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The End of Laissez-Faire: National Purpose and the Global Economy After the Cold War.

The End of Laissez-Faire: National Purpose and the Global Economy After the Cold War. Robert Kuttner. Knopf, $22.95. Quicksilver Capital: How the Rapid Movement of Wealth Has Changed the World. Richard B. McKenzie, Dwight R. Lee. Free Press, $22.95. You may have heard that Americans have forsaken laissez-faire economics. It happened when Alexander Hamilton became secretary of the treasury and announced that the government's job was to protect and nurture American manufacturers. Free markets? Adam Smith? Not in the land of the free and the home of the subsidy.

Pure laissez-faire--economic activity untouched by political meddling-has never existed and never will. The question, rather, is how much government meddling, and of what kind. Here are two new books arguing about both questions. One propounds what it calls the "New View": Government management of the economy is a good idea and is becoming inevitable anyway. No, the other book replies, government interventionism is a bad idea and is becoming impossible anyway.

Thus the two poles of the emerging debate about the post-Reagan economic era: Laissez-faire is dead; long live laissez-faire.

Which of these is really a new view? Maybe not the one that claims to be. In The End of Laissez-Faire, economics writer Robert Kuttner makes the case for giving up laissez-faire ideals and embracing "a politics of planning." Condensed, it goes like this:

Private individuals and companies make economic decisions which may not be, and often actually aren't, in the national interest. In practice, the government meddles in markets anyway-but it meddles irrationally, through patchwork programs and ad hoc protectionism. The truth is that free-market ideals served the U.S. well when we were the dominant economy, but now laissez-faire is a "false idol." We Americans ought to do as our canny European and Asian competitors do, and use a rational mixture of free markets and strategic planning to shore up our economic strength.

If you think you've heard this before, you have. Many times. The strength of Kuttner's book is the clarity with which he makes the case (and, I should add, his devastating attack on bizarre U.S. export controls). What the book makes clear, however, is that the New View has yet to advance too far.

Let's take it as a given that American policymakers' devotion to freemarket principles has allowed U.S. businesses to make serious mistakes and to act in ways that conflict with American strategic interests. But what's the alternative?

It's all very well to talk about intelligent economic management by strategic-minded government officials. But how are you going to do it? In the first place, if you're going to protect and nurture key industries and technologies, you have to figure out which ones they are. Kuttner argues that our attachment to free-market ideals forces us to tinker with markets covertly and irrationally. "Orthodox American opinion," he says, "has no good criteria for sorting out good interventions from bad ones." True enough-that's why orthodox opinion argues that we should try to avoid intervening.

Kuttner himself offers no solution to this critical problem of finding "good criteria" for intervention. The closest he comes is this: We should turn to managed trade for "those products where nations are currently restraining trade and for one reason or another wish to retain or develop technological and production capacity." This is not, in my opinion, a "good criterion" for intervention; it's carte blanche for greedy protectionists.

There's more. As Kuttner himself admirably explains, you'd need a different kind of multinational management regime for each kind of industry -since no two are alike, there's no template. What a mess! And once everyone has agreed on "rational" industrial policies and managed-trade deals, how could you make adjustments without recourse to endless renegotiation and a zillion lawyers?

And once you've decided to help out a declining industry or subsidize a rising one, when, if ever, do you pull the plug? And-most seriously of all--how do you separate the economically important industries from the politically powerful ones? How do you keep economic management from turning into a barrel of pork for rich companies with high-paid lobbyists?

The questions, none of them new, go on and on. Kuttner fails to answer them. He fails, for the most part, to even address them. The New View has been around now for a decade or more. It is fast becoming an old view. I'll keep listening, but I suspect that if the New Viewers haven't made it to first base by now, they're not likely to get there.
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Author:Rauch, Jonathan
Publication:Washington Monthly
Article Type:Book Review
Date:Mar 1, 1991
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