Over at Obsidian Wings, Hilzoy has posted a long and, to my mind, rather muddled meditation on my last post about the Detroit bailout.
The charge is that is that I'm arguing against a “let's regulate everything” position no intellectually serious person now holds. Not to say we're all Friedmanites now. Recognizing various “market failures” — negative externalities, collective action problems, agency problems, etc. — serious people see the need for regulation. But now we take it on a more case-by-case basis. That said, “I find myself arguing in favor of more regulation more often than not,” Hilzoy admits. She goes on:
Now, however, the pro-regulation camp has more or less vanished, leaving mostly people (like me) who think these questions should be decided on a case-by-case basis, and that there is no general reason for favoring regulation over its absence, arguing against free market fundamentalists who often write as though all regulation were presumptively bad.
So, I take it that the position is that there is no “pro-regulation camp,” since to be in that camp would be an intellectual embarrassment, given the strides in the social sciences. Instead of a pro-regulation camp, what we have are people who happen to find themselves “arguing in favor of more regulation more often than not,” when they take it on a “case-by-case basis.” I'm afraid I find this distinction… subtle.
But there is a distinction, the core of which appears to be an aversion to appealing to principles or useful generalization. “Pragmatism” rings of openminded practicality, but it is also a convenient hideout for anti-theorists and denialists. There is nothing about the spillover effects and coordination problems Hilzoy mentions that ought to make one hesitate to argue from principle. As I emphasized in a debate about the minimum wage several years ago, economic laws — like the laws of all the “soft” sciences — hold other things equal. If you think other things are not equal, and the generalization does not hold, then it is incumbent upon you to cite the principle of exception (e.g., this market is a monopoly, monopsony, transactions costs are too high, etc.) and provide evidence that it applies to the case at hand.
But there is no special complexity in this case. You do not learn superspecial exceptions in upper-level graduate economics courses to the otherwise reliable generalization that it hurts people a lot more than it helps them to direct ever greater economic resources to those who are especially good at wasting them. And it's not even clear what it has to do with “regulation” in the usual sense. The Detroit bailout is exactly what it looks like: a huge subsidy to several remarkably inefficient but politically well-protected firms. As a matter of economic theory, there is no reason the U.S. needs to make cars at all. As it happens, the U.S has an incredibly skilled labor force good at making complex things like cars, and it makes a hell of a lot of them very well and very efficiently. It's just that the companies mostly responsible for this are not headquartered in Detroit. If Hilzoy doesn't think this enormous piece of corporate welfare for the makers of a few classic and once-beloved American brands is “presumptively bad,” then I'd really like to know what she thinks is. Despite the alleged demise of the “pro-regulation camp,” way too many people seem, if not reflexively pro-regulation, then a bit too arbitrarily skeptical of things that are very, very well-known.
If I'm not accused of being callous for pointing out that a smaller amount of preventable suffering is better than a larger amount, I am accused of being a market fundamentalist who is too blithely dogmatic to become curious about the special particularities of this case. Yet nothing principled or particular is offered in return other than some riffing from a health policy specialist (who no doubt also often finds himself arguing for regulation more often than not) and a report from a Michigan-based think tank called the Center for Automotive Research. Hilzoy grants she has no special competence to assess these claims. But, at the same time, one is left with the distinct sense that she is inclined to grant them as much weight as is necessary to continue believing that throwing money in bonfires while wishing for ponies is a public policy stance everyone but blinkered market fundamentalists should at least consider seriously.