DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 1: An Introduction to the Issues

Introduction • Book focuses on variety of issues associated w/ socalled “Big Government” • Distinction b/w government & governing: – Government – refers to array of people/policies that happen to prevail or to characterize a society at some time • Examples of attributes that characterize “a government”: who is in control of the legislature; what particular taxation sys. is used; level of taxes – Governing – refers to the process by which individuals make choices about the things they wish to affect • Tools of governing: taxing, spending, regulating, designing incentives, imposing fines & sanctions, issuing honors & awards

Introduction (cont. ) • Book complains of focused “anti-government campaign” that “makes it more difficult for the less privileged of society to have access to governing authority” – “… the language of antigovernment sentiment and the accompanying political success of antigovernment politicians have produced an interpretation of government growth and a view of government size that serves the political ends of the prosperous and powerful, at the expense of those who are not. ” • Important aspects of “anti-government campaign”: – Work of “conservative thinkers; ” corporate sponsors; conservative foundations & think tanks; talk-show hosts • This “campaign” has eroded public support for government pgms, other than military spending, education, penal institutions, and income security for the elderly, resulting in “durable changes in the political landscape, incl. reduction of govt. revenues, deregulation, and decentralization of power to the states

Introduction (cont. ) • Book concedes that U. S. has long history of “big government” distrust – Constitutional ratification debates – More recently, perceived failures of Kennedy and LBJ social welfare policies; Vietnam war; Watergate; intensification of partisan confrontations

Important Issues that Book Will Critically Address • Belief in the superiority of the market • Belief that compliance based on non-coercive (“market”) methods are better (less dangerous) than compliance induced through coercive methods • Belief in bureaucratic determinism • Belief that market failure is episodic only, requiring little govt. intervention • Belief that size of U. S. Govt. is too large and the cause of poor economic performance

Approaches to the Explanation of Government Growth • 3 main approaches: macro-deterministic; public choice; group conflict and competition; key concept is that evaluation of causes of govt. growth is “multicausal” • These categories synergistically interact: one example is interplay b/w fiscal decentralization, utilitymaximizing behavior of individuals, and size of the public sector: decentralization of taxing & spending authority will, assuming utility-maximizing behavior on the part of officials & public, operates as a functional equivalent of a formal fiscal restraint

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 2: How Big has Government Gotten in the United States?

The Need for Context • Govt. taxing & spending (T&S) symbolizes to many citizens an unacceptable level of “government burden” • Public discourse re Govt. T&S “dominated by inappropriate comparisons to family and business budgets” • Govt. mismanagement & inefficiency tends to be overlyexaggerated • Contextual discussions best held in terms of “quantitative increases” in existing pgms, versus “qualitative changes” that create new programs from whole cloth • Important to place growth of govt. in historical perspective, and to compare govt. growth relative to the growth of the economy in general and to the income of the people who pay the taxes that fund government programs

Growth in Levels, Proportions, and Burdens: The Fiscal Dimension • Objections to govt. growth can be found “at practically any point in U. S. history” (ex. : $90 M budget deficit in 1909) • Growth in “absolute size of fiscal dimensions” seen by reviewing dollar amts. involved: – 1792: $5 M spent, $1 M deficit – 1987: $1 T spent, $155 B deficit – 1997: $1. 7 T spent • When measured in absolute, current dollars, govt. T&S levels have dramatically swelled over the years • Most notable feature of latter half of 20 th cent. Is sustained increases in both spending & receipts, and also periods of large deficits

Relative Fiscal Growth • Proper assessment of govt. ’s fiscal growth requires evaluation of its relationship to the total economy, i. e. , expressing govt. fiscal data as a percentage of the Gross National Product (GNP) • Regarding relative growth of U. S. govt. spending in the 20 th cent. , data suggests – Until WW 2, state/local govt. spending was a greater proportion of GNP than was fed. spending – Growth in govt. spending greatest during periods of war • Total peacetime govt. spending as a % of GNP reached a peak in 1982 (at 43. 2%) -- Individuals are presently contributing to fed. Revenue more from their income than was the case before WW 2, w/ an avg. of 45% of all govt. revenue -- Contributions of corporate taxes has steadily declined since end of WW 2

Government Deficits • Many “agonize” over deficits as a major cause of poor economic performance • Historically, however, govt. deficits are nothing new, w/ substantial episodes of deficit spending (Civil War, WW 1 and WW 2) • After WW 2, 20 th cent. trend is one of nearly uninterrupted deficit spending at fed. Level • Change in budget deficit as a % of total fed. budget nearly doubled b/w mid-70 s and mid-90 s

