Man at the top
The problem with inequality
Writing for The New York Times, Nicholas Kristof criticizes the rising inequality in America, comparing our economic situation to the famous “banana republics.” According to Kristof:
In the past, many of us acquiesced in discomfiting levels of inequality because we perceived a tradeoff between equity and economic growth. But there’s evidence that the levels of inequality we’ve now reached may actually suppress growth. A drop of inequality lubricates economic growth, but too much may gum it up.
First, we can wonder why inequality makes us uncomfortable in the first place. One possibility is that there may be something intrinsically valuable about equality. However, it’s hard to imagine this being the case – even if there was some truth to this, the value of equality would be easily outweighed by many other mitigating factors. Consider this famous thought experiment by Harry Frankfurt:
Suppose that ten people have a deadly disease, and they need two shots of a certain medicine in order to be cured. Anything less would mean certain death. However, there are only ten shots of the medicine available. If we gave the medicine out equally, everyone would get one shot, and all ten would die. Obviously, equality is not the best policy here.
But, some might argue, the economy is different than the medicine example. Read more
Not sure I sanction this, either
BBC News reports that some Western companies continue to work in Burma despite pressure from governments and activists. The European Union bans and penalizes commercial activity that clearly supports the Burmese military regime and its repression. The United States and a few other countries impose sanctions that make business in the country nearly impossible.
On the one hand, according to the BBC report, “the firms that invest say their capital helps to improve the lives of ordinary Burmese, ties the military into international systems of oversight, and consequently promotes openness and a respect for human rights.” On the other hand, in an authoritarian country like Burma, it is not unreasonable to think that the “money goes straight to the generals, who use it to buy weapons and widen their repression.”
The argument in favor of investing in Burma resembles one of the moral arguments in favor of free trade, sweatshops and all. But even if this claim carries water, the second argument is true as well. Legitimate business done in almost any part of the world will see its cut taken in the form of taxes by the government and so, in effect, “supports” that government. We normally don’t complain (too much), but the Burmese junta happens to be an exceptionally vile regime.
In the past I have written about the great harm that sanctions can inflict on the public. Does the good of punishing the military government with sanctions outweigh the good of providing jobs and income to ordinary Burmese through trade? Unless we think that sanctions will weaken the Burmese junta to the point at which democratic revolution is possible, it’s a tough moral case to make.
-Charles
Photo by Flickr user informatique used under a Creative Commons Attribution license.
No cheers for austerity?
Welcome to revolution Europe
Ask any youngster–eating vegetables is no fun. Or ask Europeans for that matter. Major European economies have begun to make tough choices to rein in public benefits and curtail government programs in order to reduce their debt burden. Much of the attention has been on Greece, partly because their austerity measures were so severe and partly because the public reaction was not exactly peaceful.
But even some of Europe’s flagship economies are also beginning to take a sober look at the long term. Yesterday England recently announced hundreds of billions in cuts over the coming years and France is seeking to increase the retirement age from 60 to 62 (it’s 65 in the United States, and will rise to 67 in the coming decades).
Much of the French population are less than thrilled with the proposed change, and widespread protests and strikes over the last week have grounded planes, caused fuel shortages and even forced Lady Gaga to cancel a concert.
I’m not interested in whether people have a right to strike, although that question certainly remains a live one. But, to many Americans, the vehemence of the European response feels disproportionate. We don’t have close to the public benefits they will still have after the reforms, many of us say. Read more
Worlds apart –why an open society may be better after all
On Monday, Han wrote about Thomas Friedman’s Op-Ed in the New York Times on the
“green economy,” contrasting the technocratic approach of China’s authoritarian rulers with the haphazard and undirected approach of the American political system. Han suggested that technocratic and authoritarian governments may have an advantage for costly but necessary endeavors.
There is certainly an allure of decisiveness and efficiency under technocratic rule. Thomas Friedman quotes the chairwoman of the Joint U.S.-China Collaboration on Clean Energy as saying that “There really is no debate about climate change in China.” But climate change is not the only issue on which public debate in China is absent.
In China, internet search terms such as “freedom,” “democracy,” and “demonstration” are blocked, as are some sites on health, education, news, entertainment, religion, pornography, Taiwan, and Tibet. Sometimes the bans extend to academic sites. In January of 2009, the Chinese government even censored Obama’s inauguration.
If technocrats are to monopolize decision-making, then they cannot be questioned or challenged meaningfully. This is worrisome, not only because the technocrats won’t get it right every time. John Stuart Mill once pointed out that the absence of debate leads to orthodoxy, rigidness, and most importantly stunted intellectual growth. Inertia and resistance to necessary change can plague authoritarian societies as much or more than democratic ones. Not only do liberty and political equality suffer, but so does the very development of societies and individuals.
Technocratic societies in the past have sometimes been able to make remarkable achievements in a brief time span. The Soviet Union not only launched Sputnik and led the world in rocketry but also aggressively promoted literacy and women’s rights. But these achievements did not last. Russia today is hardly a bastion of progressivism, prosperity, and innovation. Without intellectual diversity and debate, the promise of progress cannot be realized in the long run.
