Thinking about our mixed economy in which government and the market intermingle, I have always gravitated to this quote from former Secretary of the Treasury, Lawrence Summers:
- “In the history of the world, nobody has ever washed a rented car.”
And now, doing a bit of research on the colonial United States, I wanted to share the same ideas from 18th century economist Arthur Young:
- “The magic of property turns sand into gold.”
- “Give a man the secure possession of a bleak rock, and he will turn it into a garden; give him a nine years’ lease of a garden, and he will convert it into a desert.”
Finally though, maybe this comment from a blogger at The Economist can take us a step further. His example is a case study on military airplanes and how maintenance workers who had long term oversight of the same equipment felt “ownership” more strongly than specialists who were responsible for the engine or the wing of thousands of aircraft. His point is that it all depends on how the job is structured.
My bottom line? In our mixed economy, can we retain the incentives of “ownership?’
Sources and Resources: I recommend reading the entire blog from The Economist for a full discussion of the origins and limits of the Summers quote. And, for slightly more about Arthur Young, here is a brief bio.
Have you ever washed a rented car? Former Treasury Secretary Lawrence Summers tells us that, “In the history of the world,” no one has.
For rental cars and Cuban houses, lack of ownership is the common denominator. When Fidel Castro took control of Cuba, he declared that everyone would get a home but no one could buy or sell one. As a result, described by NPR, everywhere, walls are patched with scrap metal, grillwork is rusty, and facades are crumbling.
Now, with Raul Castro, Fidel’s brother, announcing that Cuban citizens could sell their homes, renovation, painting, maintenance and for sale signs are popping up everywhere.
The power of the market system?
Here is an NPR report on Cuban small business start-ups.
The Economic Lesson
Cuba imports 80% of its food supply while the price of nickel, its main export, and tourism, its main “import,” have both declined. Raul Castro said, “We have to erase forever the notion that Cuba is the only nation in the world where it is not necessary to work,” The Economist suggests he might be leading his nation toward a Chinese type of mixed economy.
A mixed economy combines government intervention with a market system. You might want to look at the Index of Economic Freedom to see the extent to which 179 economies are mixed.
An Economic Question: Moving from a command economy to the market, how might incentives change?
During a CNBC interview, former Treasury Secretary Lawrence Summers said that Japan’s massive earthquake “…may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place.”
Commenting on the interview, the WSJ reminds us that 19th century economist Frederic Bastiat (1801-1850) said “destruction is not profitable,” because disaster recovery replaces what was lost. So, although GDP could surge, national wealth is not necessarily any more and could indeed be less than it was before disaster struck.
The Economic Lesson
Calling it “the fallacy of the broken window,” economist Bastiat questions the assumption that a broken window can be an economic blessing. He agrees that a glazier would receive, for example, 6 francs to fix it. However, he then says, “…if…you conclude…that it is good to break windows, that it helps to circulate money…I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.”
Bastiat then points out that the money given to the glazier would otherwise have been spent on new shoes or a book. And, having been able to spend the 6 francs on a new pair of shoes, their owner would have had new shoes and the old, unbroken window.