Government Deficits (cont. ) • Book suggests that deficits and their debt service costs, when compared to overall economy, are not that bad • However, deficits do serve to limit choices made by policymakers as to how public funds are spent – Defense spending has generally declined – Human resource spending rose greatly but began to subside in 1980 s

Comparative Size of U. S. T&S • Data indicates U. S. has among the smallest public sectors when compared to most of the advanced, Western European nations • Data does NOT establish a clear relationship b/w size/cost of public sector, and economic performance (in other words, the argument that a public sector too large and costly will lead to a poor economy is not supported by the data)

Growth of Government Regulation • Regulation: state-imposed limitation on the discretion that may be exercised by individuals or organizations, which is supported by the threat of sanction • Regulation is important component of nonfiscal government growth • Issues w/ regulation – Concern it reduces personal liberty & contributes to excessively powerful govt. – Concern it tends not to work in manner intended – Concern it works against economic efficiency by causing unintended consequences

Distinction Between Economic Regulation and Social Regulation • Economic regulation refers to govt. efforts to manage competitiveness, improve the performance of specific industries, and smooth labor-mngt. relations; it seeks to promote business & avoid excesses of “ruinous competition” • Social regulation cuts across sectors of society, and defines what goods should or should not be produced; it specifies industrial procedures geared toward health & safety, and advances a conception of the public interest separate & apart from, and sometimes opposed to , the outcomes of the marketplace

History of Regulatory Growth • Regulation not pervasive, but did exist during colonial period and among the states (very little federal regulation) in postrevolutionary period, across a broad range of social & economic activities • Federal regulatory role expanded during Civil War and continued thereafter • Civil War to New Deal (1861 -1932): fed. govt. began to regulate markets & industries, often at their request – ICC est. 1887; Sherman Anti-Trust Act passed 1890 – FDA created in 1906, expanding govt. reg. to more of a social regulation agenda

History of Regulatory Growth (cont. ) • New Deal to WW 2 (1932 -1940): Great Depression spurred regulatory regime striving to re-establish confidence in business institutions, promote harmony among social classes, promote new communication & transportation technologies, and manage competition – Social regulation also appeared again w/ creation of National Labor Relations Board in 1936 1960 s-1970 s: regulations mushroomed, particularly in social regulation areas of consumer protection, workplace safety, product liability, equal opportunity, environmental protection, and historical as well as wildlife preservation • 1980 s to present: marked by deregulation; so-called “third wave” in the regulation story which favors a presumption against regulation as a matter of principle •

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 3: Macro-Deterministic Explanations of Government Growth

Introduction • “Macro” changes are broad changes occurring at a societal level; they likely alter the behaviors that individuals adopt as a result of the change • These changes can be social, technological, geographical, among others • Macro changes create challenges/demands for government • A variety of factors operate at the level of society, and they form the context or the environment of a society’s members, creating new options, new forms of disputes, and new forums to consider the boundaries b/w the public and private sectors.

Changes in Social and Demographic Characteristics • The study of social change is not new, and focuses on the impact of population characteristics on government policy. – Increased pop. size, & density, sometimes leads to increased crime, as well as tensions b/w groups, resulting in greater govt. involvement to ameliorate social tensions • RESULT: MORE GOVT. INVOLVEMENT IN PREVIOUSLY PRIVATE MATTERS • Other stimuli of govt. growth: personal income, age, ethnic background: greater income provides more resources for funding of govt. policies, as greater levels of affluence result in a higher demand for, and capacity to support, govt. services

Other Causes of Government Growth • Technology: since Industrial Rev. , many attribute growth in govt. to the mind-boggling technological advances seen in the late 19 th, and 20 th centuries – Technology has created new complexities and new issues that require govt. involvement • Formal govt. institutions, in & of themselves, are a macro-deterministic variable, that can lead to govt. growth; changes in rules governing policy formation, selection of and access to govt. officials, and exercise of political rts. can affect the scope of govt. and its rate of growth • Political culture: certain attitudes & expectations among individuals affect the demand & support for govt. services; dramatic changes in social, demographic, and technology, as well as significant catastrophic events (Great Depression; a war; an oil spill or nuclear mishap), can often lead to public support for govt. involvement in previously private matters

