(This dialogue was in response to a post by DK about how “working economists” –i.e., corporate economists—denounced the bad job numbers.)
SH: One constant of world history: The wealthiest create and propagate ideologies that legitimate inequality as the natural and necessary order, and insist that addressing inequality can’t be done without hurting everyone. And yet, the continuing approach of the still elusive ideal of true equality of opportunity is precisely what has done more to generate ever more wealth, as well as extend it to ever more people. Those who counsel abandoning that enterprise now are identical to all those throughout history who have counseled abandoning it in their own time and place: Wrong.
Economics is not the study of how to rationalize inequality; it is the study of how wealth is created and distributed, and should serve the ongoing challenge to do so ever more robustly, ever more fairly, and ever more sustainably. You cite those who treat it as the former; I am one of those who treat it as the latter.
By the way, no one is happy with the job numbers. We were on the brink of a second Great Depression in 2008, with job loss rising at a rapidly accelerating rate, the trajectory of deepening economic collapse. Within two months of implementing ARRA, the tide was turned to a decelerating rise in unemployment, the trajectory of recovery. We averted a major and long-enduring economic collapse, and you’re citing 8% unemployment four years later as proof of…what? That you will do anything and say anything to further a blindly partisan agenda and reduce the influence of reason in public affairs?
DK: A “working economist” is one who has one or more corporate clients or perhaps is hired by an “industry” to project the short and long-term impact of the current economic conditions on that corporation or industry they represent (more micro economics). It helps those private companies and or industries to decide how to staff and deploy capital. They normally don’t have a political agenda, but a wise investor is going to pay attention to what they are saying. It is true that they are not making moral judgments. Somewhat like justice in that regard they are smart to be “blind”. They do help to form confidence or not. I know that “liberals” make fun of cliches like , “trickle down economics ” and “a rising tide floats all boats”, but it can’t be denied that it takes a “rising tide”, a better growth in the economy than we are now seeing, for those less prosperous to do better too. When many of the working economists (as opposed to those in the ivory towers) tell their business clients they should be cautious, you won’t be seeing growth anytime soon. It’s not politics, it’s just helping the client weather the storm. It’s their job and if done right, it floats more boats. Unlike government, businesses have to use capital wisely or they fail.
SH: It is true that short-term aggregate economic growth is one valuable dimension, which is why I always include it (“robustness”). But the dimensions of fairness and sustainability are also valuable dimensions. The form of economics to which you refer is not dedicated to any of those three dimensions, but rather a corporate or sectoral share of short-term aggregate growth. It’s akin to saying that a military strategist is more of an expert on international relations than those who study international relations in all of its myriad aspects; it may sound good to those who are inclined to think in a particular way, but it is the fallacy of saying that strategy for advantage has and is a broader view than synoptic, comprehensive analysis.
The proof of the fallacy of your argument is the combination of its antiquity, and the fact that in every other time and place in which a variant of it has been used, we now consider it to be an elitist artifact of a discredited earlier epoch. You confuse the need to have a healthy economy with the need to focus on championing the interests of the wealthiest, and while you may think that you can prevail with that position, you can only do so if reason applied to knowledge is effectively purged from consideration.
Since the onset of “trickle-down economics” (1980) in fact, the wealth of the wealthiest 1% has sky-rocketed, while the wealth of everyone else has slightly declined, graphically marking a noticeable departure from the previous decades of similar rates of growth between the two. (See the cover graph at http://www.facebook.com/TheOther98.) Once again, reality has to be considered to be more compelling than self-serving speculation about how the world works that is empirically contradicted by reality.
Conversely, in those countries less infected with your elitist ideology, there is in fact a far greater extension of prosperity to a far larger segment of the society. Poverty rates are lower, along with a host of associated social problems, health outcomes are better, and the gini coefficient (the statistical measure of economic inequality) is lower (we have by far the highest of any developed country, and simultaneously the highest poverty rates and lowest social mobility rates of any developed country). Again, reality contradicts your elitist fantasy world, that serves the conscience and interests of the wealthiest, who want only to be left to continue to siphon an inordinate and economically dysfunctional proportion of national wealth into their relatively few hands, and to do so in a way that they feel able to rationalize to themselves and to everyone else.
No honest thinking person could possibly be fooled by this. Larger proportions of the rest of the developed world enjoy prosperity than Americans do, by not buying into your elitist rationalizations, which have been statistically proven to serve only the interests of the wealthiest Americans.
And, once again, I have to remind that the two greatest economic collapses of the last 100 years were both immediately preceded by the two highest extremes in the concentration of wealth in the last 100 years, which in turn were preceded by a decade or more of your favored economic philosophy. Once again, you prefer a self-serving fantasy to a very clear reality.
