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Why Economies Die

Niall Ferguson is an historian at Harvard University. I just finished reading his book, entitled The Great Degeneration.  I highly recommend this book but I should warn readers that it is not a happy read. The book attempts, in a scholarly way, to document the events that can lead to the decline of a society. Reading this book leads to the inescapable conclusion that the U.S. is in decline since many of the causes of decline listed by Niall Ferguson can easily be seen in the U.S. I can’t mention all of the issues discussed in this book but there is one that I want to highlight here and that is the decline in the rule of law.

Economists are aware that one crucial role of government is the enforcement of a legal system. There can be no wealth creation in a capitalistic society if property rights are not enforced and, for this and other reasons, we need a government to implement and enforce the laws on the books. Ferguson mentions that we are now seeing laws that are sloppily written and enormously complex so that the implications of such laws are unknown to the very politicians who pass them. The Affordable Care Act is a law whose details were not known at the time of passage and a recent court case underscores this problem of sloppy construction.

I recall reading a news report at the time when Obamacare was passed that if states did not run their own insurance exchanges, insurance subsidies could not be provided to reduce the cost of medical insurance purchased on the exchanges. Sure enough, the currently-dysfunctional exchanges provide subsidies to all and so they seem to violate the law. Predictably, a federal court case was brought challenging the provision of subsidies to individuals buying insurance on state exchanges run by the federal government. And the position of the Justice Department in this court case? It is that Congress really meant for everybody to be eligible for subsidies even though the language of the law seems to prevent this. So now federal judges are being asked to figure out what Congress really meant when it passed the Affordable Care Act.

If we can’t even expect politicians to write laws expressing what they mean, what exactly do we pay them to do?

  1. John Sase
    October 29, 2013 at 11:42 AM


    Remember the Homeland Security Act in 2002? It was rewritten, re-printed overnight, and delivered to Congress the next morning to vote upon. Most congresspeople state that they did not have time to read this new–and very different–act before voting. Halliburton, Blackwater, and other friendlies benefited from “subsidies” in the form of defense contracts. The beat goes on, but the music doesn’t change.


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Economics One

A blog by John B. Taylor

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