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The Interwar American Economy: the Rise of Government: Lecture 1. The objective of the course is to examine the forces underlying the growth of government, particularly the central government, in the American economy. This began in the interwar period.
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The Interwar American Economy: the Rise of Government: Lecture 1 • The objective of the course is to examine the forces underlying the growth of government, particularly the central government, in the American economy. • This began in the interwar period. • View government intervention as legal cartelization—other types as well. But this narrows our approach for analysis.
The Interwar American Economy: the Rise of Government • The vehicle for this will be through examination of agriculture, perhaps the most regulated and subsidized sector of the American economy, despite inherent productivity advantages vis a vis producers elsewhere in the world for most commodities. There is a puzzle—why this sector and why so much? • We will view this process of government growth using a public choice perspective—that is, view government actions as initiated by self-interested politicians and bureaucrats.
The Interwar American Economy: the Rise of Government • Series of 4 lectures. • Supervisions—to be scheduled, but will be immediately after the last lecture on February 17th. • Short essay due electronically March 3rd. Will provide a topic shortly. • http://fiesta.bren.ucsb.edu/~glibecap/ • All materials are available either on line—journals and one chapter each from the volumes, and the volumes are on reserve at the library. • You can contact me any time at glibecap@bren.ucsb.edu or come by my office in the Austin Robinson Building, No. 34.
The Interwar American Economy: the Rise of Government • Politicians as vote maximizers (in a more despotic context) maximizing support from key constituents) • Bureaucrats as budget and mandate maximizers, with some oversight by politicians, but considerable discretion. • Discretion from cost of oversight by politicians. • Discretion from actions of the bureaucracy itself in mobilizing constituent support for greater budgets and mandates that benefit both the constituency and the agency.
The Interwar American Economy: the Rise of Government • Public choice/self-interested motivation--most actions will be taken by government in response to constituent group politics. • Not necessarily provision of public goods. • Public goods are non rival goods that will be under provided by the market: money supply, national defense, primary education, aspects of health care, weights and measures, etc. • Public goods provided by government, as a result of the spinoff from private goods provided to key constituencies. • Politicians may also provide some public goods due to ideological commitments.
The Interwar American Economy: the Rise of Government • Generally, however, we will view the rise of government through the interaction of self interested politicians and bureaucrats and constituent group politics. • Why it would be difficult for self interested politicians and bureaucrats to primarily provide pure public goods? • Trade offs? • Rewards from constituents with non-rival goods? • Free ride and hence under provide? • Constituents demands--subsidies, price supports, local monopolies, access to inputs, trade protection.
The Interwar American Economy: the Rise of Government • Impact of private goods provision on public goods? • Constraints on self interested politicians/bureaucrats for protecting a more efficient economy? • Characteristics of successful interest groups? Size, wealth, homogeneity, probability of voting. • What are transfers and why rarely cash? What forms? • Information distortion? Private transfers as public goods. • Impact on general taxpayers? • Monitor? Focused benefits, diverse costs problem. • Important efficiency and equity outcomes.
The Interwar American Economy: the Rise of Government • Why would naturally competitive industries be more politically attractive to regulate than oligopolistic ones? • Why might regulation or transfers be implemented at a time of other exogenous shocks? • Why might producer protection be more likely during downturns in the economy while consumer protection more likely during expansions? • Why will interest groups get less than they desire? • Why are competitive interest groups important for efficiency and limiting government? • Why might log rolling or trades among politicians lead to expansion of government programs?
The Interwar American Economy: the Rise of Government • Use these notions to examine the growth of government. THE HISTORICAL ISSUE AT HAND • Until the post WWI period, government (however measured) was small in the American economy. • Continent of natural resources and costly labor: high wages and opportunity. • Less demand for government subsidies. • Large local markets. Less demand for monopoly privileges.
The Interwar American Economy: the Rise of Government • Government actions were dominated by local and state. • Central government was small. • By the end of WWI, several factors had changed: • End of the frontier. • More complex, capital intensive production, economies of scale. • Larger manufacturing units. Lower internal transport costs. Increased competition. Small vs large firms. • New technologies. Information. Competitive issues. • Rise of anti trust concerns. Standard Oil. Chicago Packers. • Complex consumer products. Information costs. • Labor unions. • WWI mobilization and regulation demonstrated the potential for government to provide transfers and fix prices.
The Interwar American Economy: the Rise of Government • Series of legislation enacted in late 19th and early 20th centuries. Basis for subsequent expansion. • Interstate Commerce Act, 1877 • Sherman Anti trust act, 1890; Clayton Act, 1914 • Meat Inspection Act, 1906 • Pure Food and Drug Act, 1906 • Federal Trade Commission, 1910. • Federal Reserve Bank, 1913. • WWI regulation—US Food Administration, Railroads, Coal, Steel
The Interwar American Economy: the Rise of Government • The initial push for regulation in agriculture. • Other industrialized economies have similar patterns. • Due to same forces? • The focus of lecture 2—the 1920s--agriculture.