Frequently Used Macro-Deterministic Approaches • Wagner’s Law (“The law of Increasing State Activity”) – Dated, but still influential thought on relationship b/w govt. growth & advancing economic development – Wagner hypothesized that economic progress (higher incomes, more productive mfr. processes, more complex bus. org. , etc. ) would both support, and necessitate, greater govt. involvement – Econ. progress intensifies military competition and spurs development of more sophisticated weapon systems, increasing govt. growth via military spending – Greater industrialization results in creation of large, densely-situated workforce, giving rise to social frictions requiring govt. intervention, as well as creating infrastructure, and health/safety needs requiring greater govt. oversight – Industrialization also led to demand for govt. supply of more public , collective, social goods (transportation; national defense; cultural amenities; public education)

Frequently Used Macro-Deterministic Approaches • Peacock & Wiseman’s Displacement Effect Hypothesis – British scholars who charted growth of govt. in U. K. from 18901955 – Growth in govt. generally req’d an antecedent, catalytic event – War is such a catalytic event; however, natural disasters, and also downturns in the economy can lead to greater govt. involvement in previously private matters (in contrast to Wagner’s Law) – End, or lessening of cataclysmic event/condition, leads to a new stable period and more resistance to govt. involvement, but generally speaking, there is no return to the earlier and lower plateaus

Concepts Introduced by Peacock & Wiseman • Tax tolerance: during relatively tranquil times, public tends to resist new taxes, operating at a fixed level of tax tolerance • Public sector plateaus: during these stable periods, the proportion of the economy represented by govt. spending constitutes a plateau, maintained over time by the public’s resistance to new taxes • Displacement occurs when a major crisis or condition creates new expectations of govt. and greater demands for govt. services, thereby displacing the taxation status quo • Inspection effect: as govt. spending increases, a new resistance to tax increases begins to form; a host of new obligations & problems that are not viewed as govt. responsibilities are recognized

Distinction Between Breakthrough and Rationalizing Politics • Advanced by Lawrence Brown (1983) • Breakthrough politics involves the movement of govt. into new areas of public sector activity • Rationalizing politics involves issues of managing the delivery of already existing policies • New, large public programs become less frequent, as politics tend to become dominated more by issues of administering and making more efficient the current array of govt. services – The relative emphasis on rationalizing politics increases over time as the public sector grows

Effect of Institutions, and Majoritarian Democracy, on the Size of the Public Sector • There is a general belief that in a democracy, public opinion should have a significant bearing on govt. agenda & policy content; the paramount method by which citizens and govt. actions are linked is through the electoral process – Almost universal white, male suffrage by 1860 – Black political participation did not occur routinely until 1960 s – Women granted suffrage via 19 th Amd. (1920) – 18 y. o. ’s given rt. to vote in 1971

Effect of Institutions, and Majoritarian Democracy, on the Size of the Public Sector (cont. ) • The larger & more heterogeneous the electorate becomes, the greater the range of demands, and the greater the rate of govt. growth, assuming elected officials are motivated to be responsive to the increased demands for govt. action – Can result in what some term “redistributive policies” • The courts are also a key institution that can contribute to govt. growth, in that court decisions at times directly affect the size of govt. budgets, the legality of taxes, and the scope of govt. activities – The corollary is that the courts can also block govt. growth, i. e. , federal court decisions opposed govt. growth in the years of rapid economic development following the Industrial Rev. of the late 19 th cent. and into the early 20 th cent.

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 4: Public Choice Explanations of Government Size and Growth

The Political Economy Origin of Public Choice • The public choice approach to politics, also called “rational choice, ” rational, self-interested economic roles prevail in both private markets as well as public govt. sectors • Nearly every kind of interaction can be understood in economic terms – any kind of interaction b/w people can be interpreted & explained as an exchange, a weighing of benefits & costs, including “psychic costs” – Resistance to public support of abortion, for ex. , is an expression of moral disagreement than with the financial cost; this complicates the calculation of costs & benefits

Public Choice and Market Failure • By and large, public choice theorists hold the private sector as efficient, and preferable to public sector action – the principle of consumer sovereignty – Private markets use methods having lowest production costs – Private markets produce the quantity & mix of goods most valued by society’s members – Private markets distribute goods & services to those individuals who value them the most, thereby maximizing societal satisfaction (utility) – Private markets maximize personal liberty

Public Choice and Market Failure (cont. ) • Market failure is the primary reason justifying govt. growth, a/c to public choice theory – Book stresses that this justification rests upon narrow technical & efficiency grounds • Govt. involvement however should replicate workings of private market

Characteristics of an Efficient Market • Widely-shared info re goods & services • # of producers & consumers large enough to prevent improper price or supply control • Transactions affect only those who produce & consume the transacted goods/services • Exchange of goods & services involves no time or other resource costs • People who do not pay for a given good/svc. are prevented from receiving any benefit WHEN THESE CHARACTERISTICS DO NOT EXIST AS A PART OF REAL-WORLD CONDITIONS, MARKET EFFICIENCY IS THREATENED, AND MARKET FAILURE CONDITIONS MAY EXIST

