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2017 | OriginalPaper | Chapter

Myth 3: The Less Government, the Better

Author : Joseph Shaanan

Published in: America's Free Market Myths

Publisher: Springer International Publishing

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Abstract

Myth: Government economic activities, unlike those of private sector firms, are usually inefficient. Government bureaucrats have neither the expertise nor the incentives to make efficient decisions. Government’s regulations are created to protect the weak and incompetent and stand in the way of innovation and technological progress. America is better off with less government.
Reality: The Great Depression shattered the idea of the economy as a self-regulating mechanism. It became accepted that government had a responsibility to shield people from economic disasters. The return of laissez faire ideology led Americans to ignore government’s accomplishments and to see it as an intrusive force with onerous social programs. America’s social safety net was shrunk; competition was no longer protected while taxes were reduced for the well to do. The results were dismal.

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previous chapter Myth 2: A Great Wall Separates Politics and the Economy
next chapter Myth 4: Deregulation Always Improves the Economy
Footnotes
1
Madrick (2009).
 
2
Cassidy (2009).
 
3
M. Friedman and R. Friedman (1980).
 
4
Backhouse and Medema (2009).
 
5
M. Friedman (1962).
 
6
D. Friedman (2008).
 
7
Backhouse and Medema (2009).
 
8
Brennan and Buchanan (1980); D. Mueller (2003).
 
9
This literature is criticized for conflicting theories and weak empirical support. See for example Green and Shapiro (1994).
 
10
Backhouse and Medema (2009).
 
11
Mercantilism – a policy devoted to wealth accumulation through positive trade balances.
 
12
Crouch (2011).
 
13
Madrick (2009).
 
14
Kay (2009).
 
15
Johnson and Kwak (2010).
 
16
Chang (2011).
 
17
Shaanan (2010).
 
18
Kuttner (2007); and Stiglitz (2012).
 
19
Madrick (2009).
 
20
Mueller (2003).
 
21
Chang (2011); and Stiglitz (2012).
 
22
Chang (2011); and Stiglitz (2012).
 
23
Galbraith (1985).
 
24
Madrick (2009).
 
25
Chang (2011).
 
26
Pearlstein (2014).
 
27
Crouch (2011).
 
28
Stiglitz (2012).
 
29
See Cassidy (2009); Shaanan (2010); and Stiglitz (2012).
 
30
Adverse selection – undesirable outcomes resulting from imperfect information.
 
31
Krugman and Wells (2012).
 
32
Krugman and Wells (2012).
 
33
Elgin and Langreth (2016).
 
34
Roy (1997); and Perrow (2002).
 
35
Heilbronner (1968).
 
36
Milton Friedman defends laissez faire and seeks to place the blame for the Great Depression on inaction by the Federal Reserve Bank.
 
37
Stiglitz (2012).
 
38
Madrick (2009).
 
39
Kuttner (2007).
 
40
Shaanan (2010).
 
41
Nelson and Wright (1992).
 
42
Thurow (1999).
 
43
Cassidy (2009).
 
Literature
Backhouse, Roger E. and Steven G. Medema (2009) “Laissez Faire, Economists and,” in New Palgrave Dictionary of Economics (second edition), eds. Lawrence E. Blume and Steven N. Durlauf, New York: Palgrave Macmillan.
Brennan, Geoffrey and James M. Buchanan (1980) The Power to Tax: Analytical Foundations of a Fiscal Constitution, Cambridge: Cambridge University Press.
Chang, Ha-Joon (2011) 23 Things They Don’t Tell You About Capitalism, New York: Bloomsbury Press. Kindle Edition.
Crouch, Colin (2011) The Strange Non-Death of Neo-Liberalism, Cambridge, UK: Polity Press.
Friedman, David (2008) “Libertarianism,” in New Palgrave Dictionary of Economics (second edition), eds. Lawrence E. Blume and Steven N. Durlauf, New York: Palgrave Macmillan.
Friedman, Milton (1962) Capitalism and Freedom, Chicago: University of Chicago Press.
Galbraith, John Kenneth (1985) The New Industrial State (fourth edition), Boston: Houghton Mifflin.
Green, Donald P. and Ian Shapiro (1994) Pathologies of Rational Choice Theory, New Haven: Yale University Press.
Heilbroner, Robert L. (1968) The Making of an Economic Society, Englewood Cliffs, NJ: Prentice-Hall.
Johnson, Simon and James Kwak (2010) 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, New York: Pantheon Books.
Kay, John (2007) “The Failure of Market Failure,” Prospect (July 26).
Kay, John (2009) “The Future of Markets,” Wincott Annual Lecture (October 20).
Krugman, Paul and Robin Wells (2012) Microeconomics (third edition), New York: Worth.
Kuttner, Robert (2007) The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity, New York: Vintage. Kindle Edition.
Madrick, Jeff (2009) The Case for Big Government, New Jersey: Princeton Press. Kindle Edition.
Mueller, Dennis C. (2003) Public Choice III, Cambridge: Cambridge University Press.CrossRef
Mulligan, Casey B. (2009) “Aggregate Implications of Labor Market Distortions: The Recession of 2008-9 and Beyond,” NBER Papers.
Nelson, Richard R. and Gavin Wright (1992) “The Rise and Fall of American Technological Leadership: The Postwar Era in Historical Perspective,” Journal of Economic Literature, Vol. 30 (December) [pp. 1931–1964].
Perrow, Charles (2002) Organizing America, Princeton: Princeton University Press.
Roy, William (1997) Socializing Capital, Princeton: Princeton University Press.
Shaanan, Joseph (2010) Economic Freedom and the American Dream, New York: Palgrave MacMillan.CrossRef
Stiglitz, Joseph E. (2010) Freefall: America, Free Markets, and the Sinking of the World Economy, New York: W. W. Norton and Company.
Stiglitz, Joseph E. (2012) The Price of Inequality: How Today’s Divided Society Endangers Our Future, New York: W. W. Norton and Company.
Thurow, Lester C. (1999) Building Wealth, New York: HarperCollins.
Metadata
Title
Myth 3: The Less Government, the Better
Author
Joseph Shaanan
Copyright Year
2017
Book
America's Free Market Myths

Print ISBN: 978-3-319-50635-7

Electronic ISBN: 978-3-319-50636-4

Copyright Year: 2017

DOI
https://doi.org/10.1007/978-3-319-50636-4_4