mainly a concern because of embedded energy costs, that is *pull* inflation rather than *push* inflation. Since real wages have been flat or negatively growing the past few years, I know of no reputable economist that thinks that juiced consumer demand is driving whatever inflation we have.
The supply side never needed any goosing, even during the recession of 2000-2001. The hangover from the 90s was due to oversupply - idle inventory, excess capacity, unused fiber optic etc. Thus my comment where I said tax cuts need to be "targetted correctly and harmonized with the business cycle"; this was not the case with the Bush tax cuts, since they were not targetted at the typical consumer spender, but the saver and investor.
And supply-side economics is a joke, as was admitted in a moment of candor by one of its original proponents:
"The man charged to make this all work was David Stockman, Reagan's budget director. Stockman's genius and mastery of numbers was matched only by his relatively young age, which earned him the title of "whiz kid." Stockman, Roberts and Anderson came up with a massively optimistic forecast for the economy, which today Stockman derisively refers to as the "Rosy Scenario." The Rosy Scenario predicted that the 1981 tax cuts would produce 5 percent growth in 1982. (In fact, 1982 was the worst year since World War II, with negative growth of 2.2 percent.) Many budget-watchers pointed out that the tax cuts would only increase the deficit, but Stockman silenced all his critics with a blizzard of statistics and information. "Like a child prodigy chess champion playing fifty matches at once, Stockman answered every query, parried every countermove, checked every challenge," Smith writes. "Congress was mesmerized." Today, Stockman admits it was all a performance. "Even the appearance of being an expert is self-validating," he wrote five years later. "I didn't know much about budgets, but I knew more than the rest of them."6
But as early as August 1981, Stockman began having gnawing doubts about his budget. Computer simulations failed to project the tremendous growth he had predicted, and later he would admit to cooking the numbers (!) before selling the budget to Congress. That December, the Atlantic Monthly published an article in which Stockman made several damaging and embarrassing confessions about the entire supply-side philosophy. He admitted that the 1981 tax cut "was always a Trojan horse to bring down the top [tax] rate" for the wealthy. Cutting taxes for the rich had long ago been coined "trickle down economics" - and it was an unpopular concept with the middle class. "It's kind of hard to sell 'trickle down,'" Stockman told the interviewer. "So the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."
There is no evidence of any connection between supply-side fiscal policy and economic growth. Here's a chart of nominal and real economic growth of US GDP:
http://bea.gov/national/xls/gdpchg.xls
Even during the years of St. Ronald Reagan, the best real growth was not after ERTA '81, after which we fell into a deep recession, but after taxes were raised in 1984.
FWIW, my preferences would be those that the CBO has found to really be the *most stimulative*: extending unemployment insurance, direct aid to cash-strapped states, and investment in infrastructure (this last one especially would pay further dividends because it would also help increase long-term efficiency and productivity).
I dunno. You seem to be selling higher taxes and a revival of Keynes. As for Stockman, he's a nobody.
Hates Dubya, liked Reagan/Friedman:
http://www.counterpunch.org/roberts02252006.html
Ditto:
http://www.nytimes.com/2007/04/06/opinion/06bartlett.html
Currently, yes, higher taxes on upper-end earners, parity between labor in capital vis-a-vis taxation, as well as an investment in infrastructure. Spending by the government is still spending, and the American consumer is tapped out.
I'm an empiricist. I believe that there are such things as observable effects even regarding things as complicated as political economy. Depending on the circumstances, either higher or lower marginal tax rates, higher or lower cost of money (interest rates), higher or lower government spending or a whole host of other binary choices may be appropriate. Kennedy, one of my personal heroes, recognized that marginal tax rates were so high as to stifle some necessary organic growth, and he lowered them. Bill Clinton and Robert Rubin recognized that higher marginal rates could be useful in reducing the government's structural deficit and thus reducing the crowd-out effects of government borrowing that had gotten out of control.