When Does Market Failure Occur? • Monopoly: when there exists only one producer of a good/svc, that producer can manipulate the price and the market is therefore frustrated; net social welfare is not maxed • Externalities: can be positive or negative – Negative externalities occur when costs are imposed upon parties not involved in a transaction, for ex. , a factory polluting the water causing costs downstream; these produce market failure due to a misallocation of resources they engender – Positive externalities can result in the undersupply of certain goods and services, since the producer is not compensated for providing them

When Does Market Failure Occur? (cont. ) • Existence of some public goods can cause market failure market therefore will undersupply public goods that may be needed for a well-functioning society – Imp. feature of efficient market is ability to exclude individuals from receiving benefits of goods/svcs. that they don’t pay for – Public goods are those however which are “nonexcludable” and characterized by “nonrivalry” in consumption – Little incentive for market to produce public goods for beneficiaries who cannot be excluded from use when they do not pay

When Does Market Failure Occur? (cont. ) • Inequality of access to important info available to market producers & consumers: occurs when businesses withhold info from consumers that would allow them to fully evaluate good/svc, resulting in ignorant consumers who are unaware of price/quality differences among goods/svcs. – Resource misallocation can result

When Does Market Failure Occur? (cont. ) • Transaction costs: when the costs of coordinating the benefits/costs of a transaction are greater than the net benefits of the transaction itself, it is possible certain transactions will not occur, although they could improve net social welfare – Examples: govt. enforcement of patent rts. , govt. involvement in land use regulation

What Should be Done to Remedy Market Failures? • Public choice theorists believe govt. intervention is necessary, but it should replicate workings of private market • Others argue that at times it can be better to tolerate market failures than to allow govt. involvement in matters that were previously only private in nature

Other Causes of Government Growth, According to Public Choice Theories • Median-Voter Redistribution: increased democratic access (increase in suffrage rts. ), coupled w/ varying income levels in the populace, leads to voters below the median income average to elect officials responsive to their demands, which likely will involve higher taxes on the more affluent, and therefore redistribution of wealth – Net effect is bigger govt. , more govt. programs

Other Causes of Government Growth, According to Public Choice Theories (cont. ) • Bureaucratic determinism: it is in the best interest of govt. agencies to maximize their budgets and their scope of activities; bureaucracies therefore in & of themselves are a major force creating more govt. • “Fiscal illusion”: taxpayers tolerate higher than optimum levels of govt. b/c they underestimate the cost of svcs and are not fully aware of the full burden of taxation – Result is oversupply of public services or excessive regulation

Other Causes of Government Growth, According to Public Choice Theories (cont. ) • Interest group behavior: the squeaky wheel gets the oil – theory that interest groups clamor/lobby for increased levels of govt. services, resulting in expansion of govt. through provision of quasi-benefits for a variety of special interests

Contra View of Anthony Downs • Downs (1960) predicted that public sector size would decline due to “rational political ignorance” • An optimal public budget is one emerging from the political process, if both the voters and bureaucrats have perfect info regarding budget items and their associated benefits • “Perfect info” typically does not exist, and therefore budgets are too small or too large, depending on the mix of ignorance regarding benefits & costs • Remoteness of public transactions and nature of benefits (usu. years into the future) makes it difficult for voters to assess benefits of govt. expenditures

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 5: For Whom the Evidence Matters: Conclusions Regarding The Causes of Government Growth

Neiman’s Assessment of Various Theories Explaining Govt. Growth • Wagner’s Hypothesis: while true that economic progress can spur govt. growth, the converse is also true – economic decline can spur govt. growth (New Deal as a result of the Great Depression being an example) – Later theorists fleshed out Wagner’s theory and explained that industrialization and urbanization led to working class mobilization, responsiveness to their demands, and greater govt. involvement in social welfare - the combination of democratic participation & the advance of capitalism led to growth in govt. – Other theorists argue that in some advanced democracies, revenue constraints, taxpayer resistance, and the desire to substitute private for public consumption, works to weaken the relationship b/w economic advance and govt. growth

