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Wednesday, October 31, 2007

The Bootlegger and Baptist State

As economists, we tend to think of various viewpoints on the role of government in terms of levels of activity. Some people want the government to preserve liberty and correct inefficiencies. Others want to add the role of caretaker to the state. This implies that politicians who want a caretaker state are also concerned with efficiency. This doesn't seem to be the case. In class, we tend to think that if the government preserves liberty and promotes efficiency, most of society's problems will be taken care of. It seems like most politicians are only concerned with having the caretaker state encouraging good behavior and discouraging bad, without regard for efficiency.

A good example of this thinking is Rep. Rangel's comments related to his tax reform plan. He describes working with Secretary of the Treasury Paulson, noting his "courage" in regard to closing corporate tax loopholes. This shows that Rangel sees the purpose of taxes (i.e. the government) as encouraging good things (the middle class) and discouraging bad things (big business). In our class we (and maybe Paulson) would think of closing loopholes and lowering corporate tax rates as simply good for efficiency.

It is hard to determine whether a protective state or a caretaking state is better, given our current problems. Are today's problems the result of not enough, or too much caretaking? How many of today's retirees are unable to care for themselves because they thought social security would take care of all their needs? As the textbook points out, these types of programs can increase dependency and lower incentives to behave appropriately.

If the caretaking state is better, then is democracy the best vehicle for providing it? In our country, the caretaker state is so intertwined with politics that pork seems to be inevitable. A voter always thinks that their personal cause should be something the government encourages. This will lead to subsidies where there are no externalities. With this government, the Bootleggers are governed by the Baptists and vice versa. I think our founding fathers may have been thinking along these lines when they enumerated the powers of the government in Article I, Section 8 of the Constitution.

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