Keynes offered a lot, and we were wise to act on his insights. His influence was at its greatest during the three to four decades after the War, the most prosperous in our history. Most important, perhaps, was his response when confronted with someone who criticized him for making different recommendations at different times; he responded: "When the facts change, I change my mind. What do you do, sir?"
And David Stockman may be a nobody, but he was a nobody who was in the inner circle, and privy to the strategy of trying to drag in through the front door that which the American electorate would never have allowed in the front door. I personally believe that if your *ideas* are any good, you don't need to lie to sell them.
Well, the articles I linked didn't think it was all a lie, and they were far more influential figures than Stockman.
I'm an empiricist, too. I don't think the question's fully settled. But the Dubya marginal rates are within a few percentage points of Clinton's. Keynes is dead, Reagan won, and the rest is partisan niggling.
Wow, thanks, A. Very interesting and impressive.
One ought to be an empiricist, even in economics, of course...though one big problem in such cases goes like this:
When things get (a) complicated and (b) abut politics, science and rationality take a beating. When people have a motive to cheat, and things are complicated and hazy enough to make spinning, tweaking and misdirection easy...well, it will happen with a vengeance.
Witness the fact that the conservative answer to every crisis involves tax cuts for the wealthy. Now, I'm willing to admit that this may be the solution to some crises...but ask me to believe that its the solution to every crisis, and only a fool wouldn't be skeptical.
They may have been influential figures, but that doesn't mean that Stockman's account of supply-side as a Trojan Horse is false.
I don't doubt that some of them, like Jack Kemp, have a faith-based belief in it, and no amount of evidence to the contrary will dissuade them.
As to outcomes, well, as Keynes himself said, we're all dead in the long run. Regarding taxes and revenue, Bush has greatly reduced the TOTAL tax burden on the wealthy by a great amount, including the advantaging of capital over labor; revenues have definitely suffered.
And Reagan winning just proves that regardless of the efficacy of various policies, the American people can be persuaded to vote for the guy who tells them what they want to hear rather than the guy who tells them the way things are.
Actually, I think that's what y'all are doing. "Tax cuts for the rich" is the type of turn of phrase that appeals to emotions and class envy, not empirical truth about what maximizes revenues. But I don't really like talking about talk as it leads nowhere, whether it's about you or Stockman.
What I said was that Reagan/Friedman's view has won. The world over, if you check around.
The top rate under Clinton was 39.5%, under Bush 35%, not a sea change. A little more this, a little more that. The UK is similar after Thatcher.
And in the US, "the rich," whether the top 1% or the top 25%, pay about 2% more of the income tax bill than they did in 2000. A little more this, a little more that. Mostly, the politicians like to turn everything into a moral crusade, and set us at each other's throats over minor differences. I think we should resist.
Except what if it's true? Pointing out reality should not be offensive to anyone who isn't too squeamish to take it. The fact of the matter is that despite paying 2% more of the tax bill than in 2000, the top 1% has several percent more of a share of income than in 2000 as well.
The reason that's important is that it's obvious that we as a country have needs, needs that require revenues to meet. There is no reason there shouldn't be economic justice, as well as other forms of justice. And when it becomes obvious that some aren't paying their fair share, people's sense of economic injustice becomes inflamed and they do stupid things like vote for protectionists and other extremists.
So rather than get to that point, it's better to constantly maintain the economic and political viability of a market economy. Staring down the barrell at Eugene Debs, Norman Thomas and Robert LaFollette as much as anything else is what drove FDR to implement the New Deal.
So I agree with Emmanuel Saez, Professor of Economics at the University of California at Berkely:
"While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.
The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.
The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.
Prof. Emmanuel Saez, the University of California, Berkeley, economist who analyzed the Internal Revenue Service data with Prof. Thomas Piketty of the Paris School of Economics, said such growing disparities were significant in terms of social and political stability.