Neiman’s Assessment of Various Theories Explaining Govt. Growth (cont. ) • Displacement Effect (Peacock & Wiseman): Neiman finds solid evidence of their “step-like pattern” of govt. growth – War, economic decline, and occasional instances of unusual prosperity can account for step-like increases in govt. growth – With the end of wars, govt. T&S can decline significantly, but usu. NOT to the level of pre-war days – Cataclysmic events (i. e. , war) traditionally spurred govt. growth; the Great Depression and New Deal added to the dynamic by introducing huge govt. growth to address a cataclysmic economic event – Economic distress and military threats have come to operate as displacement factors, supplanting existing notions of what is acceptable in the way of govt. involvement & govt. burdens. – Neiman says however that current political climate makes it hard to initiate major new programs

Neiman’s Assessment of Various Theories Explaining Govt. Growth (cont. ) • Democratization: difficult to define a precise statistical relationship b/w govt. growth and increased democratization in society – The “fear” of some is that more democratization will lead to mob role, so to speak, that will spur govt. growth via demands made upon public officials – Neiman says that this fear is unjustified and that the middle class, instead of lower income classes, have benefitted most from social welfare pgms. – He further states that “redistribution from the wealthy to the poor simply does not occur, or if it does, only at very modest levels”

Neiman’s Assessment of Various Theories Explaining Govt. Growth (cont. ) • Public Choice explanations: Market Failure – In and of itself, market failures do not necessarily result automatically in govt. growth, however, it can trigger political processes that result in govt. growth • Public Choice explanations: Median-Voter Model -- Neiman does not buy this model, arguing that “the poor” wield little political power, participate less in politics, and that empirical data in U. S. does not support this model -- He argues, “If the median voter model accurately accounts for govt. growth, then more income redistribution would result – that is, with greater democratization and political participation, there would be a lessening of income inequality. Regarding the United States, however, the data do not suggest such equality. ”

Neiman’s Assessment of Various Theories Explaining Govt. Growth (cont. ) • Public choice explanations: Bureaucratic Determinism – Neiman: most empirical work does not support – Public employees motivated by more than mere self-preservation

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 6: Blaming Government: The Case of Economic Performance

Relationship of Govt. Size to Economic Performance (if any) • Electorates in advanced economies often associate declining economies to large & rapid increases in the public sector • Neiman: no evidence that nations w/ large or rapidly growing public sectors experience less robust economic performance • Differences in rates of capital formation growth are NOT strongly related to size of public sector

Relationship of Govt. Size to Economic Performance (if any) (cont. ) • While data somewhat supports theory that economic growth is related to public sector size, w/ large public sectors slowing GDP growth rates, the body of data over the years shows no consistent relationship b/w GDP growth rates and public sector sizes among a variety of advanced nations • Unemployment – slight tendency for average unemployment levels to rise as the size of the public sector declines • Inflation - Nations w/ comparatively large public sectors are NOT likely to have distinctively higher inflation rates • Deficits - data does not establish link b/w deficit spending and inflation or unemployment levels

Most Common Reasons Given for Negative Impact of Big Government on the Economy • High taxes reduce the incentive to work & save • High levels of transfer pmts. lower the incentive to work at all, or to work at the highest level • High taxes increase investment & time in tax avoidance, leading to bartering & other underground econ. Activity • Govt. provision of public svcs. distorts efficient resource allocation by overproducing such svcs. • Govt. regulation of econ. activity increases the cost of production & distribution, adding to resource misallocation

Neiman’s Views • Low level of capital formation in U. S. most likely due to low level of savings • Larger public sectors do NOT contribute to lower productivity by diminishing savings and investment • Criticism linking poor U. S. economy to public sector growth is misplaced • There is no single aspect of econ. performance that is correlated in any direct, simple or consistent way w/ standard measures of govt. size

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 7: Does an Active Government Necessarily Mean Oppressive Government?

Importance of Government (according to Neiman) • For some U. S. citizens through the years, the role of the Fed. Govt. has been crucial in expanding freedom, and protecting against abuse and prejudice • The Fed. Govt. in the 20 th cent. played critical part in the effort to remove racial, religious, ethnic, and other social barriers in the workplace, housing, public transportation & recreation, and education • Govt. involvement in broader range of previously private activities, and the costs associated w/ govt. involvement, are the result of responses to abusive and dangerous behavior in the private sector

Reaching Optimum Level of Government Involvement • Most agree govt. must be involved in fighting “conventional criminal conduct” • But what of other harmful “behaviors” in society, particularly in the private marketplace? Neiman argues “what is often overlooked is the degree to which the powers of governing need to be deployed to restrain private sector threats to well-being. ”

Dynamic Tension in Reaching the Optimal Level • Arthur Okun (1975): There is a tension b/w maximizing economic efficiency, and therefore, tolerating whatever inequality arises, or, maximizing equality and suffering potential declines in productivity, and therefore, producing a smaller pie to share. (i. e. , don’t kill the goose that laid the golden egg)

