So I asked Obama whether he thought he had been able to tell an effective story about the economy during this campaign. Specifically, I wondered, did he think he had a message that compared with Reagan’s simple call for less government and lower taxes.This, of course, sounds just terrific. So let's think about whether it actually is terrific.
He paused for a few seconds and then said this:
“I think I can tell a pretty simple story. Ronald Reagan ushered in an era that reasserted the marketplace and freedom. He made people aware of the cost involved of government regulation or at least a command-and-control-style regulation regime. Bill Clinton to some extent continued that pattern, although he may have smoothed out the edges of it. And George Bush took Ronald Reagan’s insight and ran it over a cliff. And so I think the simple way of telling the story is that when Bill Clinton said the era of big government is over, he wasn’t arguing for an era of no government. So what we need to bring about is the end of the era of unresponsive and inefficient government and short-term thinking in government, so that the government is laying the groundwork, the framework, the foundation for the market to operate effectively and for every single individual to be able to be connected with that market and to succeed in that market. And it’s now a global marketplace.
“Now, that’s the story. Now, telling it elegantly — ‘low taxes, smaller government’ — the way the Republicans have, I think is more of a challenge.”
The knock against central planning has always been that market signals convey information and force resource allocation adjustments faster than a central authority could ever gather the data and act correctly on it. Obama isn't arguing for that level of central planning; indeed, he specifically repudiates it. But he is asking for an end to "unresponsive and inefficient government." In other words, he's making a classic argument that government can be smarter than it is. (We will, for the moment, leave aside the companion argument that implies that I can be smarter than you are.)
But that's not the question. The proper question is, "Can government be smart enough to control any but the most trivial aspects of the economy?" There's no question that, in certain circumscribed areas of the economy, government can be smart enough. The Federal Reserve comes to mind. SEC regulations seem to add value and are fairly responsive to changing market conditions.
But Obama is thinking about about something a bit more grandiose: He wants to fool with tax policy to effect a significant redistribution of wealth. He also wants to enact government policies that will, by dint of beefing up infrastructure projects, slow the decline of demand for blue-collar labor.
This is a far cry from a command-and-control economy but it's certainly tinkering with central aspects of the nation's economic system. Is government smart enough to do this without unleashing a cascade of unintended, adverse economic consequences? This is ultimately a question that can only be answered by trying it and seeing what happens. That's a very liberal thing to do and it doesn't have a very good track record.