You might want to see my NEP front page piece: Mine’s BiggerThan Yours, which deals with various misunderstandings on size of government.It isn’t size that matters (beyond some minimum size—probably 15-20% of GDP),rather it’s what you do with it that counts. It is all about what governmentought to do, in other words. Ok so here are comments and my responses.
Neil: Is it worth mentioning that economic policy is aboutbeing largely right rather than precisely wrong?
A: I like it. But of course even “right” depends on “ought”.
Philip: Yes, the exchange rate is a bit of a mysteryalright. Any advice on a good book that tries to deal with these issues from aPK perspective. Preferably one that looks at the empirical evidence to somedegree. I seem to remember that John Harvey did something on this…
A: Truthfully, no one knows. No one has much of a clue,really. I like Harvey’s two JPKE papers and they might be as good as anythingout there. Add in Keynes’s interest rate parity theorem and Sraffa’s commoditypricing and I don’t think economists have much else to say. Since daily tradein financial assets exceeds annual trade in goods and services, it is clearthat whatever theory you have it must treat exchange rates in the context of atheory of asset pricing.
Dario: I am confused. Are you moving toward an Austrianapproach? May I ask you why? What’s your purpose?
A: Yes you are. Confused. My purpose is to talk about what government ought to do. What is yours? To make unfounded accusations?
Golfer: Why Crony capitalism? Because government is so bigthat the profits to be had by controlling it are irresistible. in former times,when government in the US was les than 10% of GDP, there were more profitsto be made in private enterprise.
A: Oh really. And who is the richest man in the world? Hint:Mexican. Government much smaller relative to GDP than the US government; andthe US government is (next to Japan’s) the smallest of the big economies. Lookslike more ideology than content to me. And if you really believe the USgovernment in the time of the robber barons was less crony than today’s, youlive in la-la land.
Neil: No matter how small the government gets the profits tobe had by controlling it are always irresistible. It’s the flipping currencyissuer!
A: Yep. Give me a printing press and I can move the world.
Hewer: it may be worth adding that the impetus to controlgovernment is not entirely down to the notion that profits from being acurrency issuer are irresistible. Of course that is true, but it is notsomething that those who seek to control the political process necessarilyunderstand, nor necessarily their first concern if they do. The mainbenefit to controlling government does not come from the “profits”that can be made, but rather from the control over real resources thatpolitical dominance provides.
A: Mr. Slim has got a real resource (phone monopoly) but USbanksters do OK, too.