Value of Government Involvement to Groups and Individuals • Neiman: home builders and homeowners benefit greatly from “lavish” public subsidies and exemptions from capital gains taxation • Publ. sectors grow in part b/c there are groups who benefit greatly from govt. involvement (for ex. , a subsidy or a regulation); for these groups & individuals there are perceived gains in having govt. intervene in previously private matters • Publ. sectors also grow due to individuals seeking to gain by reducing or eliminating the perceived misconduct or undesirable behavior of some other individual or group

Some Reasons Why Public Sector Comes Under Attack • Over time, the public forgets that the govt. agencies & the laws creating them often arose from some serious, specific private sector abuse or problem • U. S. has long history of venerating property rights; Neiman says “Unfortunately, the terms of the debate that prevailed during the founding continue to pervade all discussion of reform and policy today. ” • Language of the current debate on govt. size continues to conjure up the specter of an all-powerful, abusive, inefficient govt. , which Neiman dismisses as a legitimate concern • Neiman: The real issue today is not whether the nation is about to be taken over by some totalitarian regime. Instead, the key issue is whether the public is capable of designing effective, efficient governing bodies that can advance its interests in public and private sector arenas through the array of tools of governing that are available. ”

Actions Used Against Growth of Public Sector • Neiman: institutionalizing tax cuts; reducing tax rates; eliminating govt. agcy’s & depts; requiring extraordinary majorities to increase taxes; fixing budgets to a set proportion of the economy; requiring govt. compensation for losses due to noncriminal regulatory activities, and requiring elaborate, expensive evaluations of govt. regs. before they can be implemented • The price necessary to achieve govt. involvement in previously private matters is increased

Consequences of Attacks Upon Public Sector Size • Neiman: when the range of areas over which govt. might act is ltd. , or when govt. officials are constrained in the choice of tools the public might use to achieve public goals, society deprives human beings of the capacity to defend themselves against the ravages of private power • Neiman: as there have been more constraints on govt. ability to respond to citizens, it has been the most affluent and prosperous segments of society that have been most successful in the competition for govt. responses. • Neiman: economic and competitive pressure of the marketplace inevitably leads to private sector abuses; if public institutions are stripped of the authority necessary to achieve democratically prescribed goals, there will be an increase in the chances of abuse by private power – TO ENHANCE INDIVIDUAL HAPPINESS AND WELL-BEING, AN EXPANSION OF SOME ASPECT OF GOVERNING AUTHORITY OR SOME EXTENSION OF A GOVT. TOOL IS SOMETIMES REQUIRED.

Labor and Consumers • Prior to 1933, Fed. Govt. had taken no steps to regulate labor; since then, U. S. has moved from a time when the well-being of the employee “was precariously dependent upon a fortuitous conjunction of the humanitarian impulses and economic interests of those in power, ” (Morris, 1946) • Neiman cites current examples of what he calls “business abuse of its employees”: compilation of extensive, overlyintrusive dossiers on ee’s; requirements to take psychological tests; telephone & computer monitoring; workplace hazards and lax safety • He claims there is a continuing effort to weaken the capacity of workers to organize and compete politically, which may result in loss of the modest gains workers have made

Labor and Consumers (cont. ) • Neiman claims that business misconduct such as dangerous packaging and transporting of products, use of tainted food products, polluting and hazardous dumping, occurs w/ regularity • He argues that such behaviors would be far more widespread and injurious w/o some form of public policing, whether through regulation or mandating of liability

White Collar Crime • Neiman: the cost of white collar crime can run into the hundreds of billions per year • Business crime continues to be a substantial, fixed feature of modern business life • Govt. policies that might stem such instances of “bad private behavior” could produce major benefits that would outweigh the costs of producing improvements, i. e. , cost of enforcement would be less than the cost of the harms avoided

Privacy Issues • Neiman: Critics of large public sectors often cite violation of privacy concerns • However, the current threats to privacy occur much more in the private sector: – – – – Employee records Direct-mail lists Credit card data use Credit information Health data Industrial espionage Threats to privacy in “on-line services world”

Regulation vs. Deregulation • Neiman concedes that sometimes technology and economic forces justify deregulation (citing examples of airline and communications industries), which can produce substantial public benefits in the form of lower costs and product innovation – (some might argue this is pretty much the cornerstone of the American free market capitalist system, and would take this as a given)

Regulation vs. Deregulation (cont. ) • Govt. regulation/involvement needed to protect interests of future generations – Ex. : development of alternative fuel sources will result in new costs for training and production; will govt. introduce some of that cost NOW into current prices, or will future generations bear entire burden of these new costs? – Neiman argues that if can be shown that real gains in productivity can be achieved w/ higher energy prices for the current generation, only govt. institutions are likely to produce policies to achieve these gains • In light of present gas price explosion, this might be a tough sell!

