What if equality and growth were compatible?
How one economist could change egalitarian distributive justice forever
An interesting article in the Santa Fe Reporter last week on an economist whose work has major implications for theories of economic distributive justice. Samuel Bowles of the Santa Fe Institute, a research institution dedicated to the study of complexity, is one of the leading economists in a movement challenging the assumptions of the Milton Friedman/Chicago School of free-market economics.
According to the Chicago School, distributive inequality is an inevitable consequence of economic growth. Bowles challenges this notion, claiming that while the theories of the Chicago School may work in ideal models, in the real world the story is much different. The Chicago School assumes an economy that is efficiently organized. But in reality, economies are actually quite inefficient, those with greater inequality, Bowles contends, particularly so. Instead of the distribution of wealth being dependent on economic growth, economic growth is dependent on the distribution of wealth.
Everybody knows somebody . . .
. . . who crashed a Toyota.
Toyota has recalled 9 million cars worldwide due to a faulty breaks, bad accelerator pedals, and defective floormats (yes, floormats). The move has come as a shock to many observers, both due to its scope and because Toyota has set the paradigm for high-quality production. Businesses around the world look to Toyota’s unique production philosophy, which emphasizes continuous improvement (kaizen) and features the andon cord–a mechanism which allows any factory floor worker to stop the production line of he or she detects a problem.
Now it appears that Toyota’s entire organization has ignored this philosophy. The automaker was slow to take decisive action, even as reported problems with numerous Toyota models were mounting.
Today, the company’s President apologized in stark terms: “I deeply regret that I caused concern among so many people . . . I believe what is happening now is a very big problem. We are in a crisis.”
From a PR perspective, this is probably too little, too late. But who does bear responsibility when something goes horribly wrong in a large corporation? Read more
GDP as welfare
The International Commission on the Measurement of Economic Performance and Social Progress, convened by French president Nicolas Sarkozy and chaired by economist Joseph Stiglitz, wrote a lengthy report recently opposing Gross Domestic Product (GDP) as a measure of social welfare. GDP is the market value of all goods and services produced by a nation in a year. In his blog, Chicago Law professor Richard Posner outlines some of the critiques, which involve philosophical debates about the definition of welfare and it’s validity as a metric for moral value. He writes:
[This] brings me to the third and broadest problem with GDP as a measure of welfare–that even if improved along the lines I have just suggested it would not really measure happiness or well being. Market value is a function mainly of cost. The value that people derive from goods and services is better measured by what they would pay for them if competition did not reduce their price to or near the cost of production; but that value (“consumer surplus”) is difficult to estimate. Or consider—coming closer to current events that have sharpened traditional concerns with GDP’s adequacy as a measure of welfare—the anxiety that people who are involuntarily unnemployed experience.
The second in command at the international commission was the economist Amartya Sen, a pioneer (along with the philosopher Martha Nussbaum) in attempting to develop measures of human “capabilities” and ranking countries according to their ability to equip their citizens with such capabilities (long life, adequate nutrition, education, etc.). The United Nation’s Human Development Index attempts such a ranking, and some might think it a candidate for replacing GDP.
Posner concludes, nevertheless, that we should not jettison GDP as an important value. First, he argues that government statistics need to be calculated in objective ways to have legitimacy and the other contenders all involve controversial, necessarily biased economics. Second, he argues that GDP is at least “rougly correlated with adjusted measures of welfare.” Third, he argues that GDP is important not as method of ranking nations, but as a means of measuring the business cycle in an individual nation. This addresses the criticism that if GDP accounted for leisure time, an important compenent of welfare, some counties–like France (which in French apparently means “nappy time”)–would be much higher ranked.
-Jake
Christianity and the crash
In this month’s Atlantic, Hanna Rosin discusses the faith, materialism, and optimism of the “prosperity gospel” and asks whether this relatively new American phenomenon played a role in the market crash. Of course, it’s a stretch to connect the foreclosure crisis and the collapse of Lehman Bros et al to everyone who buys Joel Osteen’s books. But the philosophical outlooks at the core of over-eager banks and prosperity-driven Christianity share a great deal in common. “Spend now - don’t worry, God will provide.”
