October 31, 2006
Errors-per-column-inch
Jonathan Chait has a piece in TNR Online today that is painful to read. Of course, I don't read TNR for fun, I do it to assess the ideas of political opposition.
Chait's piece is not stupid. It's not even partisan. He admits that even though Bush is the worst leader since Caligula, his disastrous policies could not have possibly made things as awful as they are. Nope, the problem is that it is built on such a collection of faulty premises.
The cornerstone of its catawampus foundation is how bad things really are. Not just now, but the ridiculous Paul Krugman belief that we've made no economic gains since the Stones released "Sticky Fingers."
During the postwar boom, productivity surged at an average rate of 2.5 percent a year. But from 1973 to 1995, by contrast, it grew at a paltry 1.5 percent. The economic pie had stopped growing, and slicing it up more fairly was no longer enough. So a generation of liberals, and especially moderate liberals, began focusing on how to restore rising productivity and get the pie growing again. This was one reason the Clinton administration made it a priority to reduce the budget deficit, which drained savings that could otherwise be tapped by business for investments in new plants and equipment that could raise productivity.For the next two decades, living standards barely rose at all. Wages would grow during an expansion, but only enough to recapture the ground that had been lost during the previous recession. (This period was neatly captured by the title of Paul Krugman's 1990 book on the subject, The Age of Diminished Expectations.)
By cherry-picking dates, you can make the Reagan expansion disappear; just average it in with Ford, Carter and the 1991 recession.
I remember the 1970s not fondly but well. Krugman still asserts that middle class living standards have made little gain since then. He takes the CPI which overestimates inflation and subtracts it from the median wage which underestimates wage growth as more workers are added at the lower end. The ex-Princeton prof who used to be a real economist says "numbers don't lie, we're no better off."
A cell phone, laptop computer, more reliable car, medical innovation do not represent wealth? My father owned his own business and was upper middle class compared to my solid middle class. Yet I enjoy a far higher standard of living.
On top of his bad historical premises, Chait mischaracterizes the present:
Just this week, The New York Times published a story on the front page of the business section marveling at voters' inexplicably downbeat assessment of the economy. "Republican candidates do not seem to be getting any traction from the glowing economic statistics with midterm elections just two weeks away," reported the Times. The author proceeded to puzzle at length about why this could be, without ever considering the possibility that, for most people, the economy was not doing well.Conservatives, for their part, have grown enraged that the public does not adequately appreciate the economic bounty it is enjoying under Bush. The Wall Street Journal editorial page dubbed the current recovery the "Dangerfield economy" (meaning it gets "no respect") and speculated that people only believe the economy is bad because they have been fed misleading reports by the biased liberal press. Columnist George F. Will has fulminated against the "economic hypochondria" of the ungrateful masses. Conservative commentator Larry Kudlow has endlessly touted the Bush boom as "the greatest story never told."
It is certainly true that the economy is performing well by traditional standards. But it ought to be apparent that, in this case, traditional standards are not the most relevant ones. Fast economic growth, after all, is a means to an end--namely, higher living standards for most people. By any decent moral calculation, an economy that does not produce higher living standards for most people is not a good one.
Income inequality. How will Bill enjoy his new 42" plasma TV when he knows his boss has a 54?
Chait then crowns that rocky structure with a bad conclusion: the moderate, Rubinite wing of the Democratic party has been proven wrong. Not by supply siders of course, but by the Democratic left wing who have shown that economic redistribution after the fact is not good enough. More intervention is required.
Moderates--that is, policy types associated with the Clinton administration, the Brookings Institution, or most university economics departments--believe that the market is generally the most efficient mechanism for distributing wealth. Government should redress inequality, but it should usually do so only after the fact--let the market work, then tax the rich and use some of the proceeds to help the poor. Moderate liberals have historically been restrained in their enthusiasm for the minimum wage and unions, and they have been downright hostile to any limits on international trade.Economists from the liberal wing of the Democratic Party (those associated with labor unions, say, or groups like the Economic Policy Institute) have always attacked the moderates' prescriptions as naïve. If the rich control a growing share of the national income, they will turn their financial power into political power to protect their holdings. Untrammeled economic inequality will inevitably lock itself into place as the rich buy political influence and propagate policies that safeguard their wealth. And so, the liberals have always argued, government must foster greater levels of equality before the fact, not merely after.
Those dammed Clintonites with their brainless devotion to the free market! Glad we chased those losers out of the party!
I have always been disappointed with the deference given to Rubinomics. But it is even more disturbing to see it attacked from the left in a centrist Democratic magazine.