Regulation vs. Deregulation (cont. ) • Some argue that govt. regulations that deny people the right to use an arguably harmful good or service, or to accept a risky, dangerous job, when the risk is fully known, are a step toward “Big Brother” govt. and a loss of personal freedom – Neiman says that it is dangerous to “merely” disclose the side effects of a potential dangerous product, and claim that this fully permits consumer assessment of risks & benefits – Neiman argues that even though workers may be fully informed of the risks of a particular job, and accept that risk, they are not able to “fully internalize the experience of losing in the gamble for higher wages; ” in other words, society should NOT assume workers will make rational trade-off decisions – He states that the less affluent are more likely to absorb higher risks in return for higher incomes

Regulation vs. Deregulation (cont. ) • Neiman seems to be saying that the right to make individual choices is all well & good; however, removing public controls and govt. regulation could lead to re-creation of the “host of problems that engendered the public clamor that produced the public involvement in the first place. ” • He uses Social Security as an example of a needed govt. policy to forcibly require Americans to save for their retirements; otherwise “vast numbers of people will simply under-invest in their future wellbeing. ”

Neiman’s Views • A growing public sector is important to enhancing the freedom and well-being of many members of society • Key issue: “How it is decided when the burden of govt. policies is too great and which policies ought to be curtailed, improved, or terminated is the critical issue in democracies when it comes to questions of govt. size. ”

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 8: Hitler Didn’t Come to Power Via the Health Department

The Big Brother Road to Dictatorship • Neiman argues that some opponents of govt. growth take an “all or nothing” approach, in other words, they never met a govt. regulation they didn’t hate • He says these opponents have a strategic purpose in automatically labeling govt. growth as a threat to liberty: to undermine the legitimacy of govt. being involved in any policy domain • Neiman: “it is common among conservative critics of public sector activism to characterize govt. growth in the arena of social welfare, environment, consumer and worker protection, and income security as steps toward the loss of liberty and even totalitarianism. ”

Neiman on Big Brother Theory • There is no record of any oppressive regime having taken power by advancing social welfare policies • Economic misery and a sense of exploitation have sometimes led nations to embracing dictators, trading freedoms & rts. for the promise of bread and security • “Causally linking such policies as health programs, higher taxes, environmental regulation, and consumer protection with the prospect of dictatorship and the loss of an energetic democratic system is simply not supported in history. ”

Neiman’s Discussion of “Anti. Government Spin” • He says prevailing moods & themes make it very difficult to talk favorably about an activist role for govt. • He argues that Americans’ views regarding govt. size are driven more by “antigovernment hyperbole” than by any “reasoned, factual discourse. ” • Opponents of big govt. argue that taxes are lucre, extracted from a helpless and ill-served taxpaying public – public revenues should be transferred back to individuals, since the money does not belong to the Govt. – Class discussion: how many of you agree w/ these sentiments?

Neiman’s Discussion of “Anti. Government Spin” (cont. ) • He bemoans historical “adversarial relationship” b/w the public and the govt. • He bemoans the fact that public sector services are evaluated on the same criteria as private sector providers, which intrinsically is not a fair comparison • He notes that membership in a civil society means that one cost to society’s members will be supporting decisions that are made by others, even when one does not favor the decision; if one agrees in advance to being a member of organized society, one has implicitly accepted the rules of public sector engagement

Neiman’s Discussion of “Anti. Government Spin” (cont. ) • Hirschman’s (1991) discussion of conservative themes of “perversity, futility, and jeopardy” – Perversity: govt. efforts to improve things almost always produce unwanted and unanticipated results worse than the original ill they were designed to fix – Futility: social interventions cannot change human nature; poverty & prejudice will always be present – Jeopardy: in seeking to improve social/political conditions, govt. policies may harm other values, such as liberty, and private property

Neiman’s Views (they are many) • To some extent, Americans have forgotten public sector achievements in education, income security, consumer protection, and environmental quality • Through govt. , the public has improved the safety of a wide range of goods and services; made workplaces safer, and enhanced environmental quality • Transitioning govt. regulation from current “command control” to more market-based, incentivized system might actually result in more intrusive, pervasive, govt. involvement in private matters • He does not appear sympathetic to view of many taxpayers that it’s their money, not the govt. ’s, and therefore tax cuts are not a “benefit” or “govt. program”

