Mark Thoma on the Role of Government

Here is a bit from an article by Mark Thoma that explains why right wing politicians are wrong to attack social programs:

When someone loses a job through no fault of their own, we provide relief through unemployment compensation. If someone is born with a condition that limits their ability to compete in a market system, society is willing to help. Similarly, when old age takes its toll and people can no longer compete effectively for jobs, jobs that are needed to pay medical and other bills, we do not turn our backs, instead we give help in the form of Social Security and Medicare.

Some people worry that social insurance programs such as Unemployment Compensation, Social Security, and Medicare take away the incentive to get ahead, the incentive that helps to make capitalism tick. Won’t those being taxed to pay for the programs work less, and won’t those receiving, say, unemployment compensation be less motivated to find work?

It is a common misconception that these programs necessarily reduce economic efficiency. In fact, to the extent that social insurance provides a service that people are willing to pay for but cannot get due to market failures, social insurance improves economic efficiency.

Insurance markets are plagued by market failures such as adverse selection and moral hazard, and when these problems are severe enough the private sector will provide much too little of the insurance. In such cases, there is a role for government to play in resolving the problem. Efficiency is defined, in part, as the economy providing the goods and services that people want and are willing to pay for. Hence, when the government intervenes and makes up for the failure of private markets to provide these goods and services in sufficient quantity, it doesn’t reduce efficiency, it increases it.

We cannot fully insulate people from every inequity or run of bad luck, and it is possible for governments to provide more than the optimal amount of insurance against life’s ups and downs. But even if social insurance programs are not executed perfectly by government, the important question is whether the benefits exceed the costs. One only has to look at our history – what happened to the elderly, the sick, and the unemployed before we had such insurance – to see its great value. We were much worse off, on net, before social insurance existed, and we would certainly be worse off without it today.

The political right will pay no attention to the above, or to Mark Thoma, or to the majority of economists who would make the same statement as the above. The political right are ideologues. They are beyond persuation. They have "truth by the tail" and can't be bothered with facts or with debate.

If you read the whole article you will discover that Mark Thoma is worried that Obama will be swayed by the The National Commission on Fiscal Responsibility and Reform and be tempted to cut back on social programs -- just has he has put a freeze on federal workers' pay -- in an effort to fight the federal deficit.

My worry is that Obama who is a centrist, will be tempted to "balance the budget" prematurely as FDR did in 1937 and provoke a recession inside the current Great Recession. FDR's impulse to satisfy the deficit hawks of his day created the Recession of 1937-38 where the following occurred:

The American economy took a sharp downturn in mid-1937, lasting for 13 months through most of 1938. Industrial production declined almost 30 per cent and production of durable goods fell even faster.

Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels. Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937.