Saturday, November 06, 2010

Samwick Admires the Tall Trees and Misses the Forest

Andrew Samwick is as intellectually honest and fair-minded as your going to find among right-of-center economists these days (or come to that, of economists of any stripe).  So you know he is not just blowing you off when he says he is (mostly) untroubled by wealth inequality in the United States:
...plenty of people among the richest 1 percent of Americans didn't defraud anybody in order to produce their incomes.  Do I feel oppressed that I made Steve Jobs richer by buying an iPad?  Of course not.  Do I feel cheated by the Walton family that I enriched them by shopping at Wal-Mart?  Again, no.  I don't even think it is unfair that Ken Griffin makes money by out-trading the institutional investors that manage my retirement portfolio -- I'm just sorry (but not jealous) that I don't have enough money to invest in Citadel so I could be on the winning side of those trades.
 Well, that's straightforward enough.  And I must say it's refreshing to read an academic economist (I name no names) who does not begin with a whine about how he professorial class really has it so rough.  Samwick does add a bit of a qualifier:
I do get angry at some aspects of what's happening with the richest 1 percent.  When they exploit campaign finance loopholes to effectively bribe politicians into giving them special treatment, my blood boils.  (The taxation of carried interest for hedge fund managers like Griffin is an example.)  And I think we should put a  swift end to it.  When the heads of the major investment banks hoodwink their buddies on the SEC to let them double and triple their bets, pay themselves record bonuses, and then get bailed out with public money, I can't stand it.  But these are failures of regulation and taxation, not production.
That's good stuff but it misunderstands a central point about distorted distribution.  That is: corruption of the democratic process--and indeed, corruption of the markets--it a necessary corollary of this pileup at the top. It's a feature, not a bug. It's not just an open system with a few bad apples who get offside on the play.  It's one of the things that you buy with a boatload of money: the chance to rewrite the rulebook and lock yourself in.

Samwick doesn't mention another fatal defect in the current regime of maldistribution:  the extent to which we've termited the stuffing out of everything else.  The golden age was the time when a fella (sic!) could get out of high school, maybe trade school, and find a job where he could generate a paycheck and sustain a sense of self-worth--a time when employers saw their work force not as a liability, but an asset.

This sort of halcyon economy doesn't just happen, of course.  It takes management vision; it also takes capital.  I suspect we could tolerate a fair amount of skew in the income/wealth chart if we felt that the anointed few were pitching in to juice up the economic engine.  These days we don't see that.  As Simon Johnson has so eloquently demonstrated, we see the super-rich just passing around preferences among themselves like so many Honus Wagner trading cards. 

And I should add that the world I imagine just a fantasy: we've got right now in, e.g., Germany where they've built a thriving economy on skilled labor--so essential and so well appreciated that management has understood that they can't just throw them away when times get tough. Germany has its problems of course--too much export, winning at the game that simply cannot be played by all.  But to say you're untroubled by inequality without considering how it corrupts the structure and sucks the lifeblood out of the system--it's a refreshing absence of envy, but fatally short-sighted.

1 comment:

New York Crank said...

Re your last line, "But to say you're untroubled by inequality without considering how it corrupts the structure and sucks the lifeblood out of the system--it's a refreshing absence of envy, but fatally short-sighted."

Actually, in our economic system, envy is most certainly a virtue. It arouses ire against those who corrupt the structure and suck the lifeblood out of the system.

Or to put it another way, if greed is the sin that drives the engines of the economy, envy is the control that keeps the engines from burning out or blowing up.

Yours crankily,
The New York Crank