The tide was indeed rising, but you and your fellow neo-robber barons sealed out the rest of the ships in our national harbor from partaking in it, so that a few in an elite lock can benefit from it more extravagantly. And, as a result, since this particular tide DEPENDS on other ships rising, we all have sunk together…, except the elites, who will protect themselves until there is no wealth left to monopolize.
DK: The USA is A and China is A1 in terms of economic power and how these two nations go, so will the world. I’ve been to China and I must say in my opinion we do a much better job of equitably helping our citizens enjoy their lives. There are about as many poor people in our country, as a percentage of the population as there was in my youth, 50 years ago, in spite of all our efforts to help people out of poverty. I must say there are better safety nets for the low to middle income wage earners, but that doesn’t take into account the better products and foods available to everyone today. I think it is better to be poor here than in Brazil, China or India. Maybe it’s better in Spain or Italy, but not for long. I do believe that our economic system does a better job of creating economic growth. The proof is the USA remains the big dog in economics. What brought us to this point of great wealth as a nation is what will sustain us. I don’t think most Americans want to be anyone else, be it Sweden or Germany or whatever advanced economy you happen to think is better than us. I think we’ll go home with the girl we brought to the dance. We will at the same time try to tweak the system to help the unproductive will well, but we will not allow them to drag us all down. Any lifeguard knows this.
SH: Once again, you have responded by ignoring every single empirical point I made, and changing the subject in order to repeat your preferred talking points as if they’d never been challenged. I don’t know who buys it, but, whoever it is, they didn’t need to, because they’d have to have already been convinced to do so.
You also, when drawing comparisons, somehow managed to avoid actually discussing Germany, Sweden, The Netherlands, Denmark, Norway, Finland, Luxemburg, France, Switzerland, Austria, Belgium, The UK, Ireland, Canada, Austrailia, New Zealand…, you know, the group of countries to which I was actually referring. All you do is make a bland and meaningless assertion about how most Americans don’t want to be them, as if to say “it doesn’t matter how much better the quality of life is anywhere else; I will simultaneously make a false economic argument and insulate it by saying it doesn’t matter that it’s false, because Americans care more about ideological entrenchment than any improvement in the quality of life.” Interesting how you do that.
By the way, I’m an American too. And I care about the growth in human consciousness and the improvement of the human condition. There was a time when most Americans thought that slavery was just fine, and a minority felt that it was wrong. That minority was right to keep fighting to persuade their fellow Americans to adopt a more enlightened perspective. So, let’s not use what “most Americans” believe or feel or prefer as an argument about what is true or more useful or more moral. That’s why we have discussions like this one: To help us arrive at the best possible, best informed, and best reasoned answers.
Again, here is the reality of the correlation between marginal tax rates and aggregate economic growth (the exact opposite of what you insist it is): http://www.washingtonpost.com/blogs/ezra-klein/post/tax-rates-and-economic-growth-in-one-graph/2011/05/19/AGLaxJeH_blog.html.
You can’t erase the facts, David. You make economic assertions that 80% of economists dissgree with, and that are empirically contradicted, and, when that’s pointed out, just repeat those assertions again.
So, while you’re propagating your dogmatic rationalizations for extreme economic inequality, and why it’s good for everyone, let’s take stock of some of the facts and issues you’ve never addressed:
1) The fact depicted in the graph I linked to above, that shows that, until the onset of “trickle down economics,” incomes had been rising for all of us fairly steadily and equally. After the onset, incomes began to rise dramatically for the wealthiest, and to decline for everyone else.
2) The fact that economic growth is positively correlated to higher marginal tax rates rather than lower marginal tax rates
3) the fact that we are currently still at one of two historical extremes in the concentration of wealth, both of which immediately preceded the two most catastrophic economic collapses of the last hundred years;
4) the fact that that condition, in both instances, followed a decade or more of the small (domestic policy) government and deregulatory policies that you favor;
5) the fact that, historically, the policies favored by the wealthiest members of a society have always had a bias which has advantaged the wealthiest members of the society at least sometimes at the expense of the less well-off;
6) the fact that you seem to want to rely exclusively, as your policy compass, on the policies currently favored by the wealthiest members of our society, and by the journals that exist to express and serve their interests;
7) the fact that every single prosperous, modern, developed nation has had a large governmental infrastructure in place since before the last great wave of expansion in the production of prosperity (and so how can you possibly call that antithetical to the production of prosperity, when it is universally associated with it, in what the chronology suggests is a somewhat causal relationship?); AND
8) the fact that actual economic theory helps explain why that historical reality is the historical reality, and how to approach public policy analysis with that dimension of the challenge in mind.
