The Political Economy of Envy

[bobman0330]

I oppose most government interventions in the economy (this will come as a surprise to many, but it is true). Recently, however, I get the sense that the American public is reaching a point where anti-free market policies are beginning to develop troubling amounts of headway. Specific examples include the recent minimum wage hike, the much-discussed windfall profits tax on oil companies, and, most disturbingly, the prospect of an attack on globalization (the Democratic SOTU response contained some really troubling rhetoric in this vein).

The interesting factor is that this anti-market momentum is primarily driven by globalization, and the increase in income inequality that it has wrought. This relationship creates something of a paradox: if your goal is to maximize economic freedom under the current political system, you won't get very far by throwing all the stops and adopting an extreme laissez-faire system. People will get fed up by inequality, and there will be a backlash. (This concept also has interesting implications for the viability of ACism, which I will try to develop in another thread - not here please.) So, there has to be some optimal middle ground, where you support many, but not all, proposals that expand economic freedom.

If that's true, then the question becomes what compromise do you make with anti-market forces? The most important free market reform is, of course, globalization. Unfortunately, it's also the easiest target. I haven't gotten out my calculator and run the numbers, but I to suspect that protecting and expanding free trade is the most worthwhile thing a free-marketeer can do. Even supporting stupid but insignificant policies like a minimum wage hike or a windfall profits tax might be worth it.

Thoughts? Which free-market policies are important and which are not? Which are or are not practical in today's climate? How strong are the opponents of the free market, particularly since the '06 election?

[Al68]

Like compromising with a school bully to just take some of your lunch money instead of all of it?

[bobman0330]

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Like compromising with a school bully to just take some of your lunch money instead of all of it?

[/ QUOTE ]

Precisely, although I don't think that's a very helpful formulation of the question.

[DVaut1]

It seems strange that you're willing to concede globalization has created an increased level of wealth disparity; I thought proponents of globalization maintained that decreased barriers to global trade would eventually lead to lower prices for essential consumer goods, more employment and generally higher output and productivity.

If it's the case that neoliberal economists are essentially arguing what I outlined above, then I'm not sure why a 'backlash' due to wealth disparity is inevitable and why any 'compromise' is necessary at all. I certainly haven't seen evidence that there is an an overwhelming anti-economic-liberalization backlash among Americans on the horizon. I'm obviously no fan of the GOP, but given the polling I've seen, I think it would be a mistake to attribute the GOP failures in the last election cycle to dissatisfaction with their economic policies; similarly, I think it would be a mistake to conclude that the recent Democratic successes are indicative of enthusiasm for their economic policies -- and I would suggest that most of the Democratic 'anti-free-market' proposals I see are of the purely cosmetic variety, and are generally relatively benign; i.e., increases to the federal minimum wage.

I'll concede that while most polling indicates that Americans are generally pessimistic about the direction of the country and increasingly 'fearful' of globalization trends like laissez-faire immigration policies and a perceived sense of the costs of 'outsourcing', those same polls indicate Americans are generally satisfied with their own economic lot. Having said that, it certainly may be that many Americans shoulder tremendous amounts of debt and have much of their net worth is tied up in what some consider to be an overinflated housing market -- perhaps a crash in the credit and housing markets may prompt such an anti-market backlash and lead to demands for increased state intervention.

So, given that I'm skeptical such a backlash is imminent short of a catastrophic event, perhaps we can maintain that globalization will generally produce lower prices for goods, higher employment and an increased standard of living, but that some kinds of temporary measures and continued state intervention are necessary to ease the transition where changes wrought by global trade liberalization are especially deleterious.

If so, then I would suggest that any government intervention should be considered just that -- temporary and generally unrestrictive of free markets. Again, if we're confident global economic liberalization truly will be generally beneficial, I'm not sure there's a need to offer many compromises to free-market policies, lest we impede the realization of the benefits from the globalist policies we're simultaneously enacting.

[Al68]

[ QUOTE ]
[ QUOTE ]
Like compromising with a school bully to just take some of your lunch money instead of all of it?

[/ QUOTE ]

Precisely, although I don't think that's a very helpful formulation of the question.

[/ QUOTE ]
Well, my point was that anti-market forces historically demand more and more "compromises" of our freedom as time goes by.

[bobman0330]

DV,

Awesome post, thanks.

