Transcript The Interwar American Economy: the Rise of Government

The Interwar American Economy: the Rise of
Government: Lecture 1
• The objective of the course is to examine the forces
underlying the growth of government, particularly the central
government, in the American economy.
• This began in the interwar period.
• View government intervention as legal cartelization—other
types as well. But this narrows our approach for analysis.
The Interwar American Economy: the Rise of
Government
• The vehicle for this will be through examination of
agriculture, perhaps the most regulated and subsidized
sector of the American economy, despite inherent
productivity advantages vis a vis producers elsewhere in
the world for most commodities. There is a puzzle—why
this sector and why so much?
• We will view this process of government growth using a
public choice perspective—that is, view government
actions as initiated by self-interested politicians and
bureaucrats.
The Interwar American Economy: the Rise of
Government
• Series of 4 lectures.
• Supervisions—to be scheduled, but will be immediately after
the last lecture on February 17th.
• Short essay due electronically March 3rd. Will provide a topic
shortly.
• http://fiesta.bren.ucsb.edu/~glibecap/
• All materials are available either on line—journals and one
chapter each from the volumes, and the volumes are on
reserve at the library.
• You can contact me any time at [email protected] or
come by my office in the Austin Robinson Building, No. 34.
The Interwar American Economy: the Rise of
Government
• Politicians as vote maximizers (in a more despotic context)
maximizing support from key constituents)
• Bureaucrats as budget and mandate maximizers, with some
oversight by politicians, but considerable discretion.
– Discretion from cost of oversight by politicians.
– Discretion from actions of the bureaucracy itself in mobilizing
constituent support for greater budgets and mandates that benefit
both the constituency and the agency.
The Interwar American Economy: the Rise of
Government
• Public choice/self-interested motivation--most actions will be
taken by government in response to constituent group
politics.
– Not necessarily provision of public goods.
– Public goods are non rival goods that will be under provided by the
market: money supply, national defense, primary education, aspects
of health care, weights and measures, etc.
– Public goods provided by government, as a result of the spinoff from
private goods provided to key constituencies.
– Politicians may also provide some public goods due to ideological
commitments.
The Interwar American Economy: the Rise of
Government
• Generally, however, we will view the rise of government
through the interaction of self interested politicians and
bureaucrats and constituent group politics.
• Why it would be difficult for self interested politicians
and bureaucrats to primarily provide pure public goods?
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Trade offs?
Rewards from constituents with non-rival goods?
Free ride and hence under provide?
Constituents demands--subsidies, price supports, local
monopolies, access to inputs, trade protection.
The Interwar American Economy: the Rise of
Government
– Impact of private goods provision on public goods?
– Constraints on self interested politicians/bureaucrats for
protecting a more efficient economy?
– Characteristics of successful interest groups? Size, wealth,
homogeneity, probability of voting.
– What are transfers and why rarely cash? What forms?
– Information distortion? Private transfers as public goods.
– Impact on general taxpayers?
– Monitor? Focused benefits, diverse costs problem.
– Important efficiency and equity outcomes.
The Interwar American Economy: the Rise of
Government
– Why would naturally competitive industries be more politically
attractive to regulate than oligopolistic ones?
– Why might regulation or transfers be implemented at a time of other
exogenous shocks?
– Why might producer protection be more likely during downturns in
the economy while consumer protection more likely during
expansions?
– Why will interest groups get less than they desire?
– Why are competitive interest groups important for efficiency and
limiting government?
– Why might log rolling or trades among politicians lead to expansion of
government programs?
The Interwar American Economy: the Rise of
Government
• Use these notions to examine the growth of government.
THE HISTORICAL ISSUE AT HAND
• Until the post WWI period, government (however
measured) was small in the American economy.
– Continent of natural resources and costly labor: high wages and
opportunity.
– Less demand for government subsidies.
– Large local markets. Less demand for monopoly privileges.
The Interwar American Economy: the Rise of
Government
– Government actions were dominated by local and state.
– Central government was small.
• By the end of WWI, several factors had changed:
– End of the frontier.
– More complex, capital intensive production, economies of scale.
– Larger manufacturing units. Lower internal transport costs. Increased
competition. Small vs large firms.
– New technologies. Information. Competitive issues.
– Rise of anti trust concerns. Standard Oil. Chicago Packers.
– Complex consumer products. Information costs.
– Labor unions.
– WWI mobilization and regulation demonstrated the potential for
government to provide transfers and fix prices.
The Interwar American Economy: the Rise of
Government
• Series of legislation enacted in late 19th and early 20th
centuries. Basis for subsequent expansion.
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Interstate Commerce Act, 1877
Sherman Anti trust act, 1890; Clayton Act, 1914
Meat Inspection Act, 1906
Pure Food and Drug Act, 1906
Federal Trade Commission, 1910.
Federal Reserve Bank, 1913.
WWI regulation—US Food Administration, Railroads, Coal, Steel
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The Interwar American Economy: the Rise of
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The initial push for regulation in agriculture.
Other industrialized economies have similar patterns.
Due to same forces?
The focus of lecture 2—the 1920s--agriculture.