Neiman’s Views (they are many) (cont. ) • He acknowledges the role that “merit” plays in allocation of govt. resources: the public deems some recipients more “worthy” than others – Not clear whether he disagrees w/ this phenomenon, or accepts it is a natural byproduct of the democratic system

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 9: Being Dismal in Policy Analysis or Learning to Love Policymaking

Economic Approach to Policy Analysis vs. Political Approach • Neiman is concerned that economic/rational choice approach is displacing political approach to determine what govt. interventions into previously private matters is warranted, and how those interventions should be structured • Economic approach wants to fix the scale of govt. so that it is contained w/in the bounds of what reasonable people would refer to as “limited govt. ”

Economic Approach to Policy Analysis vs. Political Approach (cont. ) • Neiman is concerned that public choice, rational model approaches are geared toward removing policy decisions from the turmoil of the political arena, to the domain of more business-like, rational, decision-making

Public Choice and Metropolitan Organization • Chief feature of local govt. organization in U. S. is fragmentation: no single govt. entity is responsible for the range of local svcs. ordinarily associated w/ local govts. • Neiman criticizes this decentralization and rejects the common defenses of it – Results in biased public policies that discriminate against inner city minorities in favor of affluent white suburbanites – Prevents needed re-distribution of wealth

“Blueprint View” of Problem-Solving • Neiman states that rational choice models have a blueprint view of problem-solving that doesn’t work in real life – View holds it is possible to achieve a high degree of knowledge and certainty in policy-relevant knowledge – Assumes fluidity of resources that does not exist; resources are not fluid and are not easily transformed from one activity to another – Any model of policy evaluation must incorporate the issue of policy displacement if it is to be relevant.

U. S. Housing Policy Example • Housing policy can be “supply-side” or “demandside” • Supply-side: stimulates those who build & finance housing to build more, or to provide more capital at more favorable terms for housing construction & purchases • Demand-side: provide assistance directly to individuals & households to subsidize or underwrite their housing costs

U. S. Housing Policy Example (cont. ) • By the time of the Great Depression, housing policy in U. S. had been well-studied and formulated – Supply-side principles implemented, continuing until ‘ 70 s – Analysis, politics, and the exigencies of war had produced a federallysponsored, supply-oriented approach to housing – Beginning in the ‘ 70 s, more conservative policies took hold that disfavored supply-side principles • Neiman’s implication seems to be that this blueprint philosophy was improperly used by conservative administrations to reverse years of well-thought out supply side housing policy

Limited Govt. as a Common Property Resource • “Common property resource” refers to any depletable asset, or quality that is accessible to everyone and owned by no one; it is not governed, regulated or managed • The usual remedy for the common property resource problem is to develop a way that reduces demand on the resource or asset • Neiman: “Limited Govt. ” can be thought of as a common property resource – Ltd. govt. is an interval on an imaginary continuum b/w no govt. and total govt. – The problem of dealing w/ ltd. govt. can be “managed” by limiting access & reducing govt. responsiveness – Neiman likely does not agree w/ such a philosophy and makes the point apparently that it is not a good thing to “limit” govt. b/c by doing so you may be limiting the citizens’ access to democracy

DEFENDING GOVERNMENT WHY BIG GOVERNMENT WORKS by Max Neiman Chapter 10: The Freedom to Choose Democratic Politics

Neiman Waxes on Politics • Raising taxes, launching new regulatory initiatives, producing new govt. programs is very difficult in the current political climate – Good! • Political process vastly preferable to rational choice methods in policymaking – democratic participation could be harmed by rational choice policymaking, and, new forms of govt. intrusion might unwittingly be created • Most “militant” antigovernment critics want to disengage the public from its governing institutions and prevent them from achieving social gains through those institutions; they fear and distrust democratic politics

Neiman Waxes on Politics (cont. ) • One purpose of book is to provide an alternative to “the automatic loathing and disdain that is commonplace when we think about issues associated w/ govt. size. ” • Many of the proposals to reform govt. would reduce access to governing institutions and leave large segments of the vulnerable citizenry more open to abuse by private sector “forces, ” worsening social equity and further augmenting “the already swelling personal fortunes of the most affluent. ”

Issues Regarding Future Public Sector Involvement • While rationalizing politics will dominate the future, there a few areas ripe for breakthrough politics, one being industrial policy, another being the impact of market globalization on finance, labor, and environmental regulation

Suggested Remedies for Problems • The public’s trust in public officials must be improved • The bureaucracy must justify this trust by greater emphasis on quality performance • There must be an expansion of political involvement in as wide a sphere of political life as possible