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In Wake of Crisis, New Economic Thinking Emerges

Unfortunately, many liberals have not moved beyond Lyndon Johnson's thinking on the role of the government in the economy.

Jeff Faux, my former boss at the Economic Policy Institute, tells a story from his days as a foot soldier in President Johnson's War on Poverty. Johnson was asked by a delegation from Alaska if he had an anti-poverty program for their state. Johnson assured the delegation that he had a "great big program" for Alaska. As soon as the delegation left, Johnson rushed into Jeff's office and told them that they needed to come up with a program for Alaska.

Unfortunately, many liberals have not moved beyond Lyndon Johnson's thinking on the role of the government in the economy. They still tie progressive outcomes - the guarantee of good quality health care, education, childcare, housing and a secure retirement - directly to big government. While the government must play a role in ensuring these outcomes, the point should be to have good government, not big government, as we usually conceive it.

There is a long list of ways in which the rules set by the government determine economic outcomes. While these rules have an enormous impact on the economy, they do not amount to "big government" in the sense of a large amount of taxes and spending.




It is easy to find other examples of ways in which government rules determine who gets the money. Along the same lines as patent protection, the entertainment industry and software industry survive in their current form because of the government's copyright protection. This form of government intervention has made thousands of people, from Rupert Murdoch to Bill Gates, very rich at the expense of the rest of us.

The trade agreements over the last three decades have been deliberately designed to put manufacturing workers, and noncollege educated workers more generally, directly in competition with low-paid workers in the developing world. The predicted and actual result of this policy is to lower the wages of noncollege educated workers in the United States.

Do we want to rebalance the field? Why not set trade rules that put highly paid medical specialists and other big "winners" in direct competition with their low-paid counterparts in the developing world. We can debate whether this is good policy, but there is no dispute that we can use this "market" outcome to bring down the wages of those at the top.

And speaking of wages of those at the top, we can also rewrite the rules of corporate governance so that CEOs and other top executives don't get to write their own paychecks. The compensation packages of the top five paid executives could be subject to regular approval by shareholders in a vote where unreturned proxies do not count. My guess is that with these rules much less money would go to those at the top.




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