DK: Steve, I try to boil ideas into simple concepts. It’s bites most people can understand. In the US those who are not poor live as well if not better than those people in other developed countries. They are happy. Those below the poverty line are not as happy and I can only guess how they compare to poor in other countries. For example, the poor here live better than most people in Africa, yes? The liberal consist of 23% of our voters and they share your concern for social justice. I’m more concerned about the overall health of our economy and putting as few burdens on those who create wealth as is “fair”. That’s the focus of the debate. What’s fair? The US is still the world’s most successful economy (total production), so it’s silly to say our system hasn’t worked. Can it be improved and do some have too much wealth? OK, but I really don’t care what Steve Job’s net worth was. We do have more than our share of mega-billionaires that throw the averages off. But so what. They can only spend so much and in my experience (in trust banking), in the end they spend much of their time figuring out how to give that wealth away. I know that doesn’t work for “liberals” because you know best who and how the less fortunate should be helped. You’ve heard of the Lilly Foundation, Ford and on and on. It’s big government v private capital and private capital always wins when it comes to efficient use of capital. It’s simple, they have to pay attention to what they are doing and if they don’t they go out of business. We have a core difference. You think government is needed for social justice and the cost in the inefficient and slow growth is worth it. I think government is the necessary evil and the more decisions left to the individual the better it is for those who are productive and who create things and services. You really don’t care what I think (or my “experts”). By the way, I don’t invest in Europe, they are sinking fast, if you may have noticed. I mention Germany because they have been fiscally responsible. I like Canada too. They were sinking, but the conservatives took over and turned it around (and yes I know they have socialized medicine).
We have more mega-billionaires because we have had the economic freedoms here for those who are the most innovative to succeed big and change the world. I’ll mention Steve Jobs once again (because he was a political liberal) but the reason why we have so much wealth at the top is because of the great success of capitalists like him. Lot’s of that wealth is tied up in their companies. I’m sure many of the 99% malcontents picture these highly successful people sitting on a pile of money in a vault. Success in business is a good thing for our country and is how good jobs are created. Why making those successful companies these hustlers are never giving social justice a thought. They are focused in beating their competition and building a better mouse trap. Like Jobs, once successful, they often do think more about helping others. That’s really nothing new (Ford Foundation). The less government the better if the focus is on creating growth.
SH: David, by “boiling ideas into simple concepts,” you mean “weeding out inconvenient information, avoiding logical argumentation, and displacing empirical analysis with arbitrary and often demonstrably false speculation.” You “can only guess how (the poor) in other countries” compare to the poor in America? Guess what, David? You don’t have to guess, because we have a little something called “research,” which informs us. Here’s what it informs us of: There are far less of them, they have access to far more public goods, and their self-reported happiness is far higher than ours. In fact, the self-reported happiness in most Western European nations is higher than that of people in the United States in general.
Though the main issue currently under discussion is inequitable distribution of wealth and opportunity, and therefore how well off the affluent in America are in comparison to the affluent in other countries begs the question, it’s nevertheless quite debatable whether “those who are not poor live as well or better than those people in other developed countries.” Violent crime is far, far higher here, and a host of other social problems that we fail to address diminish the quality of everyone’s life. More importantly, those who aren’t exceedingly wealthy, who have children with special needs, who have serious health issues to deal with in their families, who face any of a host of potential challenges in life, on average and in general fare far, far worse than those similarly situated in other developed countries, as a result of our (well, your) pathological ideology of “I’ve got mine, so screw the rest of you.”
The valid comparison, of course, is between the United States and other developed countries, because those are the alternatives with similar economies and, in fact, slightly lower per capita GDP, indicating that we certainly have the resources to accomplish anything they have accomplished. The comparison to Africa is an irrelevant distraction, which, of course, is one of the principal techniques on which you rely.
Again, the empirical evidence demonstrates the convenient error in your premise that “social justice” and a healthy overall economy are at odds with one another. Among the many facts that you have failed to address are those that suggest just the opposite. There is a positive rather than negative correlation between high marginal tax rates and high GDP. The two greatest economic collapses of the last 100 years immediately followed the two highest peaks in the concentration of wealth in the last 100 years. You present a false dichotomy that serves to justify a simultaneously unjust AND systemically dysfunctional condition. But, facts aren’t relevant, right David? Only the constant repetition of your elitists rationalizations, overwhelmingly contradicted by the actual facts, can pass for “truth” in your mind.
You say “the less government the better if the focus is on creating growth,” but, again, the real world resoundingly debunks that assertion. Every single modern prosperous nation on Earth has, and has had for most of a century, an enormous governmental administrative infrastructure, which has proven necessary to managing such economies. There is not one single exception. And this was already the case prior to the last historically unprecedented expansion in the production of prosperity. On the other hand, there are many horribly failed countries with virtually no government at all, Somalia being the archetypal example. You’re assertion is simply the opposite of what observable reality supports.
