In my first post here as an official Bear, I want to start by thanking Dan Crawford and the rest of the Clan of the Angry Bear for inviting me to join the party. I’ve been a regular lurker and occasional commenter for years, and have learned a huge amount from the experts here. I’m looking forward to contributing more regularly.
For my inaugural post, I’m going to break with my tradition and rather than inflicting data on you, I’m instead going to frame much of what I write in some big-picture ideology and theory.
I think this thinking does much to explain what Mike Kimel in particular has made so clear here over many years (with occasional help from moi): that based on the long-term historical record, by pretty much any economic measure it’s progressive policies that deliver superior growth, prosperity, fiscal responsibility, opportunity, individual liberty, and a vibrant, robust economy and society.
How can that be? Aren’t Republicans “the party of growth”?
That question cuts straight to the reason I started blogging back in 2004. Back then I generally and rather unthinkingly accepted (at least provisionally) the dominant meme of Reaganomics — that larger government hurts economic growth. But I’ve always been a curious fellow (yes, in both senses…), so I started pulling data and crunching it to see for myself. (I am from Missouri, after all.)
I was pretty astounded at the time to find that the dominant meme just wasn’t true. Run the numbers various ways yourself, or do a review of the professional literature, and you get the same results: in prosperous countries, government size has basically no correlation with long-term economic growth (even though government sizes vary hugely — from well under 30% of GDP up to 50%+). Go figger.
And that means that all the rhetoric, ideology, and theory supporting that meme has a problem. The more I thought about it, the more I realized that it was in fact wrong by a 180 degrees.
That’s how I came to what I’m giving you here — a reprise, revision, and reworking of thinking I wrote up a couple of years ago:
Alternate Title:
The Nine Habits of Highly Efficient Economies
Republican economic policies are widely perceived (especially by Republicans) as being pro-growth and pro-prosperity, even though All. The. Evidence. Demonstrates. The. Opposite. Even the rich get richer under Democrats (except for the very rich) — though not at the expense of the poor and the middle class.
Progressives deliver more prosperity. They deliver it to more people. And they do it without busting the budget.
How do they achieve all that? Through the miracles of economic efficiency — policies that make the markets actually work — and work better — for the greater prosperity of all.
Wisdom of the Crowds. Democrats’ dispersed government spending — education, health care, infrastructure, and social support — puts money (hence power) in the hands of individuals, instead of delivering concentrated streams to big entities like finance, defense, and business. Those individuals’ free choices on where to spend the money allocate resources where they’re needed — to truly productive industries that deliver goods people actually want.
Preventing Government “Capture.” Money that goes to millions of individuals is much less subject to “capture” by powerful players, so it is much less likely to be used to then “capture” government via political donations, sweetheart deals, and crony capitalism. Those bogeyman “welfare queens” don’t have much power or presence on K Street. The Wall Street and Defense Welfare Queens quite decidedly, do.
Economic Stability. The social support programs put in place during and since the New Deal serve as automatic stabilizers for the economy, providing the kind of anticyclical fiscal policy that legislators and monetary authorities cannot — in their infinite discretion — be relied upon to deliver. Just as volatility trashes the returns on your investment portfolio, wild swings in the economy trash collective prosperity and the spectacular potential of compounding growth.
Labor Market Flexibility. When people feel confident that they and their families won’t end up on the streets — they know that their children will have health care, education, a measure of economic security, and a decent safety net if the worst happens — they feel free to move to a different job that better fits their talents — better allocating labor resources. “Labor market flexibility” often suggests the freedom (of employers) to hire and fire, but the freedom of hundreds of millions of employees is far more profound, economically.
Freedom to Innovate. Individuals who are standing on the social springboard that Democratic policies provide — who have that stable platform beneath them — have the economic freedom and security to strike out on their own and develop the kind of innovative, entrepreneurial ventures that are the true engine of long-term growth and prosperity (and personal freedom and satisfaction) — without worrying that their children will suffer terribly if the risk goes wrong. Give twenty, forty, or a hundred million more Americans a place to stand, and they’ll move the world.
Profitable Investments in Long-Term Growth. From education to infrastructure to scientific research, Democratic priorities deliver money to projects that the private market don’t support on their own, and that have been demonstrated to pay off many times over in widespread public prosperity.
Labor and Trade Efficiencies. The social support programs that Democrats champion — if they truly provide an adequate level of support — give policy makers much more freedom to put in place what are otherwise draconian, but efficient, trade and labor policies. If everyone who works is guaranteed a decent income by a program like the Earned Income Tax Credit, we have less need for the economically constricting effects often associated with unions and protectionism.
Power to the Producers. The dispersal of income and wealth under Democratic policies provides the widespread demand (read: sales) that producers need to succeed, to expand, and to take risks on innovative new endeavors. (There aren’t many rich people, so they can’t buy very many iPads.) Rather than assuming that government knows best and giving money directly to businesses and banks, Democratic policies trust the markets — the people — to direct that money to the most productive producers.
Fiscal Prudence. True conservatives pay their bills. From the 35 years of declining debt/GDP after World War II (until 1982) to the years of declining debt under Bill Clinton, to the flattening of the debt runup that’s projected under Obama (after the historic spike that Reaganomics and Bushonomics has delivered), Democratic policies demonstrate which party deserves the name “fiscal conservatives.”
These aren’t actually “the” nine reasons — there are many more (I haven’t even mentioned smart, sensible regulation) — but they’re a great starting point for the kind of thinking that needs to be repeated over and over, endlessly, for decades (a la the Republicans’ incredibly effective long-term brainwashing campaign following the Powell memo), to bring about the change our country needs to thrive in the 21st century.
Progressives are the party of prosperity, of individual opportunity, and of economic freedom. The historical and comparative evidence shows it in spades, and there’s very coherent and convincing theory to explain why. That’s a lot of what I’ll be talking about here at the Bear. I’m excited to hear your thoughts.
