Wednesday, October 31, 2012
Does Romney Understand The Logic?
In Warsaw, Poland Mitt Romney was cited as praising the communities of Poland for progressing towards “economic liberty and smaller government rather than heeding the false promise of a government-dominated economy.” We see the opposite problem here in the United States where we have our Congress spending all of there time figuring out how to hand out different forms of rent seeking to companies, organizations and individuals. Through RADON, we have learned that this emplaces a sclerotic effect on our economy, slugged down from government backing resulting in a decline of our nation. Romney goes on to praise Poland for their higher living standards and strong military. What we are talking about in class and Romney’s comments coincide with this year’s main theme of smaller government, reduced spending and fewer regulations for small business. Romney claims Poland is prospering because it has set out to “stimulate innovation, attract investment, expand trade and live with in their means.” He goes on to say Poland’s success is a reminder that “free enterprise can propel an economy and transform a society.” What Romney is saying supports what we have read in RADON by Mancur Olson. Could it be that Romney understands the logic of collective action and the necessity to reduce the role of government? It seems as if he does understand our system of political economy and the role special interest groups play in the growth/sclerosis of our nation.
In our system of political economy, the more special interest groups we have within our nation the slower we will grow; which is the main concern many Americans have. The slow growth is a result of a large flux in rent seeking from the government; another words a giant reform in our government’s role within our economy. Therefore, our government has to devote more time (opportunity cost) to rent seekers and not towards productive factors for the slugged economy. When we talk about growth, most people would measure it by the dollar even though we call it product. What GDP really measures is the shift in our production possibilities frontier. We use the PPF to measure the growth of our economy, if we expect growth then we should expect an outward shift in the PPF curve; how far are we shifting out per unit of time. What we are witnessing is stagflation during the downturn of our economy, that is inflation and unemployment and when it is sclerotic we slow down and start to decline. As we learned in class, people thought it would take forever for France, Japan and Britain to recover after the wars. In fact, they prospered quickly because all of the special interest groups were cleared out (like having your arteries cleared) so the natural economy could grow again at a rapid pace. Then as we read about in RADON, once these countries became stable and prosperous again they began the sclerotic effect again, experienced stagflation and slowed down from the slug of special interest groups. I still am undecided about what candidate I will vote for because I have asymmetric information on where there values sit. I think we need a president like Regan who viewed his campaign through economic liberty where he prioritized protecting property rights. It’s arithmetic, if capital is whipped out then you will see a lot of growth; we need a president that understands economic liberty and protects our property right. I think Romney shows signs of it, but I’ve never felt so uncertain about our presidential candidates.