The unpleasant reality—an inadequate paycheck, a pregnant daughter, a recession—is invisible. It’s your ability to see beyond such things, your willing blindness to even the most hopeless-seeming circumstances, that makes you a certain kind of modern Christian, and a 21st-century American.
Perhaps more evidence of an uncomfortable truth: that many of our seemingly technical problems, studied by experts in think tanks and projected onto actuarial tables, have deep cultural and psychological roots.
-Colin
War tax?
Last week Congressman Obey submitted a bill that would impose a surtax to pay for the continued war effort in Afghanistan. The goal, according to TNR, is to raise awareness of the real costs of the war in a way that will make the tradeoffs of the conflict more obvious.
A quick take is that this kind of regulation is definitely justified. Military spending has always occupied a strange netherworld where it is rarely if ever discussed as a direct trade off with social programs. Of course, this bill is not likely to pass. But it raises interesting questions about why the obvious trade offs in public spending are not more fully discussed. What is it that makes military spending so popular? Is it dedication to an amorphous “victory?” More questions than answers here — perhaps a smart commenter can explain why American political discourse has evolved this way.
-John
Are too many students going to college?
A number of experts at the Chronicle of Higher Education weigh in here. They address a number of important education debates: Who should pay for higher education? Are there still strong economic incentives to attend college? Can the U.S. learn from other countries on this issue?
With an abundance of college students and graduates, a severe decline in jobs, and the ever-ballooning cost of tuition, we are in need of a serious sit-down on these issues.
-Colin
Spirited animals
Who’s less rational–Washington or Wall Street?
National Review editor Kevin Williamson attacks the one-sided application of arguments about investor irrationality to justify government regulation of private markets:
The fallacy implicit in the conventional argument for more robust financial regulation is that animal spirits - the whole menagerie of greed, panic, pride, thrill-seeking, irrational exuberance - distort only profit-seeking activity. But they are at least as likely to distort efforts to regulate profit-seeking activity. In truth, the animal spirits of regulators probably are more dangerous than those of Wall Street sharks: Competition and the possibility of economic loss constrain players in the marketplace, but actors in the political realm have the power to compel conformity and uniformity among those under their jurisdiction. The entire economy is yoked to their animal spirits, and the housing bubble was a consequence of that fact. We have bred an especially dangerous hybrid creature in the “too big to fail” private corporation, the bastard offspring of a union between Wall Street’s animal spirits and Washington’s.
Williamson makes a good point. Politicians to do not soberly survey the landscape and objectively diagnose the causes of our financial ills. They are instead attempting to respond to and even anticipate outraged constituents. They’re also jostling with each other to have the most dramatic, headline-grabbing “deliverable” in today’s cluttered national spotlight.
Should unemployment benefits be permanent?
The Obama Administration is sending signals it may further extend unemployment benefits, which some estimate will run out for about 1.5 million Americans by the end of the year.
If Unemployment Insurance (the official program name) is so important, would it be better to extend the program permanently? Read more
The hyper-rise of hyper-rationalism
The Washington Post’s Harold Meyerson criticizes the latter day McNamaras who amorally constructed our shaky financial system: Read more
Who should pay for health care reform?
The role of redistribution
As the health care reform debate heats up in both houses of Congress, the question of who will foot the bill for the current $1 trillion package has taken center stage. The House draft of the bill is expected to finance the proposal with a 3 percent surtax on households with incomes topping $250,000. The Senate has gone back and forth on a few different options, but is apparently still considering a surcharge on health benefits to the highest earners and a Medicaid capital gains tax. The Obama administration has proposed scaling back tax deductions offered to the wealthiest Americans.
Although legislators will endure tough negotiations to actually craft a revenue-neutral health care package, all of the proposals on the table will ultimately have little impact on the vast majority of Americans. Households that earn higher than $250,000 make up less than 2 percent of the population (about 2.5 million total households). Because the new health plan is expected to cover up to 50 million uninsured Americans, it would be wealth redistribution on a massive scale.
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