Excellent post. Thanks!
I join Joel in thanking you for your excellent post. I’m looking forward to having you hear. NancyO
Steve:
You never answered me directly; but, I can defend this easily. Thank you for writing this.
Bill
Hey Bill, I must have missed something. Saw you said welcome on Dan’s post (thanks!), but something else?
Love to hear any defense or other comments.
A question in regards to the “Freedom to Innovate” and “Power to the Producers” sections of your blog, how do financial markets play a role in allowing or rather assisting these entrepreneurs and producers with achieving their goals financially?
in prosperous countries, government size has basically no correlation with long-term economic growth
Something of a fallacy of composition there. By looking at only prosperous countries you are by definition only looking at those that have had decent economic growth. To find that all have had decent economic growth is not all that surprising: for your original selection was by definition only those that have had decent economic growth.
Or to take a stab at putting it another way… The probability that a successful country will also have a “large” government is not the same as the probabilty that a country with a “large” government will be successful.
Bayesian conditional probability.
Something to tenatively add: Different philosophies on the nature of success and failure.
If a large part of success comes from random chance, and successful technologies are really just the “last straw” atop an incrementally-grown foundation, and if a large part of failure is likewise chance, then it makes sense to tax “winners” in order to offer a “safety net” for the “losers”.
Conversely, if you think chance has a very small role and successful technologies and techniques are due to massive and abrupt leaps, then it makes sense to focus on rewarding the winners and punishing the losers.
I feel the first view is far more “progressive” and is arguably backed up by statistical evidence. Consider some investment advisor who beats the market returns for a whole decade. When you crunch then numbers, you might find that the odds that at least one of the X investment advisors in the nation would fit into that description are actually very good, purely based on random odds.
Progressives will be fine with taxing this individual, and using the money for homeless shelters, while conservatives might insist that the investor should be taxed minimally, in order to encourage some unindentified non-random success factor.
Half the world’s war spending, with lower social expectations than the Germans.
The wisdom of the crowd would kill about $4T in US war projects. But the crowd does not own the congress on the take.
What is lacking in the current US: the “wisdom” of the 99% is only 63% of federal spending on “entitlements”, while the averice of the 1% is fed by war profiteering (20%) and corporate welfare at 37%.
And the supporters of the 1% proclaim tiny cuts of 15% to war profiteering is draconian.
The US spends half the money the world spends on war.
Tim,
How about the flipside then. Make a list of countries whose government has little or no control over large parts of the country. (And please don’t go all Scott Sumner on us and start explaining how Singapore, whose government controls 60% of the economy, keeps a low profile.) Or pick a single country, and find the regions where the government has the least say over how people do business. Are those the prosperous countries (or regions of the country)? And if not, why not? After all, even if they started out as the low prosperity regions, doesn’t the theory to which subscribe indicate that they should after a while start benefiting from the lack of government intervention?
I don’t know about England, but here in the US it doesn’t seem to be the case.
Worstall
you’re looking too hard for a fallacy here. rather than a fallacy of composition (which this would not be even if it were some other kind of fallacy) what we have done is selected a universe of discourse in which the proposition even makes sense to talk about.
it would seem pretty weird to follow your idea that the United States must be an un-prosperous country so we should concern ourselves with the size of government , lest too big a government keep us un prosperous.
i have tried to make the point before that if this was 1835 and there was a scarcity of capital some of the policies of the “right” might make more sense. but we are on the other side of the industrial revolution now, there is more “capital” than we know what to do with.
you can’t be a teenager forever.
Terr
I don’t like your analysis. The point of taxes is not to punish anyone. The point of taxes is to get the money to carry out the policies that the people (in a democracy) have decided will benefit the general welfare. It is to be hoped… and to some extent guaranteed by a government of checks and balances… that the people will not be so stupid they use the power to tax to destroy the sources of growth.
In fact they have never done this. But those who have the money to have a loud voice in politics have always told ghost stories about this boogeyman simply to keep what they have got and to hell with everyone else. Of course they always forget that they are part of “everyone else” and that to the extent they “keep what they have got” they starve the “beast” that made their wealth possible in the first place.
This is by no means true of all rich folks.
One does not have to assume success is a matter of random chance to justify taxing “according to the ability to pay.” In fact many of those random chances are the luck of the draw in genes and opportunities… but we don’t need to be so stupid as to pretend that every rich man got that way by dumb luck.
Terr
I don’t like your analysis. The purpose of taxes is not to punish. The purpose of taxes is to get the money to carry out the policies that the people (in a democracy, through their elected leaders) feel are necessary for the general welfare.
The people have never been so stupid as to use the power to tax to destroy the sources of wealth. This is a ghost story that is told by politicians who want to scare us into exempting the wealthy generally, but mostly their particular friends, from paying their freight. Even though the accumulated effect of the rich not paying a reasonable share of the taxes is a country that can no longer create the conditions for even the rich to prosper.
You don’t need to think that success comes from random chance to understand that taxing according to the ability to pay is the only tax policy that makes any sense at all in the long run.
Nor do you need to believe that all rich folk got rich through dumb luck…. part of the “chances” that lead to success include the chance of good genes and a healthy environment and a culture that supports education and opportunity.
But opportunity does not mean “no taxes.”
Steve,
Well as the local contrarian, my first question is simple; Where is this political party you speak of?
Seriously, this list looks just like what both parties promise all the time. I could change some buzz-words and it would sound like the R platform or with some adjustments make it sound just like the D platform.
About the only point that seems false is the last. Neither party is the party of fiscal prudence – the Dems under Obama just cranking Bush’s (Jr) policies to ’11’. The idea that Obama is going to flatten the debt run-up is laughable and not shown by any actions in the last three years. Especially during the two where the D party had control over both the executive and legislative branches. The D party had control of the purse during the entire Reagan/Bush era, it wasn’t until the R’s took control of Congress did the deficit come somewhat under control.
