Government is effective in part because it limits freedom—because, in the language of political philosophy, it exercises legitimate coercion. Government can tell people they must send their children to school rather than the fields, that they can’t dump toxins into the water or air, and that they must contribute to meet expenses that benefit the entire community. To be sure, government also secures our freedom. Without its ability to compel behavior, it would not just be powerless to protect our liberties; it would cease to be a vehicle for achieving many of our most important shared ends. But there’s no getting around it: Government works because it can force people to do things. Read more at location 30
Note: Already we have a beautiful opening salvo and defense to the overgrown children that are Libertarians. Their entire worldview rests on one main premise that once said, they feel ends the argument. Government is force. Government is coercion. And we are supposed to give up there. But the beautiful answer is in fact, “Yes it is, and thankfully so. That’s why is so important. A goverment that can’t force is no government, which is worse.”
Contemporary political discourse portrays liberty and coercion as locked in ceaseless conflict. We are told that government is about “redistribution” and the private sector about “production,” as if government only reshuffles the economic deck rather than holding many of the highest cards. We are told “free enterprise” and “big government” are engaged in a fierce zero-sum battle (one side’s gain is the other’s loss), when, in fact, the modern partnership between markets and government may well be humanity’s most impressive positive-sum bargain (making both sides better off ). We are told that the United States got rich in spite of government, when the truth is closer to the opposite: The United States got rich because it got government more or less right. Read more at location 48
Like other advanced democratic nations, the United States has what economic analysts call a “mixed economy.” In this public-private arrangement, markets play the dominant role in producing and allocating goods and innovating to meet consumer demand. Apple brings us iPhones, and it earns sizable profits by doing so. Visionaries such as Steve Jobs see untapped opportunities to make money by satisfying human wants, and then draw on the knowledge and technology around them to produce goods and services for which people are willing to pay. Markets are the most powerful institutions yet developed to encourage and coordinate decentralized action in response to individual desires. Read more at location 68
Alongside companies like Apple, however, government plays a dominant or vital role in the many places where markets fall short. Look inside that iPhone, and you’ll find that nearly all its major components (GPS, lithium-ion batteries, cellular technology, touch-screen and LCD displays, internet connectivity) rest on research that was publicly funded—and, in some cases, carried out directly by government agencies.6 Jobs and his creative team transformed all this into something unique, and uniquely valuable. But they couldn’t have done it without the US government’s huge investments in technical knowledge—knowledge that all companies can use and thus none has strong incentives to produce. That knowledge is embodied not just in science and technology but also in a skilled workforce that government fosters directly and indirectly: through K–12 schools, support for higher education, and the provision of social supports that encourage beneficial risk taking. And even if government had played no role in seeding or enabling Apple’s products, it would be responsible for much of the economic and physical infrastructure—from national monetary policy to local roads—on which the California tech giant relies. Read more at location 73
Note: In one passage we are brought back to full strength. An impossible to refute argument that encompasses taxes, government, “force” and wraps it up beautifully.
Of course, affluent democracies differ in the exact form that this public-private mix takes, and not all mixes are equally effective. Public policies don’t always foster prosperity. Those within government can hurt rather than harness the market, directing special favors to narrow interest groups or constraining economic dynamism in ways that stifle growth. No less important (though much more neglected), they can fail to respond to problems in the market that could and should be addressed by effective public action, hindering growth through omission rather than commission. For all this, however, no country has risen to richness without complementing private markets with an extensive array of core functions that rest on public authority—without, that is, a mixed economy. Read more at location 82
Note: They have no examples of The claim that little or no government has resulted in the most prosperity is simply a confusingly false statement. Literally the opposite is exactly true. The only examples of rich prosperity in the world arose through mixed economies, private markets complemented through public investments, regulation, and infrastructure. This is literally an indisputable fact. You can actually trace the components required for success in a product (iphone), company, or country back to inputs such as research, capital, technology, defense, law, courts, infrastructure that made it possible. They somehow have to argue that the GPS and batteries in an iphone, which can be traced to government funding and research, just don’t exist. Delusion is the only hope of maintaining this myth.
That markets fall short under certain conditions has been known for at least two centuries. The eighteenth-century Scottish economist Adam Smith wrote enthusiastically about the “invisible hand” of market allocation. Yet he also identified many cases where rational actors pursuing their own self-interest produced bad outcomes: underinvestment in education, financial instability, insufficient infrastructure, unchecked monopolies.7 Economists have been building on these insights ever since to explain when and why markets stumble and how the visible hand of government can make the invisible hand more effective. Read more at location 88
The visible hand is needed, for example, to
• provide key collective goods that markets won’t (education, infrastructure, courts, basic scientific research);
• reduce negative spillover costs that parties to market exchanges don’t bear fully, such as pollution;
• encourage positive spillover benefits that such parties don’t take fully into account, such as valuable shared knowledge;
• regulate the market to protect consumers and investors—both from corporate predation (collusion, fraud, harm) and from individuals’ own myopic behavior (smoking, failing to save, underestimating economic risks);
• provide or require certain insurance protections, notably, against the costs of health care and inadequate retirement income; and
• soften the business cycle and reduce the risk of financial crises.
Read more at location 93
Note: If you’re at a dinner party, and only get a quick chance to refute a libertarian, go with this.
