it is hard to account for the near-consensus in macroeconomics in the post-war period and also the antagonism that met Friedman’s challenge to that consensus. In order to place his ideas in perspective, this section provides some background on prevailing views in the 1950s and 1960s. The Depression had created a near-consensus that the price system had failed and that it had failed because of the displacement of competitive markets with large monopolies. Intellectuals viewed the rise of the modern corporation and labor unions as evidence of monopoly power. They concluded that only government, not market discipline, could serve as a countervailing force to their monopoly power.
This notion of government as a “countervailing force” for the excessive concentration and greed of the private sector dies hard. It was indeed the consensus view in the 1950’s, but there are many who still cling to it. In my view, government is a “reinforcing force” for concentrated economic power. If you want to see economic power become concentrated and abused, then hand the sector over to government to regulate.
Hetzel’s paper, which is on Friedman’s contributions to economics (primarily in macro), was recommended by Tyler Cowen.
READER COMMENTS
Ethan
Apr 4 2007 at 11:51pm
Gentlemen,
Great blog.
Wondering if either of you have read Michael Pollan’s book, ‘The Ominivore’s Dilemma’? He has quite a bit to say about the business and history of corn production. Are you aware of any decent economic analysis which offers analysis regarding the history of corn production in the U.S. and effects of agricultural subsidies?
Bruce G Charlton
Apr 5 2007 at 5:59am
Excellent point! I agree that govt as countervailing power is the lynch-pin of contemporary statism.
My sense is that this lies behind the views of a centre-left technocrat like Brad de Long.
If this rationale for state intervention is mistaken (as we both think) then this topic merits further examination.
For instance in the UK when I was studying (so-called) ‘health economics’ in the early 1990s, the standard move was to prove that markets didn’t exist and wouldn’t work in health care, then move onto the real business of strengthening the National Health service centralized command economy through the then-fashionable gimmicks of taget-setting, separate government regulatory bodies, ‘internal markets’ and quality assurance auditing.
Actually, all of these gimmicks are still going strong, as the NHS collapses despite a doubling of funding (in real terms – ie. percentage of GDP ) in less than a decade.
But please AK could you say more about this function of the concept of government countervailing power – as I think it is extremely important.
jp
Apr 5 2007 at 9:37am
I agree with the original post and everything said above. This is a very important topic.
Re center-left technocrats: I’ve often wondered recently why Lucian Bebchuk at Harvard Law School is so upset about high CEO pay. (He wrote Pay without Performance and has been active in pushing reforms.) It has always struck me as a manufactured “crisis.” I think that part of what motivates academics like De Long and Bebchuk is the desire not merely to make an intellectual contribution but to have real influence in policy-making. Continually explaining to people why the market, if left alone, will resolve most problems does not feed one’s ambition in the same meaty way that authoring new laws and regulatory regimes can.
TGGP
Apr 5 2007 at 5:27pm
I was about to say something, but then I remembered I had already done so just a little while back. Nobody responded then, but if someone else wants to provide support for balance resulting from the countervailing power provided by government, feel free to.
[Comment number fixed.–Econlib Ed.]
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