Your counter-argument about Clinton just gives credit to both parties as the R controlled Congress (with the power of the purse) during his time in office – and of course the growth caused by the US entering the information age in the ’90s and then the over-shoot of dot-com bubble. Also, don’t miss that Bush Sr raised taxes also and it cost him his second term.
Tim and Mike above do hint on what a lot of the political fight is about these days. Will we develop an even larger, more powerful central government further constraining individual liberty or start to curb the leviathan and bring freedom back to the far more accountable state governments and individuals? Progressives want to grow the leviathan and have it get more and more involved with peoples lives. As the Federal government grows the people will lose more freedom. Look no further than the stupid light-bulb regulation or the Dept. of Education having a SWAT team.
You make a nice list, but the progressive agenda seen across the internet is almost universally about more control by government of people. If you’ve been reading AB for any length of time you will see it perfectly illustrated by coberly’ and others comments that people are ‘too stupid to do the right thing” and have to be led by their ‘elders’ – another way to say the intellectual elite – their ‘betters’. The book “What’s wrong with Kansas” is another example. The un-elected bureaucracy in Brussels is another. Progressives basically wish to coerce people into making the ‘right’ decision that only progressives are smart enough to know about.
So back to the start: Where is this party you speak of?
Islam will change
Progressives will be fine with taxing this individual, and using the money for homeless shelters, while conservatives might insist that the investor should be taxed minimally, in order to encourage some unindentified non-random success factor.
I don’t quite understand the logic here. This non-random success factor either exists or doesn’t and is rewarded by market. What have tax rates got to do with this? Replace this non-random success with good looks or athletic ability and you will see what I mean. Whatever happened to the concept of producer surplus (i.e rents).
Look,
I think the only reason that you think tax rates are important is because it effects the EFFORT that someone will make, or the investment they make. There are cases where that is a valid consideration (the Laffer curve was a reductio ad absurdum illustration of this). Whether luck is the main determinant of success is not really a relevant issue here – unless you are making a moral case rather than a economic case. Steve is making an economic case, not a moral case. Don’t confuse things.
Liberals and prgressives have way too much faith in government.
“Democrats’ dispersed government spending — education, health care, infrastructure, and social support — puts money (hence power) in the hands of individuals, instead of delivering concentrated streams to big entities like finance, defense, and business.”
Education, health care, infrastructure and social support are all supplied by large bureaucracies or channeled through thr private sector, only at the end of the chain does the money and/or benefit get to individuals. Power? Individuals? Not really.
Shon’treal,
Financial markets allow for ease when it is hard to transfer from a person who has no investment opportunities to one who has them which in effect makes these markets essential to promoting economic efficiency. Also, well-functioning markets directly improve the well-being of consumers by allowing them to time their purchases better.
Welcom to Angry Bear
We have all seen the data time and time again that the economy, and even the wealthy do better under progressive policies than under conservative policies.
But you have done something that is very rare, you have started a very good list of explaining why progressive policies generate much more prosperity. I’m looking forward to more such analysis.
There is room to quibble about how Steve made his point, but the point seems to be solid. Government spending from 30% of GDP to well above 50% of GDP allows for a high level of prosperity, with no particular advantage to the low end of that range. Given those facts, arguing for a smaller government in an already successful economy as a means of promoting prosperity is nonsense. Saying “size doesn’t matter, – period” would of course require an examination of non-prosperous countries. In fact, that has been done. In general, the least prosperous countries have very small shares of output going through the government sector. If we found a bunch of not-very-prosperous countries with government’s share of GDP in the 30%-50% range, that would not disprove Steve’s point.
OK, understand that whenever faced with evidence about policies that doesn’t support his views, buffy will turn the discussion to politics. The trick is to avoid admitting that his policy preferences are damaging by saying “well, good luck getting somebody to adopt those ideas”. It’s pretty clear that convincing people of the facts requires talking about the facts, and switching the conversation to politics whenever the facts are inconvenient gets in the way of that.
Notice also that buffy has substituted “Obama” for “Democrats”. The point about Democrats being more fiscally responsible has been true at least since Carter, but buffy wants to paint Democrats for all times with the fiscal results of the second Bush recession. The record, as has been discussed here by Mike Kimel extensively, is that Democrats have been more fiscally responsible than Republicans for a very long time.
I keep wondering how the huge, swollen federal govt constrains my liberty. I know how SSA pays out retirement/etc. benefits to 50 million or so people. I can’t see a problem with that. It also defends the country, although I can’t imagine having the money DOD has in its budget and spending so little to benefit the troops.
You know, about 10% of enlisted military personnel receive WIC and SSI disabled child benefits because their pay is so low. Wouldn’t it be better to rebuild troops salaries up as DOD shifts toward non-wartime activities? Base housing sucks too, I hear. Want jobs? Rebuild and redesign the housing with green capabilities. Spread out the money.
True, NTSB wants me to drive without texting/cellphoning. Wow! There’s a big whack at my right to kill myself and others on the freeway by driving without my hands on the wheel. I can’t use dogs to bait bears on federal lands in some areas. No campfires in droughts in federal parks. Man, the list goes on and on. Of course, my tax return is very, very simple. I pay over my chunk of change and this year, I even get a COLA! I think rich people have it much harder and have very different views of liberty. But, that’s over my pay grade, y’all. NancyO
Yeah, like Bush deciding that the US government could determine the fate of Iraq. Oh, wait. You said “liberals and progressives”.
