Monday, February 25, 2008

Can You Have a High-Growth Welfare State?

A shockingly reasonable point from Matt Yglesias:
In many respects, generous spending on public services and deregulation go together like a horse and carriage -- a lightly-regulated market economy generates the wealth that facilitates the social spending, and the availability of public services makes the vicissitudes of the marketplace much more tolerable.

When people are counting on their job to provide them with such a high proportion of what they need to get by in life (not in an objective subsistence sense, but in an intersubjective social sense) the risk of losing that becomes intolerable, and rises the demand to treat one's relationship to other market actors as an entitlement. Thus, labor market rigidities, price controls, subsidies, etc. Alternatively, one could simply be entitled to a basket of publicly provided stuff (education for oneself and one's kids, safe and well-maintained streets, adequate health care and transit, continuing education and job placement, etc., etc., etc.) but then let the ups-and-downs of economic life operate as they will.
Of course, this begs the question: Is low regulation the only necessary to support high growth and its attended large tax base? The answer is obviously "no." At some point, the tax burden itself becomes too large to enable high enough growth. Yes folks, there really is a Laffer Curve--the fact that we're currently taxing at less than optimal doesn't mean it's not possible to tax at more than optimal.

By all means read the comments on Yglesias's post. Many howls of betrayal.

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