-Charles
Image by Flickr user sofafort used under a Creative Commons Attribution License
Hope and change in schooling are sorely needed
Elitism and egalitarianism in education
Courtland Milloy suggests at the Washington Post that D.C. Schools Chancellor Michelle Rhee’s vision for the D.C. school system is both inspiring and quixotic.
Milloy quotes Rhee as suggesting that elitism, “reluctance by the city’s haves to share classrooms with the have-nots,” is the single largest obstacle to school reform. Overcoming elitism, Warren Buffet once suggested to Rhee, would simply require the abolition of private schools and assignment of all children to public schools by random lottery. The argument goes that well-to-do parents would force schools to improve if they were denied the choice of where to send their children.
Ironically, elitism would militate against the opposite solution as well. Suppose all public schools were abolished and poor families given vouchers and scholarships to attend private schools like their wealthier peers. Milton Friedman’s solution is the polar opposite of Buffett’s –improve education by giving rather than denying choice to all. But in this case, elites too would have to put up with the prospect of rubbing shoulders with the rabble. If elitism is indeed the major roadblock to reform, then this solution, conceptually just as radical, is practically just as unrealistic. Read more
Are you a demand-sider or a supply-sider?
The BBC reports that the Obama administration has designated $50 billion dollars for infrastructure improvements as part of efforts to jump-start the US economy. The claim that the project will help jump-start the economy is contestable, but difficult to prove either way.
Broadly speaking, there are two influential schools of macroeconomic thought. One is the Keynesian or demand-side school, which blames the collapse of demand for economic malaise. During economic downturns, it is the government’s job to make up for the shortfall by employing people, purchasing things, and inducing private actors to do the same. This is the principle behind public works projects, temporary tax cuts, and programs like “cash-for-clunkers.”
By contrast, the neoclassical or supply-side school argues that prolonged economic problems are the result of the economy’s inability to produce an adequate level of goods and services. The government’s response to economic downturn ought to consist of making it easier for individuals to supply labor and firms to supply goods and services. This is the rationale behind permanent tax cuts for all (including corporations and the rich), deregulation, and a reluctance to extend unemployment benefits.
Though economic in nature, these two claims tend to accompany differing assumptions and values about human nature. Put crudely, the Keynesian approach favors the consumer, in hopes that the producers will follow. The neoclassical one favors the producer, in hopes that the consumers will follow.
Of course, all humans are both consumers and producers. But which role is more important? In a crisis, should we try to induce people to buy things, or to induce them to work? Should workers and consumers be favored over entrepreneurs and companies?
There is of course some middle ground between the two extremes. Maybe the answer lies in a bit of both.
-Charles
Image by Flickr user Cain and Todd Benson used under a Creative Commons Attribution License
Trading values
Project Syndicate has an ongoing series by Columbia University economist Jagdish Bhagwati on “The Open Economy and its Enemies.” There is more or less a consensus among economists that free trade promotes economic growth; the law of comparative advantage still holds nearly two centuries after it was formulated. But the opinions of both the public and other social scientists are more ambivalent.
Competition is the means by which actors in an open economy are disciplined. But competition generates losers and winners, too –at least in the short run. Non-economic concerns with free trade include growing inequality, the constant displacement of people under conditions of ruthless competition, environmental degradation, the globe-spanning hazards of mutual dependency, and national security.
Critics of free trade may accuse economists of linear thinking for ignoring the messiness of reality. But economists might equally accuse critics of free trade for ignoring the bottom line –that increased wealth will expand the possibilities of what a society can accomplish.
The free trade debate, like many others, asks how willing we are to trade increased levels of wealth for other values, and under what conditions. Not surprisingly, this debate tends to come to the fore in times of economic uncertainty.
-Charles
Image by Flickr user free range jace used under a Creative Commons Attribution License
It’s the economy, stupid
Equality butts heads with freedom
Jonathan Martin and Ben Smith write at Politico that a new debate about first principles and the role of government has replaced the social issues at stake during the “culture wars” of the last three decades.
This dispute over first principles is deeply entwined with questions of national identity and the appropriate role of the government in the economy.
On one extreme is a minimalist state, in which the government is responsible for little more than upholding the rule of law and providing for a common defense. On the other extreme is a socialist state in which the government manages all facets of economic activity.
Neither extreme applies to any industrialized country today. Rather, the modern world is populated by welfare states of various stripes.
When choice doesn’t matter
Charles asks some provocative questions in his post today about the role of government versus the power of the market to lift people out of extreme destitution.
But his approach, which focuses on individual responsibility and government constraint, begs the question by assuming, first, that all government action counts as a constraint on liberty and, second, that all individuals are capable of personal responsibility.
This account is not baseless, but it leaves little space for one reason people may suffer: structural barriers to opportunity and liberty. Read more
Poverty, choice and coercion
Should the poor be allowed to choose?
The New York Times reports that malnutrition and starvation remain stubbornly entrenched decades after India’s Green Revolution, which modernized agricultural practices, massively increased agricultural yields and eliminated the specter of famine.
The existing government food distribution system relies on bureaucratic rationing, through which the poor are given ration cards to purchase food from government-run distributors. It is notoriously inefficient and plagued by corruption. Some reform proposals emphasize improving monitoring and delivery within the system. Others favor entirely dismantling the system, replacing it with vouchers or cash payments to the needy. Read more
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