“If the economy is growing but only a few are enjoying the benefits, it goes to our sense of fairness,” Professor Saez said. “It can have important political consequences.”"
from: http://www.commondreams.org/archive/2007/03/29/163/
And it's kind of weird how you think that Reagan/Friedman's view has *won*, as if things could never change here. And have their philosophies been ascendant in Scandinavia? How about in the fastest growing economies of the Far East? What's more, even though Thatcher reduced direct income rates from a marginal high of 98%, do the current UK rates of 33% top tax levied on dividends and 40% top tax on both labor and capital sound supply-sidish to you?
Yes, they're in the ballpark. And the Golden Age of Clinton was in the same ballpark as Reaganomics. A little more this, a little more that.
Scandanavia?
And perhaps it's a coincidence that China and India are enjoying explosive growth at the same time their economies are enjoying great liberalization. Mebbe not.
But I was waiting for the other shoe to drop---when tax rate arguments begin to falter, income inequality arguments start to trickle in. But these are far less empirical than emotional---even the great egalitarian John Rawls allowed that inequality is "moral" ["morality" being manifestly anti-empirical] if it creates more prosperity for all.
So far, a one-half percent [0.6%, actually] decline, although not desirible a) could be attributed to the fact that any attempt to measure material well-being being inherently an approximation, and cannot be definitive and b) is no sign the sky is falling.
And neither is egalitarianism necessarily an American value---liberty is, and it's often in conflict with enforcing "equality," which requires more and more government intervention, and which tends to be an enemy of prosperity.
The Golden Age of Clinton was diametrically opposite to that of Reagan (at least the 1981 - 1983 Reagan)- reduced deficits and higher marginal rates on the top brackets. In short, fiscal policy was completely different.
And not sure you want to point to Scandinavia as a harbinger of supply-side dominance. Yes, they may have gotten rid of that wealth tax, but they still have top rates in excess of 60%. And what do you think of Norway's sovereign wealth fund? The one with $380 bn that has been set aside to provide for the common welfare of its populace.
My tax rate arguments were perfectly sound, as well as their historic relation to the most important measures of prosperity - contentions which I backed up with facts and data. We should run surpluses during boom times and pay down debt to help fund programs that benefit today's taxpayers, run deficits during recessions for stimulus, and borrow only for projects that promise greater efficiency or productivity in the future.
You then seemed to imply that because Reagan was popular and some other nations reduced their taxes in the 80s, my argument was somehow negated. This in no way countered my argument that sound economic policy may, despite the constant right-wing jihad against taxes, call for increasing taxes occasionally. Or sometimes lowering them. Or sometimes broadening the base. Or sometimes lowering interest rates. And on and on. One side argues as if evidentiary feedback matters and the other goes on like a mindless zombie that needs lower capital gains rates to survive.
There is also, of course, the additional problem of whether these policies were instituted DESPITE popular opposition to them, but because the voters preferred these politicians for other reasons. Based on the current ~80% response of the country being on the wrong track, and in a Gallup Poll last year 66% of respondents thought upper-income taxpayers weren't paying their fair share and 71% thought corporations weren't paying their fair share, it's fair to say that any votes for advocates of supply-side economics are most likely votes for them based on other issues. I'm also compelled to invoke inductive logic re: the confessions of Stockman and Cheney's comment when questioned by Bush about additional upper-end tax cuts that "[they] won the midterms. This is [their] due." So publically they argue for the voodoo and privately just scheme to not pay their fair share. They sell the rubes with the public face.
There is no avoiding that the distribution of the tax burden is inseparable from questions of economic justice. The distribution of the tax burden and inequality are bound up in the same thing - fairness. Beginning with Adam Smith, most economists have agreed that taxes should be based on ability to pay because of marginal utility (except for user taxes and Pigouvian externality taxes). The money has to come from somewhere, and those who benefit most from our system (myself included BTW), should contribute accordingly. What criteria would you suggest for determining the distribution of the tax burden?