The historic record is very clear. A strong central government is essential to justice and prosperity. It is necessary, but not sufficient. A strong central government can also be a disaster. Faith in government can be misplaced, surely, but it’s silly to ignore the quality of the government and focus merely on the faith. Part of what Steve is arguing, tacitly, is that good government is a big, big deal when it comes to fostering prosperity. Repeating spin from the Reagan/Gingrich/Fox script is a poor substitute for actually looking at how things work.
This is very good to see. Each point in the list is worth further examination.
One of the points that has been discussed here fairly frequently is closely related to “avoiding government capture”. Enforcement of rules seems to vary with party. Enforcement of rules has a number of important effects, not least of which, I think, is that honest folk have a better chance of competing when dishonest folk are kept in check. The whole “circle of trust” business works better if you think the person you are dealing with is as likely as not to be of good will.
Shon’treal: big question, a few answers (sorry, not digging up all the links for this — just to say that I can).
1. According to Kauffman Foundation, at least 50% of startups are funded through personal savings, friends/family, and credit cards. Another big chunk via straightforward bank loans. The massive machinery of the financial industry is, IMHO, orders of magnitude larger (as measured by, say, transaction volume) than is necessary to lubricate the real economy and fund startups.
2. The National Federation of Independent Businesses asks their members every month (my words here), “what are your biggest constraints/problems/limits on growth.” Financing is *always* dead last on the list, has been for decades. Even in the heights of the so-called credit crunch, it was dead last.
3. There is no shortage of “lendable funds.” People and businesses are sitting on record quantities of such, and are desperate to find investments that will deliver good returns. But businesses aren’t inclined to borrow because they don’t have/expect the demand (sales) to service new loans, and lenders aren’t inclined to lend because businesses … don’t have the demand.
That’s a short and incomplete set of answers, but you get the gist. The importance of the financial industry is wildly overstated, IMO, and it is massively larger than is necessary to serve the needs of the real economy that produces goods/services that humans value.
Mr Roth I am a little bit confused. Can we start with the first topic, “Wisdom of the Crowds”? I’ve read on this blog for many years that we spend too much on healthcare. You’re advocating more healthcare spending for increased prosperity? In terms of education I’ve read here that the rest of the world is eating our lunch. Your thought is to spend more money on the current educational system? I’ve also seen many comments from Mr. Kimel that the defense spnding that led to the creation of the internet was a symbol of government success. I’ve also read Mr. Kimel’s thoughts about the Brazilian government’s subsidies of the auto business and energy business and how that created a better atmosphere for consumers. But you’re saying that government spending on defense and business doesn’t “deliver goods that people want”? I’m probably missing something but there seems to be some contradictions here.
All of the non-prosperous countries — those that have not experienced a recent GDP/numerator collapse — have much smaller governments than the prosperous countries.
Buff: “The idea that Obama is going to flatten the debt run-up is laughable “
Look at the right side of the graph.
http://www.usgovernmentspending.com/usgs_line.php?title=Gross%20Public%20Debt&year=1930_2016&sname=US&units=p&bar=0&stack=1&size=m&col=c&spending0=36.76_45.81_65.91_73.77_69.67_65.35_63.55_60.81_65.74_65.40_70.00_61.04_60.86_81.10_100.80_124.16_129.17_112.45_100.59_102.54_95.66_83.23_80.71_79.03_81.43_76.83_73.52_70.55_72.31_69.40_68.48_67.49_65.52_64.00_61.53_58.66_55.29_54.55_53.84_50.72_50.51_50.34_49.27_47.33_46.01_46.52_47.68_47.55_46.11_44.24_44.66_43.46_47.38_51.65_52.65_56.58_62.32_64.70_65.80_66.89_70.10_75.34_78.48_80.47_80.70_81.41_81.03_79.69_77.48_75.10_71.63_71.65_74.53_77.51_79.15_79.58_80.05_81.29_87.86_103.89_111.41_120.28_122.43_122.92_122.64_122.57_122.83&legend=&source=i_i_a_i_a_i_a_i_a_i_a_i_a_i_a_i_a_i_a_i_a_i_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_a_i_a_i_a_a_a_a_a_a_g_g_g_g_g_g_g
I’m not saying the level is good — only that it is projected to flatten.
“Your counter-argument about Clinton”
I don’t give Clinton credit for the (private-debt-fueled) internet boom any more than I give Reagan credit for the recovery from supply-shock stagflation and recession. But the Clinton years do provide one pretty decent piece of evidence that tax increases do not end the world as we know it.”
“Where is this party you speak of?”
Yeah, you caught me, shimmy-shammying between “progressive” and “democratic.” All I’m saying is that those economic principles, beliefs, theories provide a good theoretical explanation for the long-term empirical results — that progressive policies correlate with faster growth.
I have a suspicion that it actually is better for the ineficiency of government (which isn’t much different from the inefficiencey of any large organization) is much less of a problem when it bleeds out through a large number of people as it does when the buracracy of government employees is bigger than it could be than when it bleeds out through a much smaller number of people who own and manage government contractors.
The bleeding to the top 1% is a much more powerful source of corruption. The government dependent 1% reinvest a good share of that money into increasing the inefficency of government to their own benefit.
Thanks Spencer. To arrive at any notion of “truth,” we need to demonstrate correlation, and *explain* causation. We need theories of the mechanism behind the correlation.
We know that sunrise correlates with particular clock increments. We can only explain why that is true via convincing theories about planetary motion, gravity, etc.
Unfortunate, that, because theories are always stories; they never have the apparent absoluteness that numbers do.
Long term I also dislike “base housing” and the very odd working schedule which is common for police officers in the US because these tend to separate our security forces from regular society. It’s dangerous for the people and the security services to drift apart.
I’ve said before and I’ll say again (here, and probably repeatedly and annoyingly often): Ask a million people “what’s the #1 constraint on your freedom to do what you want to do in the course of a day, a year, or your lifetime?” I’m gonna suggest that the overwhelming, #1 answer is “the size of my bank balance.”