As for globalization and inequality, it's important to distinguish between increasing wealth and increasing inequality. I think most economists predict that everyone will be better off, through things like cheap clothes from China, cheap cars from Japan, etc. But theory also predicts that income inequality will increase. As a rough approximation, think of it this way. In 1950, capital was abundant in the US, and labor comparatively scarce. In the rest of the world, capital was scarce and labor abundant. If you marry those two worlds, there's more demand for American capital (to build factories in China) and less demand for American labor. Simple supply and demand suggests that wages will be adversely affected and capital return will be positively affected. (Of course, the really poor people in this picture, the foreign workers, make out fantastically.) The fact that real wages are more or less stagnant while corporate execs and shareholders are doing awesome bears that out.

As for whether there's a backlash on the horizon, you could well be right (and I hope I'm wrong.) I don't really see some sinister Democratic plan to roll back globalization, but I do feel that if they (or the GOP) came out with such a plan, it would do OK. Consider this excerpt from the Democratic State of the Union response:

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When one looks at the health of our economy, it's almost as if we are living in two different countries. Some say that things have never been better. The stock market is at an all-time high, and so are corporate profits. But these benefits are not being fairly shared. When I graduated from college, the average corporate CEO made 20 times what the average worker did; today, it's nearly 400 times. In other words, it takes the average worker more than a year to make the money that his or her boss makes in one day.

Wages and salaries for our workers are at all-time lows as a percentage of national wealth, even though the productivity of American workers is the highest in the world. Medical costs have skyrocketed. College tuition rates are off the charts. Our manufacturing base is being dismantled and sent overseas. Good American jobs are being sent along with them.

In short, the middle class of this country, our historic backbone and our best hope for a strong society in the future, is losing its place at the table. Our workers know this, through painful experience. Our white-collar professionals are beginning to understand it, as their jobs start disappearing also. And they expect, rightly, that in this age of globalization, their government has a duty to insist that their concerns be dealt with fairly in the international marketplace.

In the early days of our republic, President Andrew Jackson established an important principle of American-style democracy -- that we should measure the health of our society not at its apex, but at its base. Not with the numbers that come out of Wall Street, but with the living conditions that exist on Main Street. We must recapture that spirit today.


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It's not exactly the Communist Manifesto, but the same sentiments could be reworked into an "Enough's enough"-type message that would have a lot of traction. If one of the bad things you mentioned happens, or even something like a moderate recession, I fear that a pretty robust anti-globalization movement could crystallize pretty fast.

I think some sort of government program to help displaced workers readjust is an excellent idea on its own merits. But even so, how much help can you reasonably offer a 40-year-old factory worker whose job has gone overseas?

[DVaut1]

For what it's worth, here's an dialogue from last week between two pollsters, Mark Blumenthal and Gallup's Frank Newport, about whether or not Americans are really angst-ridden over the state of the economy, and how that angst (if real) is manifesting itself in polling.

Newport claims the angst doesn't exist -- or at least, that it hasn't been measured in significant amounts; Blumenthal claims the angst does exist, and that some of the American frustration over their current economic conditions has been transferred to frustration over Iraq in survey data -- Blumenthal also claims that current survey methods of consumer confidence may be inadequate and miss important data elements:

Gallup Chief Doubts There Is a Perceptible Middle-Class Angst

Blumenthal Thinks There Is Angst, But It's Been Directed Towards Iraq

Newport Response to Blumenthal

Blumenthal Response to Newport Retort

Recent Gallup Survey Data On Consumer Views of the American Economy


I think knowing exactly how frustrated people are by perceived harms caused by globalization is vital in understanding just what kind of government interventions, if any, will eventually be demanded.

[HeavilyArmed]

Wasn't too long ago that Americans worked so much smarter than the rest of the world. At the high end we still do. At the low end we're screwed. The poor in America are poor mostly because they can not work smarter than the world's poor (and middle class). THis is not going to improve without drastic changes in education, which will not likely occur. Thank you NEA and the pols they fund.

[Emperor]

[ QUOTE ]
Wasn't too long ago that Americans worked so much smarter than the rest of the world. At the high end we still do. At the low end we're screwed. The poor in America are poor mostly because they can not work smarter than the world's poor (and middle class). THis is not going to improve without drastic changes in education, which will not likely occur. Thank you NEA and the pols they fund.

[/ QUOTE ]

Great post. Everytime I see a Union worker on TV crying about how their job went to mexico I want to smack them and tell them to get a real job. Americans shouldn't be crying about the loss of low wage jobs, just the opposite.

Also, everyone is complaining about the rising cost of healthcare, why not study to become a doctor/nurse/pharmacist/medical manager!?!?!? Increase the supply of doctors in the country and watch the salaries and cost of insurance plummet.