Herbert Giersch - Reassessing/ Avail. Hc. Only! The Mixed Economy

Symposium 1982

Edited by Herbert Giersch
Institut fr Weltwirtschaft an der Universitt Kiel

First published 1983 by Westview Press

Published 2019 by Routledge
52 Vanderbilt Avenue, New York, NY 10017
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

Routledge is an imprint of the Taylor & Francis Group, an informa business

Copyright Institut fr Weltwirtschaft an der Universitt Kiel J. C. B. Mohr (Paul Siebeck) Tbingen 1983

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Notice:
Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.

CIP-Kurztitelaufnahme der Deutschen Bibliothek
Reassessing the role of government in the
mixed economy: symposium 1982 / ed. by Herbert
Giersch. Tbingen: Mohr, 1983.
ISBN 3.16.344674.4 kart.
ISBN 3.16.344675.2 Gewebe

NE: Giersch, Herbert [Hrsg.]

Library of Congress Cataloging-in-Publication Data
Reassessing the role of government in the mixed economy / edited by
Herbert Giersch.
p. cm.(Publications of the Institute of World Economics,
University of Kiel)
Based on a symposium held by the Kiel Institute of World
Economics, June 23-25, 1982.
Includes bibliographies.
ISBN 0-8133-0598-5: $17.89
1. Economic policyCongresses. 2. Economic development
Political aspectsCongresses. 3. Mixed economyCongresses.
I. Giersch, Herbert. II. Universitt Kiel. Institut fr
Weltwirtschaft. III. Series.
HD73.R43 1987
338.9dc19 87-20142
CIP

ISBN 13: 978-0-367-28514-2 (hbk)

The disappointing performance of our economies over the last ten years has been attributed to several factors. One of them is the growth of government. The inefficiency of increasing governmental production, the disincentive effects of rising taxation, transfers and social insurance, and the restrictive influence of proliferating government regulations are all said to have undermined our ability and willingness to adjust to innovations and exogenous disturbances. Are these claims well founded, and if so, how should the role of government be redefined?

To address these questions we decided to hold a symposium on the subject of "Reassessing the Role of Government in the Mixed Economy". It took place at the Institut ftir Weltwirtschaft in Kiel on June 23-25, 1982. The papers and comments that are contained in this volume were presented at the symposium.

In several foreign countries, notably in the United States and the United Kingdom, governments have been elected which are trying to reduce the economic role of government. Since it was our aim to learn from their experience, we have invited economists from those countries to report and evaluate the policies that have been adopted by their governments, and we have asked German experts to comment on these papers. Most of the German discussants are contributing papers to a corresponding German volume which is forthcoming.

The first eight papers are concerned with governmental production, the last three with governmental regulation.

The papers by Alan Peacock and Rudolph Periner analyze the British and American attempts to cut public expenditure growth and make suggestions for future action in this respect. Richard McKenzie's study shows how federal matching grants to lower-level governments can act as incentives to increase government expenditure and how President Reagan's proposal for a transition to block grants and, finally, to an intergovernmental separation of functions is designed to eliminate those perverse incentives and to lay the responsibility for spending decisions and for financing the spending in the hands of the same political decision-makers.

Walter Eltis1 paper opens the discussion about the nationalized industries. He analyzes the British problems, notably the exploding budgetary cost of subsidizing inefficient governmental production, and discusses possible solutions. The following papers by Marc Blaug, Herbert Grubel, Roland Vaubel und Edgar Olsen look at specific lines of governmental production: education, social insurance and public housing. All of them conclude that there is no economic case for the public provision of these goods and services, but that some of those who buy them may perhaps have to be subsidized. In the field of social insurance, the problem is aggravated by the government's legal monopoly in the provision of the mandatory insurance protection and by its too far-reaching and rigid prescription of the extent and nature of the insurance coverage. The authors suggest ways of enlarging the citizen's freedom of choice. In education, as Marc Blaug shows, there may be an economic case for the governmental provision or guarantee of loans to students.

Olsen's contribution about the government's role in the housing sector marks the transition from governmental production to governmental regulation. Olsen discusses the U.S. experience with public housing, rent control, and housing subsidies (allowances) and argues that entitlement housing allowances for low-income earners are the least objectionable type of interference. He shows that rent controls are an extremely inefficient way of attaining redistributive aims, since their economic cost amounts to about half the implicit transfers which they generate.

Thomas Tietenberg appraises the U. S. experience with market approaches to environmental protection. He describes the transition from the original and inefficient policy of imposing rigid emission standards on each enterprise to the more flexible property-right solutions, such as the offset policy, the bubble policy and emissions banking, and he analyzes the comparative advantages of each of them. Michael Pustay demonstrates that the deregulation of U.S. air transportation has in fact delivered the improvements that were expected from it: lower prices and costs, higher capacity utilization and more competition than would have prevailed otherwise. He argues that even larger gains could be achieved in Europe if the collusive price fixing of state-owned airline companies were terminated as well.

I want to express my gratitude to all those who helped to organize the conference and to publish this volume, notably Klaus-Werner Schatz and Roland Vaubel. Thanks are also due to the Hanns Martin Schleyer-Stiftung for its financial support, the City of Kiel for its traditional hospitality and Dietmar Gebert, Patricia Jassmann and Bernhard Klein for shouldering the bulk of the editorial work.

Kiel, March 1983

Herbert Giersch

Wie es zu schaffen ist. Agenda fr die Deutsche Wirtschaftspolitik, Herbert Giersch (Hrsg.), Deutsche Verlags-Anstalt, Stuttgart, September 1983.

Alan Peacock

In seeking to devise ways of reducing government expenditure growth, the economist only possesses a limited range of skills which might enable him to put forward useful suggestions. Economists have not been backward in coming forward with schemes ranging from various constitutional changes to incentive devices and may be inclined to argue that it is not their business to comment on the operationally of these schemes. It is the business of bureaucrats - the experts in the art of the plausible - and of politicians - the experts in the art of the possible - to decide whether or not their schemes can be implemented. This "take it or leave it" approach, however, does nothing to improve the credibility of economists as advisers to governments or political parties. Anyone engaged in this end of our trade will know that the credibility of economic advice depends on how far one can produce constructive proposals without doing violence to economic logic; and that is not an easy matter.