Also, why the resort to reductionist logic like the *enforcement of equality*? I never advocated, nor would I ever advocate, such a thing. But those who study economics know that things like relative power, access to and use of infrastructure, barriers to entry and now global labor arbitrage are important determinants of who wins and who loses. When those factors overwhelm the effects of things like intelligence, commitment and hard work, the effect is to destabilize society. History is replete with examples of this. The founding of our own nation was largely based on economic injustice. Right now we're witnessing the cannibalization of our market-based economy. The middle class has historically been the driver of long-run prosperity and its destruction has been an omen of bad shit coming. We'll see if we can straighten it out before really ugly stuff arrives.
And it is possible for government OVER-intervention to be harmful; one look at the results of central planning provides ample evidence of that. But that does not mean that SOME government intervention doesn't yield dividends. Western Europe has plenty of intervention, and I don't see how it's suffering from any kind of lack of prosperity.
The sky may not be falling for you, but it is for a hell of a lot of Americans. Sitting there and telling them to eat cake hasn't been such a good plan in the past. I see no reason to expect it to be effective now.
I would also ask two additional questions besides the one about determining taxation, and that is this:
In what way is the fact that while the American worker has been consistently and increasingly productive the past ten years or so, his or her real wages have stagnated or actually declined, fair or just? And similarly, how is it just that wages should garner a smaller and smaller percentage of GDP, even as those who earn those wages become more and more productive?
http://www.nytimes.com/2006/08/28/business/28wages.html?_r=1&oref=slogin
Whew! Overwhelmingly powerful arguments, A.
I almost mentioned the following before:
When one suggests that the rich should pay more taxes, one might be motivated by (a) the recognition of facts about the diminishing marginal utility of money, or (b) the view that it's good to enforce a kind of financial egalitarianism.
I think that many of us are driven by some mixture of (a) and (b)...but, speaking for myself, at least, it's (a) that I think is more clearly defensible, and it's (a) that primarily motivates my thinking about these issues.
As for (b), well I *am* inclined to agree with Brandeis that "We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both." But I do fear the effects of letting our ressentiment get the better of us... And so I'm a bit skittish about this entire topic.
Anyway, thanks for the super-interesting comments.
Winston,
Absolutely agree 100%. I'm much more persuaded by a).
My personal preferences are not so much for *egalitarianism* per se, but only the promotion of the idea that the economy and the market ought to work for us, not the other way around. So I think the gov's role ought to be more in the realm of providing a safety net than in forcibly redistributing income. But there is something to be said for the fact that immense differences in wealth are very destabilizing to society. And since I'm really one of the winners, I'd really like to see the viability of our society maintained for the sake of my children and grandchildren.
So to boil it down, I'm basically a neo-liberal combined with a Social Democrat. I think the market is a phenomenal tool, but there do still exist market failures. There also exist economic injustices. So I would posit that there is a role for government, namely to set rules for fairness, help avoid and/or correct for market failures, help balance the relative power of capital and labor and provide a social safety net for the inevitable losers.
I also take pains to look at information and results and base my conclusions thereon. Plus, as I mentioned to Tom, I'm not dogmatic about it. The data doesn't say higher taxes are good or bad. It says only - there is a point at which tax collections are maximized. (Regression studies have shown the *sweet spot* to be in the low 50s% highest marginal bracket) If taxes are below that rate, it may still be a good idea to cut taxes - that is a political issue.
There is also the issue of whether and why certain forms of income (like dividends and capital gains) should be favored over income derived from labor. And that is where the more subjective judgments of morality, fairness and justice come in. So we at least need SOME answer to questions like Warren Buffett's as to why he should effectively pay a 17% tax rate and his secretary should pay 30%.
And many thanks for your kind words.
If wages [in real terms] have "stagnated," they've also "held steady." Considering the competition of literally billions of new workers from India and China entering the labor pool, holding steady is a fair achievement.