Not some ebil gubmint man.
Freedom’s just another word for … having money.
(Apologies to Janice Joplin.)
You make some good points and one I run into constantly on the local level. I live in a very liberal suburb, which is affluent, but not as affluent as more conservative suburbs. My suburb also has much more diversity in both income and race than the more conservative suburbs and we pay the most in property taxes to support our good schools and adequate public services although this is mostly a function of an almost total lack of business. What drives me nuts is the local government trying to micro manage my life in the suburb because it thinks it knows “what is right for me”. This is a very persuasive attack on progressives/liberals which does not depend on the “culture wars”. The local right wing radio host uses the phras “nanny state” to great effect. The problem is that the GOP/right wing view of economics virtually manadates more government involvement because all of the country’s wealth is controlled by the 1%. And the wealthy have not taken this from the poor, they have taken it from what used to be the middle classes. Personally, I think it is a done deal and one only has to look at our current president to realize that our political system is incapable of pursuing a the progressive economic agenda which would increase the country’s prosperity. I suspect the actual tipping point was Clinton.
little john: In that item, I’m just suggesting that government spending can take advantage of the wisdom of the crowds — the market — more effectively if that spending is widely dispersed. It’s not an absolute dictum, or course. If I could give you one or two of those that are guaranteed to work in all situations, I’d be a very happy guy.
Now of course you can argue opposite correlation: prosperity causes bigger government.
Two possibilities there:
1. Government services are a “normal good” — as people get more prosperous, they want more. Giving people what they want is not a bad thing…
2. The growth of government is an emergent property of a prosperous economy, and is not actually an expression of what individuals want. It just happens because of the inherent dynamics of the system.
I don’t know how to adjudicate between these two conclusion.
But I can say this: there is not a single thriving, prosperous country that does not engage in massive quantities of redistribution. Not one.
If policies eschewing such redistribution were so efficient, one would expect at least one country to have emerged that did eschew those policies, and to see that country surge ahead of all the rest.
Hasn’t happened. Not once.
You can always revert to #2 above, of course, and say that there’s an inherent pathology at work as countries become prosperous, that any potential for libertarian efficiency is infected by, overhwelmed by, that inherent, emergent tendency.
But again, I don’t know how to achieve any confidence in that belief.
Terr, I think you’re right on the money on describing that fault line in beliefs (and hence proposed policies): merit or luck? I’m a big believer that luck predominates, is at least a greatly underrated factor. Planning a post Real Soon Now on Kahneman’s discussion of the issue, which he’s addressed over the years but goes at very nicely in Thinking Fast and Slow. Also Gladwell in Outliers, plus others.
Tim Worstall: “Something of a fallacy of composition there. By looking at only prosperous countries you are by definition only looking at those that have had decent economic growth.”
So where is the fallacy? Among college graduates IQ is not correlated with achievement. Similar point. Yes, we are talking about economies that **have had** economic growth. Therefore they do not need to worry about big gov’t stifling growth. The fallacy is to claim otherwise.
Rusty,
Happy Holidays.
Invisible hands.
My reply to your posit that progressives trust the gumint/bureaucracy:
Libertarians and their lesser travellers in the GOTea Party trust banksters and corporations. Whom are empowered by predestination to exploit Cain’s spawn.
A long sad association with cutting the bureaucracy away from the ‘for profit’ arsenals tells me I rather have the F-16 done to MIL STD than the unregulated cluster F-35 done for profit and jobs.
You could follow the F-35 debacle at Aviation Week.
reason: “Whatever happened to the concept of producer surplus (i.e rents).”
Shhh! Conspiracy of silence.
save_the_rustbelt: “Liberals and prgressives have way too much faith in government.”
I am surprised at that blanket statement by you. I am old enough to remember when gov’t worked. If you elect people who don’t want gov’t to work, what will you get?
Steve,
Thoreau said a “man is as wealthy as the things he can do without”.
Corrollary: a man is free as the evils he can abide by no doing.”
‘With freedom comes responsibility’ Sort of what Gandhi said.
Glad to read you!
Hey, best for the holidays to you and yours.
The F-35 may become a legendary cluster flop.
SSA, with a very clear mission, is a model of a well run government agency.
It is, sadly, a rarity.
Oh dear this post made me wonder if buff had gotten that spittle proof screen protector for Xmas. Apparently not.
Nice succinct post!
This thinking is fairly ‘common sense’ outside the USA, so one question that occurs to me: why is such talk so frowned upon in America? I have tried to discuss simple things such as the stabliser effect when visiting, and basically people politely change the topic. It’s like a whole part of the discourse has been labelled as bad taste and not to be uttered.
How has this come to pass?
buff
yes, people are too stupid. they fall for the propaganda every time. and they utterly fail to notice that i am just as hard on democrats and progressives as i am on republicans and other idiots.
try to understand this. my observations about the limits of human intelligence are SCIENCE, not politics. I have no interest in making government larger or more intrusive. I have to deal with the bastards myself. But that doesn’t mean I have to make myself so stupid I fall for the libertarian line or the constant “bad democrats” blather of someone who thinks he is a contrarian when he is only chanting the party line.
speaking of stupidity
buff took something i said about helping people find meaningful work and misunderstood it and has convinced himself i am a stalinist. no matter how many times i try to explain to him the difference between using government resources to solve problems and using the government to force people to do things, he keeps falling back into his little rut.
unfortunately this is exactly what anyone who has ever studied human cognitive behavior would predict.
but it is annoying to listen to someone prate about pfreedom who chose a career where he’d never have to make an important decision in his life.
STR, gee. Thanks on behalf of those who still labor in the vineyards of the Social Security Act. They’re supposed to hear about any furloughs Monday. Just this Congress’s idea of a Merry Christmas! NancyO
Coberly: You are quite correct: the proper purpose of taxes themselves are not to punish (possibly barring “sin taxes”) but I don’t think I said anything like that.
