It was a small group this time – just three of us, but good conversation. Out main accomplishment was to conclusively determine that the use of the word socialism as too vague – old school socialism of the 1920s Soviet sort will be referred to as “planned economy” or “central planning”, whereas the new “socialism” as espoused by millennial and their dreadful habits of using the same word to mean different but related things will be replaced with “Bismarkian social insurance” or some better term we come up with later.
Notable topics in their absence
- Psychedelic medicines
- The Soviet Union
- The deeper meaning of infrastructure costs
And here is a better explanation of Tyler Cowen’s thought on infrastrcture costs – from his book “The Great Stagnation“
ow let’s think about government in this framework. Let’s say government spends $1 million fixing a road: How much does that contribute to measured GDP? $1 million. No consumer “buys” the road, but the expenditure counts nonetheless toward the output of goods and services. In other words, in measured GDP, we are valuing the expenditure at cost. Sometimes governments sell their outputs in the form of goods and services (think of user fees for national parks, or toll roads), but mostly that’s not the case, and fees account for only a small part of what our government does. We typically resort to valuing government outputs at cost, and indeed it’s not clear how else we could do it. Sometimes government outputs are worth a lot more than what we spend on them, and sometimes they are worth a lot less. The proper role of government in society is beyond the scope of this discussion. But still it is a general principle that the most fundamental functions of government are worth more than the extra, addon, or optional things that governments do. A dollar spent on very basic police and courts and army protection is worth more than a dollar spent on refurnishing a warehouse in Minneapolis under the guise of urban renewal. A dollar spent on welfare for the poorest is more valuable than a dollar spent extending the program to better-off but still poor cases. And so on. Yet when it comes to national income accounting, and measuring GDP, we are valuing every one of these different expenditures at $1.
Have you ever wondered why so many developing economies—the successful ones, I mean—rise to prosperity through exports and tradable goods? There are a few reasons for this, but one is that the external world market provides a real measure of value. If you are exporting successfully, it’s not based on privilege, connections, corruption, or fakery. Someone who has no stake in your country and no concern for your welfare is spending his or her own money to buy your product. Trying to export is putting your economy to the test every day with measurable results. If you can pass this test, it is a sign of better things to come. The successful East Asian economies, including Japan, Korea, Taiwan, and Singapore, understand this point well. Again, the market is a pretty clear measure of economic value. The more we move away from market tests, the harder it is to tell how we are doing in productivity.