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Economist Mom

Who needs a Nobel Laureate when we have Google?

Nobel Prize winner Peter Diamond was turned down from the board of the Federal Reserve. Are his philosophical and analytical perspective undervalued?

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To the public, the Washington debate is often about more versus less — in both spending and regulation. There is too little public awareness of the real consequences of some of these decisions. In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones.

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Analytical expertise is needed to accomplish this, to make government more effective and efficient. Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better. I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can.

Enter Tim Pawlenty and his speech today, where he laid out his plan, summarized by: “Let’s grow the economy by 5%” (per year). His primary means of getting us there: revenue-losing-that-will-grow-the-economy-so-much-that-they’ll-become-revenue-gaining tax cuts. I’ll have much more to say about his tax reform plan later (and probably right up through the election). But besides cutting taxes, Pawlenty would cut spending–by what sounds like a lot. How would he figure out what to cut? He explains:

There’s some obvious targets. We can start by applying what I call “The Google Test.”

If you can find a good or service on the Internet. Then the federal government probably doesn’t need to be doing it.

So there’s Pawlenty’s answer (and the “connection” in this blog post). He’s basically saying: Who needs a Nobel laureate economist waxing philosophically and analytically on the spending we need more of versus the spending we need less of, when we could just “Google it.”

Huh?

If it’s not already obvious from my tone, I don’t like the “Google Test.” There are many things that the private sector cannot be expected to do well on its own, especially when an important “public good” is to provide a “safety net” for people who cannot fend for themselves. Or whenever any market participant faced with their own self-interest (to maximize their own individual utility or profit) would fail to account for the social costs or social benefits of his or her actions/decisions. The free market can only “optimize” based on market values; market forces (the “invisible hand”) can’t lead us to allocations that maximize social welfare where market prices don’t correlate well with social values.

I’ll be doing a Minnesota public radio interview on the Pawlenty speech tomorrow (Wednesday) morning, and if there’s anything to share afterward, I will post it.

**UPDATE (12:30 Wednesday): Here’s a link to the audio of my MN public radio interview, which focused mainly on the tax policy part of the Pawlenty plan. More on this in future post(s).

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