When I speak of “rewarding the winners” and “punishing the losers”, I am referring to a mind-set (which I associate with modern conservatism) that believes market-success/failure is predominantly due to intrinsic good/bad qualities or definitively wise/foolish choices.
Now, in governmental terms, that would probably exhibit as huge tax-reductions and favorable legislation on one end, and inaction, neglect, or relative de-funding social programs on the other.
but steve
if you want freedom to poison an ecosystem so you can make a billion dollars… well you need to watch out for the evil gummint.
and just for poor buff… terry, i think, above, started a list of the aggravations of dealing with a government that is over intrusive and inflexible. i face that every day. i don’t like it. but that does not lead me to the conclusion that the government needs to be drowned in the bathtub so the mighty entrepreneurs can turn my water supply into toxic sludge. and hire me to do the dirty bits.
little john
i am not as nice as steve. i don’t see contradictions. i see a rather thick headed failure to make reasonable discriminations.
more government health care spending might bring down overall health care spending by giving people the (collective) leverage to bargain on a basis other than “your money or your life.”
the education argument is a perennial. if our education system is failing, it’s not because of government spending. it’s likely to be because of MTV and our money is god national religion.
then you get too incoherent to follow. government spending on defense, and business are, if anything, what Roth is citing as one of the means by which government spending leads to higher standard of living. i would imagine that has limits. some spending good. some spending not so good. but there i go getting into fine discriminations that are hard for you to fit into your broad categories.
Reason: “What have tax rates got to do with economic success”, you ask?
Uhm…. Just look at the various debates/arguments involving phrases like “job creators” or “keeping their own money”, particularly on the subject of income tax (and its subtypes.) Clearly people are considering economic success/failure when they are describing how tax policy ought to be structured.
STR, gee. Thanks on behalf of those who still labor in the vineyards of the Social Security Act. They’re supposed to hear about any furloughs Monday. Just this Congress’s idea of a Merry Christmas! NancyO
Dale-You may want to read the post again. Under the “Wisdom of Crowds” entry Mr. Roth says essentially that social spending is more productive than spending on “finance, defense and business”. Incoherent and think-headed? Maybe so but at least I can read.
Terr
and you are quite correct. you did not say that. but lots of people do. what you said was that there are “different philosophies” and i grabbed the opportunity to criticize, i think, both of them.
One need not assume the rich “got lucky” to justify taxing them. Neither does one need to assume the rich are “virtuous” and therefore should not be taxed (punished.)
no big deal if i got you right or not quite. just need to air some of these things out a little better sometimes.
little john
not so sure about that. i am sure your word recognition skils are rigght up there with the rest of the high school graduates. but as to making any sense out of what they mean..
i think the meaning might turn on what does “more” mean.
slarty
i think that “talking politics” has always been considered bad form in polite company. one reason is that it leads to rude remarks and mutual recriminations.
you can talk politics as long as you are sure everyone present already agrees with everything you are going to say.
oh, i should apologize to little john
i am sure he is at least as smart as i am, and a much nicer person to boot.
it’s just that i get tired of people who announce they have discovered a “contradiction” because they can’t imagine that someone else is parsing the world a little differently than they are.
Reason: “Whether luck is the main determinant of success is not really a relevant issue here – unless you are making a moral case rather than a economic case.”
On the contrary, the role of randomness in markets is quite relevant to the dollars-and-cents consideration. For example, consider the phrase “job creators”. If a company doubled in size through intrinsic merit, then giving them a tax-break to encourage hiring would make some sense. However, if their growth is largely random, you tax-break runs a large risk of doing nothing.
(BTW, your posts don’t seem to be nesting near the things you are responding to. Are you using the small “Reply” links?)
Well just to get back to my point when I actually picked up on something that Buffy said, I agree that the government should keep corporations from making a billion dollars by poisoning the water supply. The question is not phrased that way however. It is phrased as the government’s excessive regulations is preventing the corporation from opening the mine and employing 250 people with “good” wages in an area where unemployment is running about 15%. To get back to our new poster’s point, the biggest impediment to freedom is the balance in the bank account, and if you are unemployed and would like to work for a mining company that transfers to government pretty quickly. Another example are the proposed rules on children of farmers working on their parents farms. Some of those kids get hurt and even killed working on their parents farms so Congress is thinking about prohibiting it. Sounds like a good idea, but in truth it is just a sop to the corporate farms because the family farms will be less able to compete without the cheap labor and the individual farmer will have no place to learn farming except at the corporate farms. None of this has anything to do with he government charging those who succeed because we have a stable country, rich in resources with some infastructure and a government that aids business, both here and abroad and adhere to something resembling the rule of law at least when it comes to property, a fair amount to keep the country going and maintain some ability for all of its citizens to succeed. Unfortunately, the right will conflate liberal regulation with liberal economic/tax policies and that makes liberal/progressive positions much more unpopular.
Kharris – what policies? What facts? Steve started out with a blantant opinion peace – not with sone of rathe well made posts from his blog.
As for facts. President Obama is a Democrat and leader of the party. You guys voted for him. He will run for re-election in 2012 as the leader of his party – Obama is the face and policies of the Democrat party. That’s facts.
As for fiscal responsibility – your joking. The Dems held congress during from from Carter to 1994. Clinton then got religion and they slowly worked toward a balanced budget. Bi-partisanship. Which then went out the window as the dot-com bust and 9/11 happened (or did you forget). Then the wheels came off again after the 2006 election and the Dems once again held the purse strings until 2010. Right during the time when we had a huge banking crises and during the responses to the resulting depression. And here we are. Those are facts.
Mike has not at all made any case that Dems are more responsible than Reps. Look at Obama as exhibit #1.
