Which role of the state in the economy?

Whether there should be more - or a continuation of the current level of more - state intervention into the economy rather depends upon which problem we’re talking about and which state role in the economy. From Tom Kibasi:

In economic terms, the pandemic is best understood as an epic, simultaneous supply-side and demand-side shock. Demand has collapsed as incomes have dropped and workers fear for the future, and at the same time the labour market has ground to a halt as normal working patterns have been disrupted. Structural shifts – such as the move away from high streets and hospitality to home entertainment and online shopping – are set to destroy hundreds of thousands of jobs, probably for ever. This is why the V-shaped recovery predicted by the Bank of England in May is nothing more than a pipe dream. And it’s why a vastly expanded role for the state in the economy is here for the foreseeable future.

It’s rather obvious that much of that V shaped recovery has already taken place. Things like retail sales, GDP and so on show that it has. Not, agreed, to above February levels in everything but we’re not that far off in most things. It’s also true that there are certain things which never are going to bounce back - those things that cannot, or will not, be done because of social distancing and all that.

What we fear Kibasi means about the state’s role is managing that change required from those things we cannot, or do not, do any more to the new methods and things we can. That redeployment of scarce resources to sate human desires in new ways.

If the meaning of the state role is to continue to alleviate the pain and grief of the transition then carry on even if precise details can be and will be argued about. If it is to direct the transition then that’s exactly wrong. We don’t actually know what those new methods are. We also don’t know which human desires people want sated, in which manner, from the new menu of options that a socially distanced world allows.

We do, however, have a method of discovery - that free market guided by the capitalist lust for profit. That’s the most efficient system known to chew through what can be done and match it up to what people desire to be done. Consistent market experimentation that is. Given the current difficulties we’d actually like to have a frenzy of such experimentation and government’s role is to get out of the damn way.

Harsh times may well mean government has a greater role in alleviating the harshness. Economic change means getting out of the way of markets to enable the discovery process to work efficiently.