12/10/2008 (10:29 am)
Newt Gingrich sent his American Solutions subscribers a link to this interview he did with Newsweek International Editor Fareed Zakaria. I recommend it to you because of the depth of the discussion, which is what always happens when you give Newt Gingrich enough time to expound his ideas. Gingrich is a history professor by trade, and his knowledge of American economic history is prodigious.
I snatched the embed from the page source at Newt’s link, but I’d appreciate it if you would at least click on Newt’s link and visit his page yourself after you’ve read my comments, so his site gets the traffic statistics. Besides, his video window is a bit larger.
The talk is 36 minutes long.
The principles we can draw from the discussion are these:
1) If the government must create incentives, positive incentives work, negative ones don’t. We didn’t build the railroads by penalizing wagon transport, we didn’t build air transport by penalizing railroads, and we won’t build alternative energy strategies by penalizing fossil fuels.
2) Government agencies don’t produce answers, the people produce answers. Gingrich argues persuasively for prizes as incentives, because prizes allow anybody to play and reward the final product rather than the impressive credentials of the players.
The interview is troubling in the sense that Gingrich here argues for a robust governmental response to current energy problems, an approach which I don’t particularly like. He does have a point in that many historical economic advances have been fueled by smart government incentives, and it becomes clear that he’s actually basing his recommendations strictly on what’s worked in the past.
Zakarias, obviously a very bright man himself, owns Gingrich twice. In the first of these conflicts, Gingrich fails to answer Zakarias properly on the question of the difference between positive and negative incentives. Zakarias takes the position that economically speaking, there’s no difference between taxing behaviors you don’t want and rewarding behaviors you do want. Gingrich eventually gives the right answer, but it’s much later in the talk. There are two reasons. First, the carrot always works, but the stick never does; even in the Soviet Union with the KGB enforcing, people simply cheat on government disincentives, finding ways to do what they want without the government knowing. By contrast, people will invest huge amounts of energy to obtain the right positive incentive, but have to let the government know in order to claim the prize. And second, taxing to create a disincentive always lands on the backs of the poor and the elderly, particularly when you’re creating a disincentive for something everybody owns, like a gas-driven automobile. But Zacharias notes correctly that with incentives, you tend to limit the answers that will arise.
In the second of these, Zakarias charges that the difference between “bureaucracy” and “strong, lean government” is just a semantic game. He’s wrong, but Gingrich fumbles the answer a bit. The difference that Gingrich is after is the difference between government actually doing the work, and government farming the work out to the best private players in a fair contest system. His examples of successful government incentives from history come from a time period when the government was not large enough to do most major projects without private help (although he does use the Smithsonian’s abortive attempt to build a flying machine as an object lesson.)
Finally, I have to note an inconsistency. Gingrich claims to support “carrot” incentives over “stick” incentives, but late in the talk speaks favorably about Alexander Hamilton’s plan to pass tariffs in order to create an incentive to build manufacturing in the US, which was clearly a negative incentive on imported goods. Of course, the level of taxation then was much, much smaller than current plans, and thus did not land so heavily on the poor.
I’m still not on board for government planning, nor am I all that concerned about the increasing carbon load in the atmosphere which seems to be having minimal effect. Still, this is a worthwhile discussion.
2 Comments »
Comment by feeblemind
Dial-up makes it impossible for me to watch this. Although I have a very favorable opinion of Newt overall, at one time he was a big supporter of ethanol. Don’t know if he still is or not.
(Author’s note: He still is. He says so in the video. I disagree with him on that, but the historical information in the video is worth the time. Perhaps you should visit the local library with a pair of portable headphones?)
Comment by Dale Jackson
Ok I’ve watched Newt Grngrich’s “Discussion on Energy with Fareed Zakaria of Newsweek” and I had an idea. If Newt is serious about positive incentives then don’t give them to the people who make the products but to the people you want to buy them. Write the specs for an energy efficient car. I would suggest keeping it real. Let’s say the car would have to get the first 40 miles without using any gas, or maybe just a small amount to keep the heater or air conditioner going, and then from there after it would have to get a least 40 miles to the gallon. The point is the car would have to be able to be driven in all weather conditions, and comfortable enough that people would want to buy them. And here’s the positive incentive, let the people who buy these cars write off half the purchase price on their Federal Tax. And, – if Detroit won’t make the cars I’m sure Japan or Germany would be glad to fill the void. I think people would jump all over this, I know I would.