The Government as Producer of Last Resort? Not Exactly

The title is a bit of a play on words, from the original saying, “government is the employer of last resort”. The common economic paradigm on the political right, as well as political center, is that entrepreneurial activity and creative production are at its highest when government does the least. I came across this video of Chomsky today, which is well worth watching:

Chomsky has worked at MIT for at least 60 years. During the 50’s and 60’s, labs at MIT were being directly funded by the Pentagon for tech research. There are a litany of examples of high technology coming to the consumer economy, including the internet, Google, microchips, and infant formula.

Chomky’s point in the video is that there has been this building mythos of the inspired entrepreneur who can do anything if only the government would step out of the way. Alan Greenspan, the former Fed chairman, has of late become a champion of individualized entrepreneurship. Chomsky mentions him the video because Greenspan apparently is giving speeches heralding the “entrepreneurial spirit” of the US, and listing examples of wonderful inventions that we’ve made. The only problem is, the examples he cites are government backed inventions!

In an article here, Greenspan waxes poetic about this ethereal spirit:

“The most remarkable period of creative destruction in U.S. history was the era from 1865 to 1900, when government confined itself to providing a stable environment for growth. Titans such as Carnegie and John D. Rockefeller built the world’s biggest and most efficient companies. Railway barons knitted a continent together into the world’s biggest single market.”

I don’t know that even the most libertarian of people think unfettered plutocracy is good for the American democratic system, particularly given the average welfare for the American worker during this time was terrible. In fact, it didn’t much improve until…the labor movement. The movement which gave us the weekend, and by proxy, social security. Surely he wouldn’t be against these things:

“Fiscal policy has also hurt the economy. The growth of entitlements such as Social Security and Medicare has crowded out the funding of long-term investment in the private sector and in crucial infrastructure such as roads and airports. Millions of baby boomers are retiring and starting to receive benefits while still quite capable of being productive. In 1965, entitlement spending amounted to 5% of GDP. Today it stands at 14% and is projected to increase still more as the baby boomers retire.”

I find the above position difficult to explain. Surely social security, one of the most popular policies in general, is a public good? Healthcare is an absolute nightmare, but to pin that on the government is nonsense.

Finally:

“The financial crisis of 2007-2008 showed creative destruction at its worst. The combination of fear and herd behavior led people to overreact to bad news and to plunge economies into self-reinforcing cycles of decline. Nor did the federal government’s heavy-handed regulatory response to the crisis help matters.”

This is by far the most egregious of Greenspan’s statements. There is no mention of the rampant greed and recklessness of the private banking system and wall street. “Fear and herd behavior” are not, unlike the internet, government inventions. To say that the financial crises would have been better had the government stepped back, and let the entrepreneurs “do their thing” is insane. He does remember that it was the government, and therefor taxpayers, which bailed the whole banking system out right? I mean how obvious can you be in biting the hand that feeds.

If you take nothing else away from this post it is this: the US indeed has an entrepreneurial spirit. There is however, a blurry line between public and private spending when it comes to our most important and defining products. Neither the private sector nor public sector is wholly good or evil. Perhaps the better question would be, “how can both the public and private sector best foster the conditions to raise a new generation of entrepreneurs, and develop that spirit?”