Tax and Deregulate

To offer some further thoughts on Iceland, I should say I don't particularly disagree with Will Wilkinson and others who think that the economic success of countries like Iceland and Denmark should be chalked up in part to the relatively light hand of the regulatory state in those places. In many respects, generous spending on public services and deregulation go together like a horse and carriage -- a lightly-regulated market economy generates the wealth that facilitates the social spending, and the availability of public services makes the vicissitudes of the marketplace much more tolerable.

When people are counting on their job to provide them with such a high proportion of what they need to get by in life (not in an objective subsistence sense, but in an intersubjective social sense) the risk of losing that becomes intolerable, and rises the demand to treat one's relationship to other market actors as an entitlement. Thus, labor market rigidities, price controls, subsidies, etc. Alternatively, one could simply be entitled to a basket of publicly provided stuff (education for oneself and one's kids, safe and well-maintained streets, adequate health care and transit, continuing education and job placement, etc., etc., etc.) but then let the ups-and-downs of economic life operate as they will.

The movement, started under Jimmy Carter then of course continued by Ronald Reagan and Bill Clinton, to deregulate important aspects of the American economy was basically a good thing in my view. Indeed, as I've blogged before there are a lot of areas -- especially at this point those under the purview of state and local governments -- where we would do well to deregulate substantially further in terms of occupational licensing, land use, what's involved in starting a new business, etc. Unfortunately, what we haven't done is built the strong welfare state and generous public services to go along with it. Here I part ways with a lot of people (Will, for example) who appear to believe that it's impossible to do in a large, diverse country what's been done in several small, homogenous countries. More challenging politically? Of course. And that's why we don't have it today. But doable? Hopefully some day in my lifetime? I think so.

Photo by me, available under a Creative Commons license