The political economist Charles Lindblom once described markets as being like fingers: nimble and dexterous. Governments, with their capacity to exercise authority, are like thumbs: powerful but lacking subtlety and flexibility.8 The invisible hand is all fingers. The visible hand is all thumbs. Of course, one wouldn’t want to be all thumbs. But one wouldn’t want to be all fingers, either. Thumbs provide countervailing power, constraint, and adjustment to get the best out of those nimble fingers. Read more at location 100
Too often, Smith maintained, concentrated economic power skewed the crafting of government policy. Read more at location 116
What Smith saw in the protodemocracies of his day—concentrated interests converting power into profits—has become only more sophisticated and common in the advanced democracies of our day. Smith’s intellectual heirs even have a term for such politically generated rewards. They call them “rents,” and efforts to secure them “rent seeking.” Read more at location 122
Contemporary economists sometimes write of rent seeking as if it’s only a problem when government is active. Conservative commentators often argue as if all it takes to “reduce the scope of rent extraction” (in the words of one Wall Street Journal columnist) is “shrinking the ambitions and power of government.”11 But as Smith clearly recognized, the intermingling of markets and politics is inevitable: A private sector completely free of government influence is just as mythical (and undesirable) as a government completely free of private-sector influence. And a government that doesn’t act in the face of distorted markets is imposing costs just as real as those imposed when a government acts in favor of narrow claimants. Crippling active government to reduce rent seeking is a cure far worse than the disease. Read more at location 125
The mixed economy, in short, tackles a double bind. The private markets that foster prosperity so powerfully nonetheless fail routinely, sometimes spectacularly so. At the same time, the government policies that are needed to respond to these failures are perpetually under siege from the very market players who help fuel growth. That is the double bind: Democracy and the market—thumbs and fingers—have to work together, but they also need to be partly independent from each other, or the thumb will cease to provide effective counterpressure to the fingers. Read more at location 131
The mixed economy was at the heart of this success—in the United States no less than in other Western nations. Capitalism played an essential role. But capitalism was not the new entrant on the economic stage. Effective governance was. Public health measures made cities engines of innovation rather than incubators of illness. The meteoric expansion of public education increased not only individual opportunity but also the economic potential of entire societies. Investments in science, higher education, and defense spearheaded breakthroughs in medicine, transportation, infrastructure, and technology. Overarching rules and institutions tamed and transformed unstable financial markets and turned boom-bust cycles into more manageable ups and downs. Protections against excessive insecurity and abject destitution encouraged the forward-looking investments and social integration that sustained growth required. At every level of society, the gains in health, education, income, and capacity were breathtaking. The mixed economy was a spectacularly positive-sum bargain: It redistributed power and resources, but as its impacts broadened and diffused, virtually everyone was made massively better off. Read more at location 163
Note: Level 10 – Anti libertarianism, role of government, anarchy. First order defense against “Anti state” Libertarian/Anarchists like the Robert guy who claim only small or no government had been the key to prosperity. Its simply factually demonstrably untrue, and thus is your first order defense.
Even worse, apparently, Wilson delivered. Working with a supportive Congress, he created the Federal Reserve System, which rescued the United States from almost a century of recurrent bank panics caused by the proliferation of private bank–issued scrip, a hodgepodge of state currencies, and the lack of any agency charged with regulating banking or credit. He backed the nation’s first graduated federal income tax, which allowed the United States to move away from its excessive dependence on tariffs while ensuring that the growing ranks of the superrich helped finance basic government operations.24 He championed the Clayton Antitrust Act of 1914 to try to break up the uncompetitive monopolies fueling many of those great fortunes. His administration established the Federal Trade Commission (FTC)—“the world’s first independent ‘competition’ agency,” in the words of two of its former leaders—whose appointed commissioners oversaw antitrust actions without fear of congressional or presidential removal. Read more at location 208
Like the demonization of Woodrow Wilson, the morphing of Madison into some sort of protolibertarian is a manifestation of American Amnesia. Read more at location 249
For those challenges are mounting. Over the last decade or so, a growing body of evidence has shown that the United States is indeed exceptional, just not always in a good way. In a range of areas—human health, high-quality education, economic opportunity, broad-based income gains—we are losing the significant lead over other democracies that our successful mixed economy produced.36 In some areas, such as health and education, we are moving from the top part of the international rankings to the bottom.37 In others, we are failing to address emerging challenges, such as global warming and rising obesity. Read more at location 278
Like his father, Mitt Romney reflects key economic and political features of his time. Along with other firms in the burgeoning world of “private equity,” Bain Capital—the business Romney cofounded and led—helped pioneer a new corporate model in which individual companies were not socially embedded communities of stakeholders but commodities ripe for financial restructuring.49 Partly by exploiting legal opportunities tied to the tax code, Bain could extract enormous resources, even if the “reengineered” companies failed to thrive. Corporate rearrangers are the masters of this new economic universe. According to Mitt Romney and all other contemporary GOP candidates, they are the vital entrepreneurs (“the job creators”) who should be unhindered—and virtually untaxed—by governments. Read more at location 328
Note: How can you be a job creator if you are buying up companies and then laying people off?
On virtually all measures, according to the report, the United States is losing ground rapidly to other rich nations. At midcentury, American were generally healthier than citizens of other rich nations, and as late as 1980, they were still not far from the middle of the pack.34 Since then, however, other rich countries have seen rapid health gains. The United States has not. Read more at location 535
Note: Regardless of how we rank on any metrics, none are as important as health. If more inclusive, collective oriented societies exhibit greater metrics in health, there is little one can do to refute that what they are doing is not only effective but highly successful.