Governments...What Are They "Good For"?

According to some folk, governments are the end all be all of what the economy is about! Hence, some online conversations almost feel "doomed" from the start, if a participant believes that the government is responsible for all marketplace definition, while the other believes in free markets alongside limited interpretations for government roles. That was the case this week with a number of posts between Scott Sumner and Matt Bruenig. Even though Sumner's view of government roles is quite nuanced, Bruenig did not intend subtleties as a takeaway for the discussion - to put it politely.

Often, nuance does not get the chance it deserves in discussion, in part because of the degree of reductionism which is taken for granted in macro, in general. David Glasner posted about this "no exceptions allowed" mindset, and a commenter named Dan took the conversation in an interesting direction. With a few minor edits I'll include a portion of his comment:

How do microfoundations include "government" in their models - on a microfounded basis? Who is the representative agent for determining the needed allocation of resources to these functions of government seemingly everyone agrees are government necessary functions? (not to mention who gets to decide which functions are necessary?) On what microfounded basis?  

In general I have never seen an argument or explanation for how underlying structural levels of government should be optimized. Everyone seems to either hate the government or like the government or, tangentially accept the government's role in institutions. I haven't ever seen anyone just rigorously define the beast's role in the economy. 

Sometimes it almost seems as though the idea of government itself can get in the way of what people actually want to accomplish. Governments have important roles to play in society, but unfortunately too many of them are refusing to be the arbiters of cooperation that populations actually need. At least three conceptual themes in this regard, appear to be in disarray. First, there are widely divergent views regarding how economies function, Then, perceptions of monetary flows in said economic circumstance are muddled. Last, but certainly not least, views differ as to the actual importance of citizen participation.

Regular readers have a sense how I feel about government roles. Governments could realistically make themselves stronger - not weaker - by seeking to maximize the skills and knowledge use capacity of their own citizens. Far too much emphasis has been placed on education as a "worthy" gamble instead of an inherently useful tool, because education still has no platform to benefit aggregate time use at local levels.

Governments could particularly assist in coordinating infrastructure patterns which meet the needs of multiple income levels and lifestyle options. However, this is not the same thing as twentieth century bridges and roads infrastructure, which continues to dominate fiscal arguments. As Timothy Taylor noted:

I have a hard time believing that U.S. economic prosperity in the 21st century is going to be built on concrete and asphalt.

Today, infrastructure needs are also social. This means finding ways to turn services into local economic gains, so that austerity need not be a factor in slowing growth. Domestic summits would provide means by in which governments could gain better ideas regarding what citizens need, to regain control over their work and social realms. Importantly, this is not just about experts who are used to working and operating in the same equilibrium as governments in general. The point is to find different sets of assets to services flow structures which work for different income levels.

It makes little sense to allow further taxation to continue distorting monetary flows, and far more voices need to be considered for a wide variety of infrastructure options. Taxes make more sense, when they are capable of providing mechanisms that foster greater economic access. Services can be better met by making certain local education becomes integrated with actual needs in the local marketplace. To a degree, family formation will be limited until local economies are - once again - a greater part of the overall picture.

When a limited number of skills sets are expected to do the job for many, overall stress levels for operating efficiencies tend to be set primarily for normal circumstance. While that can work quite well in normal times, these are no longer normal times. It becomes apparent - as Brad Delong recently noted about the Ebola outbreak - that the problem becomes a shortage of people who can do the needed job - not money.

This is another reason why plenty of "duplicative" efforts for healthcare at local levels are needed, as the world becomes more interconnected. By the same token, greater flexibility in designated building structures should be a high priority for services needs as they evolve and change. While I fully expected any country with modern hospitals to be forced to turn people away in what could be pandemic conditions, I was still astonished when the first U.S. Ebola patient was turned away, on his first attempt to enter a Dallas hospital. Unfortunately that event will enter the history books, even if all goes well.

What is problematic in this regard is that sometimes a society is only as strong as its weakest links. Suddenly, what once may have seemed like adequate resources and experts for services designations, becomes woefully short. The most realistic means by which governments can provide for stressful times, is to make sure that all citizens have economic access along with the diverse kinds of infrastructures which can make that access reliable - in good times and in bad.