Wednesday, July 19, 2017

In search of the balance between government and market

THE LIMITS OF THE MARKET: The Pendulum between Government and Market

Thirty years ago I bought a book that was a key reference MARKETS OR GOVERNMENTS : CHOOSING BETWEEN IMPERFECT ALTERNATIVES. The focus was clear, the government should enter when there is a market failure and try to curb it. This was the message and has been the message for many years. Now we know that the approach was too simplistic. If you want to understand an updated approach to the same issue, check the new book by Paul de Grawe, THE LIMITS OF THE MARKET: The Pendulum between Government and Market. A well written and accessible book that helps to remake the arguments with the evidence of the past years. The chapters:
The Great Economic Pendulum
The Limits of Capitalism
External Limits of Capitalism
Internal Limits of Capitalism
The Utopia of Self-Regulation in the Market System
Who can Save the Market System from Destruction?
External Limits of Governments
Internal Limits of Governments
Who is in Charge? Market or Government?
Rise and Fall of Capitalism: Linear or Cyclical?
The Euro is a Threat to the Market System
The World of Piketty
Pendulum Swings between Markets and Governments
At the end of the book there are two issues that concern the author: inequality and the degradation of environment. The need for internation cooperation on taxation is critical for the first issue, and the functioning of democratic institutions for both. His final comment is a call for action:
The Myth of Sisyphus
Sisyphus was a Greek king who felt stronger and wiser than Zeus, and was punished for his hubris. He was sentenced to push a rock up a mountain every day, after which the rock would roll back down each evening. The following day Sisyphus had to start all over again, continuing for eternity. In his essay The Myth of Sisyphus Albert Camus gave an existentialist interpretation of this well-known Greek myth. Camus sees Sisyphus’s punishment as a metaphor for the absurdity of life. How should we deal with this absurdity, he wonders? One option is to commit suicide. Camus rejects this option. Instead he suggests that we should rebel against the absurdity of life by throwing ourselves into it, living intensely, and being creative. The revolutionary hero is the one who despite the absurdity and knowing that his rebellion will eventually achieve nothing, still sets the rock in motion and remains happy. ‘Il faut s’imaginer Sisyphe heureux’ (‘One must imagine Sisyphus happy’), Camus decided.
That is the position I would like to offer as a guiding principle for the end of this book. It will be extraordinarily difficult to prevent future catastrophes. It may even already be too late. (I am at least a little more optimistic than Albert Camus with his Sisyphus interpretation, which is very bleak indeed.) We have a small chance of preventing decline with the reforms I outlined above. But even if that does not work, we are left with the option of doing as Sisyphus did, of starting again each day. It is the only way of giving meaning to our existence. If we do not take action, our grand children will not forgive us for failing to try to save them. That in itself is sufficient motivation to persist.




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