So come back when you can actually argue some facts rather athn more ad hominum.
Islam will change
as,
Not yet Christmas, but its on the list!
🙂
Steve,
That graph is fantasy land and you know it. Every projection from Obama own team show steady growth inthe US debt through 2020. is it projected the 5.4% LBJ growth rates to get that to flatten?
You really beleive that? Exactly what policy is going to make that happen that Obama hasn’t already implemented? Becuase what we have isn’t going to get us there.
Yep, I don’t give credit to eiither of them either. I think the idea that Presidents control GDP is nonsense on its face (but many here don’t). But we’ve gone round and round about this and I agree with Mike’s final asssessment. To paraphrase,”Economics is in its infancy and is like pre-Copernicous astronomy.”
And they progressives I read, including here at AB, do not give me a warm fuzzy that control is not there ultimate end. ‘1984’ was a warning to the Western democracies of the threat from the left (the progressives) not the right.
Islam will change
coberly – you are a stalinist. A nice one , but you are one. In everything you have said.
You’ve been pretty consistant over these years. How you defend SS is an obvious point, and I agree with you on defending SS!
Islam will change
Kharris,
I have absolutely no argument with the point that good government is a really big, big deal when it comes to fostering prosperity. None at all. Bad government can crush a people for generations – even after its been gone. See the Soviet Union for example. Or any of the Islamist government. And obviously no government would be even worse – Somalia.
But I agree with str – liberals and progressives have way to much faith in big government.
Remember every law passed under Obama will one-day be there when a R is in the White House….
Islam will change
Explain the attached graph and tell me the correlation between Dem Presidents/policies and R Presidents/polices.
Islam will change
terry–The law regarding child labor does not apply to family members of farmers. No problem with kids, wives, aunts and uncles, etc. working. The children the law applies to are the kids of migrant laborers who help their parents pick row crops in the big Ag states. The thing is that the kids often work instead of going to school. And, you see the problems there. NancyO
Buff,
That is an ad hominem.
And beside Stalin did more to kill Hitler than Roosevelt.
Save the Rust,
Though we may disagree,………………..
all the best!
NO,
Very Happy Holidays………………….
buff
one of the “facts” about human cognition is that once you have incorporated “A” into your basic narrative, “A” will always be for you whatever you made it be, whatever it was in the “real” world.
I am more of an anti stalinist than you ever were. You are like most Russians, a sucker for Uncle Joe’s patriotic lies.
didn’t mean to confuse you with the double use of “whatever,” it’s my idea of a joke.
buff
i could agree with that. maybe you should stop there and consolidate your gains.
Little John:
Yes, I am in favor of spending more on healthcare associated with better outcomes rather than the present service for fees cost model we have today which is the root cause for increased healthcare costs today.
Pick up Kennedy’s The Rise and The Fall of the Powers and review what he has stated as the cause for the fall of other nations. It ain’t butter . . .
I’ll take a shot at this
“Aren’t Republicans “the party of growth”?” No. That’s like saying Democrats are the party of civil liberties. If you confine yourself to responding to Republicans you will always be able to call them out as hypocrits and liars, it will not improve the strength of your own positions. The remainder of my post will be from a market oriented perspective.
Wisdom of the Crowds. This would only be true if it the government redistributed money with no strings attached. More often the government decides how the money should be spent. X amount on housing subsidies because it’s got to meet our standards. X amount on health care. X amount savings for retirement.
This critisism is even more stark when looking at the overall economy. Progressives want the government to decide what fair wages are, which industries to invest in, etc. Perhaps even more important, crowds are only wise when they are accountable. Collectivism is a recipie for a demanding mob rather than a system of rational intelects.
Preventing Government “Capture.” The best way to prevent government capture is to give the governement less power over the economy. The idea that the government can control business without any counter influence is fantasy. The only way to eliminate the influence of the elite is to eliminate the elite themselves ala Khemer Rouge. In which case you have a purely political elite rather without any rich people.
Economic Stability. To some extent I think this is true, but if welfare becomes too comfortable, it discourages productivity. I think we have long passed that point in the US and Europe. The only long term source of economic stabilty is to have people working and creating more wealth. The best way to make that happen is through incentives that reword those who are producing more wealth.
Labor Market Flexibility. I really feel like you are trying to be cute here. You are turning common sense on its head. The labor market is an equation. Employees are not more important, they are equally important. Progressives impare both sides of the equation when they restrict the agreements people can make. If I am willing to work for less than union wages, but the government prevents me, it has impinged on my freedom. Excessive licencing requirements can accomplish the same thing. It protects jobs for the established, but deminishes prospects for everyone else. A “market” is altogether different from “everyone gets what I think they deserve.”
Freedom to Innovate. Again you are just taking a market economy advantage and “cleverly” claiming for your own without any basis. Progressives are notorious for deciding how things should be done and then imposing that as regulations. Innovation always involves risks.
The question is who should bear the risks and reap the rewards the individual or society. If your answer is society, how do you decide which risks are worth taking? The market answer is take whatever risks you want, so long as you can afford it because the rest of us aren’t going to bail you out. i.e. Solyndra.
Profitable Investments in Long-Term Growth. Up to a point yes, but the government is not that good at running an economy. Even Sweden lets corporations drive growth. Selecting good investments is not an easy task and should not be done by voters who have very little direct stake in the outcome. A major advantage of the market is that it punishes people who make bad […]
Hong Kong seems to have done very well with almost no redistribution at all.
I think it’s also worth trying to unpack what is “government”.
There is paying for public goods, which is one thing. Then there is simple redistribution of incomes/wealth. The effects of the two could be entirely different. And we’ll miss that if we lump them together as “size of government”.
Liked your article a lot, except for your insistence on using “Democrat” as a standin for “progressive” – 2 different animals and it’s getting to the point where they aren’t even members of the same species ….