If total wealth production were the only measure of a system working, then one that put 100% percent of the wealth into one person’s hands and left everyone else to starve, as long as the quantity of wealth it put into that person’s hands were more than the quantity of wealth produced in other countries, by your definition, that would be a country that no one could say was failing to “work.” Well, it works for one person, but not for the other hundreds of millions. Clearly, distributional issues are legitimate.
And not just because economies “work” when they work for the benefit of the people within them, not simply when they produce a lot of wealth that only a few enjoy. Also because such inequality leads to economic collapses, such as the one recently catalyzed in part by exactly such gross inequity in the distribution of wealth. A few traders were making fortunes in underregulated derivatives markets (divorcing short-term risk from short-term profit), while many were going underwater on their home mortgages. Again: Peaks in concentration of wealth = catastrophic economic collapses; higher marginal taxes = most robust economic performance. Those are empirical facts, which you love to disregard and replace with factually contradicted fabrications.
I could go on, of course, and demonstrate line by line how you simply ignore the empirical data, replace it with ideological speculation that is actually contradicted by demonstrable facts, and how you do so in service to a concentration of wealth into ever fewer hands, to the detriment both of the vast majority of Americans at all times, and to the functioning of the economic system as a whole in the long run.
It’s remarkable how consistently you make your arguments without ever citing a single empirical fact. All of your “arguments” are based on the assumption of your conclusion, mere repetitions of accepted and unexamined dogma, as if simply by saying it often enough and loudly enough, and doggedly enough ignoring all evidence to the contrary, your fictional world becomes a reality. It just doesn’t work that way. And most obnoxiously of all, it’s not even a fiction based on a love of humanity, a wish that we could achieve some ideal that serves the needs of those least fortunate, but rather a fiction designed to perpetuate human suffering and injustice and insulate enclaves of great wealth from the sea of humanity around it.
It’s also remarkable how thoroughly you rely on straw man arguments. Of course the success of business is a good thing. I am a believer in carefully considering what facilitates the success of business as we continue to refine our economic policies. It is a vital consideration, but neither one that stands alone, divorced from myriad related considerations, nor one that is incompatible with addressing those myriad related considerations. We need to attend to all relevant dimensions of a well-functioning economy as we forge our public policies: Robustness, fairness, and sustainability. (Neither is anyone here opposing enormous wealth in and of itself. It doesn’t bother me that there are extremely wealthy people; it bothers me that our system is grossly imbalanced in favor or facilitating that, and not balanced enough in favor of ensuring that others are living moderately secure and comfortable lives.)
It’s not that there are no legitimate concerns raised by the right: We do need to change our public spending paradigm, to stop a constantly growing national debt. Very few economists think that is at all defensible to try to do that during an economic downturn; that actually increases rather than decreases the debt in the long run, by slowing the economic engine that produces the wealth that generates the revenues. More generally, we should rely on legitimate economic analyses, which define a far narrower band of what’s reasonable than these blindly ideological assertions of yours. We should acknowledge and be informed by the empirical data, rather than do contortions to wish it away in service to both social injustice and economic dysfunction. And we should recognize that we are charged, as human beings, not to be slaves to the system that has evolved to serve us, but rather to channel those forces to the purpose of human liberty, human well-being, human consciousness, and human benefit.
It boils down to this, David: In any time and place, there are those who work hard to defend a status quo that is serving their interests and that they don’t want to see changed; there are those who want to change the status quo in ill-considered and irresponsible ways, and there are those who want us to use our minds and hearts and imaginations to continue to work with this ongoing evolutionary social institutional and technological landscape in which we find ourselves, to continue to refine it, to make it function better for the benefit of humanity. It’s clear at a glance that those who cling to the status quo that benefits them have never been right, have never been admired by future generations for their courage or wisdom, and have never been the ones to make the most vital and productive contributions to human history.
You cite Steve Jobs, whose genius was that he looked at the world and saw possibilities that did not yet exist, and worked to bring those possibilities to fruition. He was an innovator, a visionary, someone who introduced new ideas and new forms into our social institutional and technological landscape, to the benefit of us all. We all need to be more like that, in all of our spheres of endeavor. It’s not just about business innovation, or technological innovation; it’s also about social institutional innovation. The Constitution of The United States is a great example; it was a huge and dramatically beneficial social institutional innovation. And that project, that challenge, has not ceased. It continues; we remain called upon to rise to it.
There are many wonderful aspects of our political economy. I’ve studied it for decades, and consider it a wonder to behold. But like everything else in our world, both human and natural, it is a moment in history, an instant of a dynamical story in which we are both the participants and the authors (of the human component, at least). You are engaging in the ancient folly of defending the status quo as inviolable, a folly that has been proven counterproductive in every time and place throughout the entire story of human history. It’s time, instead, to join all reasonable people of goodwill, all people dedicated to the ongoing human enterprise, and ask with us, “how do we do better?”