But I'm not dogmatic on tax cuts either. But contra Bill Clinton, the era of big government is not over. Dubya and the GOP [foolishly thinking they could outbid the Democrats] expanded it, and this fall's election seems to portend even more.
But to be clear---this nation was in no way founded on modern notions of "economic fairness": I defy anyone to find a trace of it in Locke or the Founders themselves.
The nation was founded on economic liberty, liberty being a word we no longer use, any thought of which is conspiciously absent in your arguments. It's a dead letter.
so I don't disagree on the whole with where your thesis ended up, anonymous---people seem to want a liberal fascist government, so we might as well make the best of it and try to see if we can avoid killing the golden goose.
Clinton saw that, and in my view, the numbers in no way support your contention that he rolled back Reaganomics.
The empirical---even the moral---question isn't whether the rich have too much, only whether the poor have enough. And as in every election year when Democrats are out of power, human suffering has peaked, at least by all accounts.
;-)
Wherever tax rates are set, they must be raised. It stands to reason.
[As for Scandinavia, Norway has rich oil reserves, and Sweden obviously noticed recently that when you confiscate wealth, it flees the country. They'd also be speaking German or Russian if not for the blood and treasure of the US, UK, and the fabulously cool nation of Denmark. So, they're a bit sui generis.
As for Finland, nobody cares except Nokia users.]
Yes, I suppose that's true about wages, but it's funny how there are so many artificial constraints on the supply of labor in the fields of medicine, law, accounting, economics etc. We could all benefit from global labor arbitrage in those areas as well. I won't hold my breath for a change of policy there.
And this nation was absolutely founded on notions of economic "fairness", since justice was considered as important as liberty and I see no reason why economics should necessarily be devoid of justice. Like most other important principles, there is a natural tension between liberty and justice, just as there is between security and liberty, for example.
There's also the concept of functional liberty, or *real* alternatives or freedom, as developed by Amartya Sen, but I don't really have time to go far into that now...
As for your challenge re: economic fairness in Locke or the founders, just off the top of my head, how about the Labor Theory of Value? The fact that Locke considered the concept of property to derive from one's labor certainly seems like a notion of *fairness* to me. And I'm sure there are others, but I don't have time for that now either.
I'm not going to contest your suggestion that GW Bush and the GOP have spent like drunken sailors, but take a look at what they've spent it on - mostly the military-industrial complex. Hardly the stuff of a liberal's dreams. They did institute Medicare Part D, but insisted, against the "liberals'" wishes, that it not save tons of money by bargaining for prescription drug prices (as they similarly insisted on subsidies for Medicare Plus health plans, so that they cost MORE than traditional Medicare - so much for the *efficiency* of the market). I'm sure there are some other random Duke/Abramoff boondoggles too. But hardly an expansion of the Great Society.
And you need to take a closer look at the progression of the tax code from 1980-2003 to get a good idea of exactly how tax *policy* has changed. That period saw marked increases in income taxes by Reagan himself, George Bush I and even Clinton (even though several times as many taxpayers got a tax cut as got a tax increase under Clinton). It also saw, significantly, reductions in the tax on dividends and capital gains to their current 15%. You also ignored payroll taxes in your previous posts. Warren Buffett's question still stands.
And FYI, the US has more proven reserves than does Norway. The salient difference is that in Norway these natural resources are treated as part of the commonweal, while here we allow them to be exploited by the private sector. Which would not necessarily be a problem if the proper tax policies were applied, so that the American people could be assured to benefit in an equitable way and all the externalities were adequately accounted for.
I'll also do you the favor of not dwelling on your extreme reductionist logic again, this time about *liberal fascist* government; I'll charitably assume it was offered tongue-in-cheek with reference to that giant of a thinker, Jonah Goldberg.
I really should say that I hope I don't come off as really extreme Tom. I don't think I am, and I don't think you and I are really that far apart.