Liked your article a lot, except for your insistence on using “Democrat” as a standin for “progressive” – 2 different animals and it’s getting to the point where they aren’t even members of the same species ….
Liked your article a lot, except for your insistence on using “Democrat” as a standin for “progressive” – 2 different animals and it’s getting to the point where they aren’t even members of the same species ….
oops, sorry, obviously haven’t got the hang of this yet .. 🙂
oops, sorry, obviously haven’t got the hang of this yet .. 🙂
? getting better? – let’s see …
? getting better? – let’s see …
? getting better? – let’s see …
Explanation:
1. You’re zoomed too far out, can’t see shifts that are quite significant to tens, hundreds of millions of people.
2. Draw the vectors — the graph gets steeper after New Deal programs are implemented.
Heart:
Not answering everything, thanks for all the thinking.
“If you confine yourself to responding to Republicans you will always be able to call them out as hypocrits and liars, it will not improve the strength of your own positions.”
Not sure about the final clause, but in general, yes. It drives me crazy that so much of my writing ends up responding to the Reaganomics narrative, which gives it precedence as the dominant narrative. The current post is to some extent an attempt to get past that.
“Wisdom of the Crowds. This would only be true if it the government redistributed money with no strings attached.”
Agreed. The only string I’d be inclined to attach is a work requirement (for those who can work). Greatly expanded (and simplified) EITC, for instance. A la Milton Friedman’s negative income tax but with a work requirement. Or the MMTer’s guaranteed employment scheme.
“The only way to eliminate the influence of the elite is to eliminate the elite themselves ala Khemer Rouge.”
Really?? The rule of law can have no influence? Things like campaign finance, bank regulations, etc.? That seems wacky to me.
“Economic Stability. To some extent I think this is true, but if welfare becomes too comfortable, it discourages productivity.”
Yes potentially but people disagree wildly on where that point is, and in any case you’re changing the subject.
“The best way to make that happen is through incentives that reword those who are producing more wealth.”
Agreed. I see those incentives as being massively more powerful when they are widespread. Government policies can make that happen. Free markets tend to deliver the opposite result, concentrating .
“Progressives impare both sides of the equation when they restrict the agreements people can make.”
That’s a statement of faith, not of fact. I’m not allowed to buy insurance on your life. Banks aren’t allowed to lend $100 with only $1 in capital. Good restrictions? Serious constraints on anyone’s individual “liberty”?
“Labor and Trade Efficiencies. I will give you Earned Income Tax Credit (marginal utility of $) and subsistance welfare (humanitarianism and social stability) as an affordable imposition on a pure market. EITC is especially good because it helps the working poor to make the transition from welfare to self sufficiency.”
Yeah it really needs to be fixed, simplified, delivered like SS on weekly paychecks.
Question for you: on what grounds to you support EITC? Equity or efficiency? Or Both? Related: do you believe in a progressive taxation regime? On what grounds?
“the government either gives money to producers or to consumers. The government should do neither”
That would mean no government, right? Every government taxing and spending regime *is* social engineering — even the absence of one. I really think this is a cop-out response.
“You will object that there is not a level playing field, but my response is that the government does not create one, it just imposes its own constraints in addition to those of nature.”
Correct.
http://www.asymptosis.com/lane-kenworthy%E2%80%99s-big-idea.html
I think most people confuse a market economy with a corporatist one. In a corporatist economy, the business elite and the government elite conspire to prevent market competition. This ensures major advantages for the rich at the expense of small entrepreneurs and consumers. My (overstated) point about the eliminating the elite is that I believe it is more realistic to limit the scope of government, rather than give government sweeping power to influence the economy and then try to wield it against the elite without any counter-influence on the government. By definition the elite are influential and the more you centralize power in the hands of the government, the more power they will have access to.
I still don’t see how can refer to labor market flexibiltiy when you don’t advocate a market to begin with. Wage controls are not a market. When the government sets wages it either prevents workers from working for an amount they would agree to (min. wage) or it prevents employers from paying as much as they would like (WWII.) Either way, it is not based on a market and it is essentially protectionism for the more fortunate.
As to EITC, first, I support it as a matter of equity and efficiency. My ideal is that people should not be able fall below bare subsistance unless they choose to become a hermit or something. This standard of living should be undesirable to most people, such that they want to work in some capacity to supplement it. It is important to structure benefits so that each dollar earned is not offset by a corresponding drop in benefits.
EITC increases the incentive for low end wage earners. Some people lack the ability to be highly economically productive (though they may be geniuses in some other regard.) Nevertheless, very few people are incapable of making a contribution at all. It is both efficient and fair to reward them for making the effort rather than relying on handouts.
I regard progressive taxation as dangerous. A mildly progressive system is probably best, especially at the low end. It should not be a means of trying to get even with the rich. I don’t think the rich harm society or the economy except to the extent that they can use political power to subvert markets.
As for government spending. I think social engineering should not be a major consideration. Government should provide rule of law, defense, etc. – the nightwatchman state. I believe it should also provide a minimal standard of welfare as described. It should not take an active role in setting interest rates, determining inter-generational wealth transfers (except to ensure a descent standard for children,) and other values laden social decisions.
My basic concern with Progressives is that they want to control the economy without sufficient regard for realistic limits imposed by human nature, limited knowledge, etc.
There is a misunderstanding of the role of taxation in many of the comments in this post.See my comment (pshakkottai 05:22 14 Jan 12) on The Straits of America – Nouriel Roubini – Project Syndicate
http://www.project-syndicate.org/commentary/roubini46/English#comments
and http://pshakkottai.wordpress.com/2012/01/14/debtgdp-yr-and-govt-spendingtax/
Deficits are good, surplusses are bad and debt/GDP does not matter.