Dysfunctions of the Welfare State

Abstract

This timely analysis of today's economic realities relates headlines of today to long term causes from which they spring. Why did we have a worldwide financial crisis in 2008? Is stimulus answer, and what are its risks and potential returns? Why are our investments so unprofitable? Why are our citizens struggling to find work? Why do we repeatedly confuse effort with results? The author finds answers to these questions in dysfunctions of welfare state. Economics is science of creation and exchange of value, but Gross Domestic Product (GDP) confuses value with creation and exchange of 'goods and services'. Along way, GDP has become a measure not of value created, but of effort expended and of costs incurred. This confusion has become cornerstone of policy manipulation of the economy, because it is very easy to incur costs, though not so easy to create value. Policymakers are not eager to correct this discrepancy because it is easier to manufacture costs through brute force than to produce results that have real value. This book pins down major contributors to these distortions in a number of specific areas, including education, science and engineering, hospitals and other medical facilities, public utility transmission grids, and in trade deficit. It also pursues distortions caused by short-sighted public policy in capital markets. The book concludes with a discussion of market efficiency and inefficiency leading to conclusion that policy intervention into capital markets reduces their capacity to allocate capital productively. The author addresses this broad topic from unique perspective of someone who has contributed both to theoretical analysis and to actual practice of markets.