To look at complexity let’s take a look at the business cycle and how government responds and has responded. Since the business cycle exists and is subject to some unkown periodicity we have developed several responses to smooth out the ill effects of this cycle. One of these tools is unemployment insurance. Workers and employers contribute to an unemployment insurance fund which is then disbursed to those workers who lose their jobs and are searching for new ones. This fund is used even when the business cycle is in a positive phase but its real benefit is to support aggregate demand in a general economic downturn.

But you would say this is hardly a complexity more a mundane feature of economic activity present since antiquity. But our current recessions are usually global in nature and have triggers that can arise in the most curious of places. When, in 2007, the pricing of certain real estate financial instruments was not possible the mortgage market froze. This was the beginning of the recession and its cause had barely been recognized. Who would think that the relatively small sub-prime market would trigger a financial collapse? This took place in an environment of lax regulation and direct government mandate of increased home ownership. The problem wasn’t too much regulation but too little. Government had deviated from its primary purposes. Restoring regulation to its proper role is what we are now trying to accomplish.

The other problem is that the government had transferred market risk onto itself (implicitly through the GSEs)in the midst of an economic boom and ironically became the catalyst for the boom. Risk transferrence is something the government should only undertake in an economic downturn. The FED being the lender of last resort, deficit spending to spur private business activity are all tools of risk transfer when the private economy is risk averse.

Today, this process of risk transference has exceeded its usefulness because it is becoming increasingly difficult to unwind this risk taking by government and in the process government has accelerated the claims on future output by engaging in unwise and ill planned investments. Here I am referring to the Bush and Obama stimulus bills. Ex-Tarp these bills were pure deficit spending totaling some $1.5 trillion. The debt service of this spending is itself financed and the problem increases through compounding. This process will claim an increasing share of federal revenues.

Because the nature of the recession was little understood in its increasing complexity and the government response has likely compounded the problem and extended the length of the recession but lessened its depth, it is unlikely that government will now respond correctly and it is left to the private economy to grow our way out of the mess. But economic growth will have to be extrordinary to be effective.

How might we persuade government to now get out of the way and focus on its proper role? First we must recognize that the size of government today is not just a result of ideological driven takings but really a response to uncertainty. And that uncertainty derives from complexity of relations. We are part of a global economy where whole towns can be devastated overnight; where financial capital flows to where returns are greatest. National currencies are buffeted about by global trade; where the gains from trade are blurred by protectionist rhetoric; where political movements can arise from an on-air rant; where recessions can be caused by falsely enabling the poorest of the aspirational. Government must not be moved to over-regulate or to improperly reduce uncertainty it must move carefully and deliberately it must cease the destructive rhetoric directed at our best and brightest. It must not be swayed by interest groups that little understand what they promote. It must embrace the possible, the productive, the most prudent use of its revenues. It must respond to complexity not by old responses of ossified regulation or mandates on behavior. It must above all be smart. It must understand that innovation cannot be directed or taxed into existence that it arises where there are incentives. For it will only be through innovation and technology that many of the problems we see today will be solved. If we could promote an innovation focused government we would have a government that increased incentives not for pet projects or social goals but pure innovation that reduces the work required to get something done. But this only arises when government first protects property rights, fosters an environment of free exchange and protects it citizens. Is this too much to ask?

How can anyone watch the antics of our leaders in Washington and not be cynical? Any informed person should, at the very least, be skeptical.

Mr Richman is correct. Political cynicism is the first step towards mature citizenship.

I’ll finish with another quote: “free government is founded in jealousy, not confidence.” Thomas Jefferson

With 2.6 trillion in annual revenue and 120 trillion in outstanding debt and obligations, Uncle Sam provides 2 million jobs.

By contrast, with 300 billion and 85 billion in outstanding debt, Walmart provides 2 million jobs.

Fiscal reality is demanding we revert to our natural bottom-up federalist model that provides far less services and looting and far more property protection from aggressors both foreign and domestic.

What you describe is the perfect illustration of the Hegelian dialectic, a useful tool whereby popular opinion is manipulated ever more in the desired direction. How does it work? Give the people two options, goalposts A and B, an illusion of choice. The goal is idea C. Emphasize or promote B over A, compromise and repeat. During each successive round of compromise, positions A & B move ever closer to C. To be specific, C is totalitarian socialism, one world government, etc. A was free-market capitalism, strict Constitutional government and B was crony capitalism/social welfare. Now A is crony capitalism/social welfare and B is getting ever closer to the goal. Ah, but the underlying question is who? Who manipulates and promotes? Who controls governments? Who benefits? The ridiculously wealthy elites who benefit from government control at our expense. See The Daily Bell for a better description of the dialectic and routinely brilliant analysis. And you could check out my site at proceedingboldly.blogspot.com/

Thanks.

Amen Sheldon!

This is the very thing that worries me about some of my uber-conservative, tea-partying friends who are genuinely upset about all that is wrong but truly believe that electing the “right” person or party will fix everything that ails us.

If I can’t get them to take a critical look at what Big Government/Big Spending republicans did when they were in office, I ask them to consider what those so-called conservatives did on the abortion issue when they held all the power.

What opposition there is is superficial opposition (perfect!). As I commented on another article, most of these folks wouldn’t recognize a free-market if it bit ‘em in the rear. If they did, a number of them would be submitting legislation to dismantle The Leviathan and articulating why that’s a good thing.

I have begun suggesting to friends to stop begging the government for freedom and instead, free yourself as much as possible by ceasing participation in their games, and by practicing a bit of civil disobedience. Most people just think I’m nuts.