Thoughts today after lecture (big vs small government)

For the first time in college, I disagreed not with the professor, but with what he was teaching. The class I was in is called Public Economics, and it was about what role the government should have in the free market. Naturally, this topic is subject to political bias and the part I disagreed with was what was referred to as the ‘Second fundamental welfare theorem’ which essentially stated that the government should redistribute wealth in lump sum payments between individuals in order to make the market more efficient.

I disagree with this on several levels. Firstly, that the professor mentioned Pareto efficiency had several problems, one of which was that it introduced inequality. I argued that one of the consequences of capitalism was that it produced inequality, but it wasn’t necessarily a bad thing, and here they are treating it as something which must be fixed. I also argued that redistribution of wealth was socialism; the government should not tax one group (ie. the wealthy) to benefit another group (the poor) for the sake of equality. I argued that the principles of capitalism is that there exists a social hierarchy where one group could be better off than the other. This makes the economy more competitive. The power of the free market will hold true, mostly. The Panics of 1873, 1893, 1907, the Great Depression, and the current recession being examples of where government intervention was needed to prevent total economic collapse, so I believe a minimal amount of regulation is needed (the Fed Reserve was created after the 1907 panic). Some regulation is needed, but not too much so that it doesn’t interfere with private enterprise.

The professor’s response was that socialism wasn’t necessarily bad, but I think that this is a point of ideological contention. Liberals would agree, but me as a conservative would disagree with government taking such a big role in society. Health care is another issue, that I think should be left to private enterprise. One reason is that businesses are able to use money more effectively than government. If the goal of every business is to make profit, then the quality of private services should always equal or exceed that of the government, which doesn’t make profit, therefore has no incentive to provide good quality. Second, it gives individuals choice. If I want health care then I will pay for it, even if the premiums are higher, so what I am getting better quality. And if someone who is poor can’t afford health care then so be it, that’s the nature of survival of the fittest. If I don’t want health care, then I don’t pay for it, and I’m not taxed to provide health care to others (which is what the single payer system does). To me, health care is a privilege, not a right.

Here is the fundamental difference between the US and Canada; the US promotes little intervention by the government in the free market, they have a food stamp system for low income earners; Canada has the welfare system. The US’s ideology is to cut taxes for people, but especially the high income earners, in the belief that they will use that tax money saved to invest more and hire more workers, which is trickle down economics. Canada’s ideology is to tax the rich and middle class more such that public goods such as healthcare and subsidies could be provided to the lower class.

I do not agree that society should somehow be more equal; that is on the path to communism, and eliminates the competitiveness of the economy. When everybody is equal, no one has incentive to move up, and therefore productiveness and competitiveness fall. This is why I believe Canadian workers and the Canadian economy is both less productive and less competitive than the American economy. In Canada, because of this huge social safety net, one has less incentive to do better, whereas in America, people have the desire to achieve and aim higher because everyone is out for themselves.

In short, though I disagree with the professor and the material he teaches, I can’t drop this course, so I will have to do my best to push aside any political commentary I may have. I do question the ‘fundamental’ theorem though, because being a theorem, it assumes that it’s always right, and there are lots of economists in the US, along with me, that would disagree with that assumption.


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