Your basic point, that competition can lead to sub-optimal outcomes is well-taken, where optimal outcome is defined as the enhancement of human welfare. This perhaps is your underlying but unstated assumption.

I am also a bit uncomfortable with ‘regimes’ or ‘institutions’, because they mean creating bureaucracies, which do not always function as intended. But since there seems no other remedy to sub-optical outcomes, I would not dwell too much on it.

ASAF ALI SHAH
Lahore, Pakistan
July 16, 2006

Keynes and insufficient demand:
This seems so obvious. We should have plans ready to go for investing in infrastructure when growth is slow and or demand insufficient. This would have been the perfect action in the latest recession. Rather than the “middle income tax cut” we could have built a massive energy grid system, high speed rail lines, or anything else we wanted. Tax revenue and incomes would be much higher and we would have assets to show for it.
Keep in mind that insufficient demand is a minor, occasional aspect of free markets, where insufficient supply is the prevailing trait of government controlled economies and government regulated industries.

Counter-cyclical policy
I have some issues with activist fed policy - the low rates over the last 5-8 years have been little help and added to the asset bubbles you mentioned. Let’s face it, if Ford would not build a factory at 7%rates they are not going to build one at 6% either.

Institutionalism
I have never heard of this term as a school of thought, but it could not be more appropriate. Who but large established institutions would favor tariffs and regulations in order to obtain government protected monopolies?

Let’s look at the real effects of these policies, which ramped up in the 50’s under arch conservative Eisenhower, peeked in the mid 70’s with Nixon’s rationing and price controls, and started to decline with Carter’s deregulation and trade liberalization. (The trend of government interference from the tax code and fed policy remained until the early 80’s.) The natural results were shortages, inflation, and rising unemployment.)

The time from the early 80’s through the late nineties was the period of least intervention. Real incomes actually fell from 76-82. Incomes rose while unemployment and inflation fell consistently, with the exception of a minor recession in 92 following the fed tightening and huge tax rate hikes in ‘91.

Other examples:
Health care - the industry with the highest level of:
supplier regulation
consumer subsidization
Non market / incentive oriented competition (Public hospitals plus non profit hospitals outnumber private hospitals 4 to 1.)

Goods industry - Oil and energy.
What would the price of gas be if:
The gov. had not invaded Iraq (keeping oil output below 1990 levels)
The gov. had not implemented the court ordered breakup (”death sentence’) forbidding Enron to continue competing with Exxon.
The gov. allowed refineries to produce at capacity and to produce what consumers want rather than force them to produce minimum % of specific grades and limit output of commodity grades to keep the proper ratio?

Please don’t think I disagree with you regarding the outcomes of institutionalism. I agree it would prevent competition, avoid excess supply, and insure that prices do not fall. Is that what you mean by “progressive/”