Russ Roberts has a new post where he takes more of a “glass half empty” perspective.
But even on the level of the simplest of narratives, it’s not clear what the stylized facts are. Let’s look at the United States since 1980. Is the glass half-full or half-empty? Scott points to falling marginal tax rates, and deregulation. When I pressed him on how much deregulation had occurred, he pointed to transportation, communications (the breakup of AT&T) and financial deregulation such as the elimination of regulation Q.
My response was that yes, marginal tax rates are lower. The total tax burden is higher. In the last decade, much higher. On deregulation, how important are the changes in trucking, airlines, phone service and financial competition? Pretty important. On the other side you have an enormous increase in government’s role in health care. You have a large increase in government’s role, especially at the federal level, in education. There is more environmental regulation not less. I would guess that in most places it is harder to start a business than before. The tax code is more complicated. The nanny state has expanded. The government has intervened significantly in the tobacco market. Local zoning has become much more discretionary and interventionist.
In financial markets, you have the repeal of Regulation Q, the repeal of Glass-Steagall and probably a few other changes I’m not thinking of. But you have the relentless subsidization of lending through creditor rescue that increased leverage in the financial sector.
Those are good points, but here’s how I would respond:
1. We have also seen deregulation of prices in important industries like energy (oil and gas.)
2. I live close to Cambridge, a city that has been transformed by the elimination of rent controls.
3. Welfare reform dramatically increased labor force participation of poor women in the late 1990s, and the gains continued during the 2001 recession.
4. Trade is somewhat freer
5. There is a bit more competition in education.
6. I’m not sure taxes actually are much higher. At the federal level they have remained around 18-19% of GDP. Perhaps state taxes have risen a bit. But there are huge gains from moving away from 70% MTRs (which, unfortunately, we are gradually reversing.)
7. Some environmental regulations (that overcome externalities) are arguably market-friendly.
8. Conrail, some highways, and some public services have been privatized.
9. Stock trading has been deregulated.
All this is not to say that Russ is wrong, maybe on balance things have gotten worse. But it’s hard to convey the full sweep of changes in a brief talk, so I wanted to add this list. I would add that my main interest is the comparative effects of neoliberal reforms across different countries. I don’t have strong feelings about whether the American glass is half full or half empty. It might have been 60% full in 2000, and 45% full today. I do strongly believe that neoliberal reforms have made the world as a whole much more market-friendly than in 1980, and much better off. I imagine that Russ and I would find greater agreement outside of the US.