I'm not some kind of utilitarian absolutist; I have serious problems with ultra-utilitarianism, even though at base its instincs are admirable - the maximization of the good for the most or the maximization of human happiness. The problem comes in when someone has either a special need or a special talent, and then it's just like they can go to hell. I can't sign on to something like that, so I'm the first one to admit principles need to be balanced.
No, I don't think we're far apart either. I continually remind my friends on the right that Adam Smith was no hardhead, in fact he was one of the wisest and most human humans in history. Or as I recently put it, Scrooge had better save Tiny Tim, because the statists will---and obliterate economic liberty in the process---if he doesn't mend his ways.
And they certainly couldn't be blamed. First things first.
And yes, it was tongue and cheek although there's more than a little to it.
As for the Labor Theory of Value, Locke was foggy but came down on the side of property rights, and that was the Founding.
Smith himself was working before mass industrialization. One may argue that the American worker has become more productive, but it's by no means clear that he's working harder or more efficiently in his own right. Better machines and techniques are more likely to deserve the credit, IMO.
Then of course, Marx got ahold of LTV and kerblooey!
I'm willing to entertain thoughts of "economic justice" [Hayek said late in life that he'd misunderstood Rawls' use of the term and was OK with it], but its proponents had better start figuring liberty in there someplace, because I refuse to be a cog in anybody's wheel, the megacorp's or the liberal fascist state's.
Well, to sum up my feelings in this regard, I'd say the most fundamental concept regarding an economic system is for me the same one as that for a political system: legitimacy.
When the system lacks legitimacy in the eyes of most of the participants, the seeds of destruction are sown. And so I'd just as soon not reach that point, or anywhere near it, notwithstanding Jefferson's adage that "a little revolution now and then is a good thing".
Yes, and let us never forget economic liberty's greatest friend of all: the black market.
BTW, I happen to be reading PJ O'Rourke's superlative book on Adam Smith: his friend David Hume was adored "Wealth of Nations." However, he rather ridiculed Smith's theory of value.
The empirical value of something is its price, and price is simply what someone will pay for x.
Using Smith's own hypothetical example that hunters could take two deer for every beaver they bag, it's absurd that someone would prefer beaver to venison for dinner.
Even more absurd, ensuring economic justice through the Labor Theory of Value, that the government should subsidize beaver.
"The empirical value of something is its price, and price is simply what someone will pay for x."
Actually, the truth or falsity of this statement is something that has vexed economists since at least Smith's day. And it brings up the related question of *intrinsic* vs. instrumental value. That is, does something have value solely for its own sake, or for what can be done/accomplished/gained with it?
The dispute between Hume and Smith that you write about is actually informative here. For it's pretty simple to say that two deer are vastly superior to a single beaver, because one could make multiple meals with the meat of two deer and perhaps one meal for one person with a beaver. But what if you have plenty of meat but you're very cold? Beaver fur is many times warmer than deerskin, and though one beaver pelt might not go far, it could be sufficient for say, a hat. So it comes down to a question of utility.
One of the reasons that, prior to the adoption of currency as a proxy for value and the advent of central banks (and of course the subsequent abandonment of the gold standard), metals like gold and silver were used as proxies of value simply because, with limited exceptions, they had no instrumental value, merely intrinsic value; people just liked them and the adornments that could be made from them. Their value was thus *irreducible*, and therefore useful as a proxy for value.
And prior to that, people used to engage in things like barter and trade, whereby each person's utility was enhanced using the goods of another in exchange for his. So depending on things like scarcity and discrete needs, one deer might have been worth four beaver or vice-versa or some other combination.
Also the relative cost for one party to produce or procure a certain amount of a particular commodity may be lower than it is for another, which enhances the prospect for trade between the two. Smith's star pupil, David Ricardo refined this even further in developing the theory of comparative advantage whereby it could be advantageous for parties to trade with each other even if one of the parties can produce both of the traded commodities more efficiently.
BTW, I would really have liked to have witnessed any discussion between Smith and Hume.
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