Stiglitz on Inequality

There is so much good stuff in Joseph Stiglitz new The Price of Inequality  that it is not easy to specify just why I keep wanting to throw it away with great force.

Start with something positive: he's on the side of the angels.  He's got the right friends and the right enemies and a generous heart.  But he writes a book that can make you just want to scream.

Part of the problem is merely structural.  From the title, you might guess this is a book that makes the functional case against disparities in wealth or income: disparities entrench elites, they undermine democratic values, they destroy trust in the system, and mutual trust.  This is an important perspective and Stiglitz makes many of the particular points well.  Which isn't to say they haven't been made as well or  better elsewhere but no matter: the case can bear repeating.

The trouble is, you have to work awfully hard to find it.  The narrow point--the point of the title--comprises maybe 15-25 pages of the entire book, scattered and sometimes camouflaged.  The rest of the book is a free-floating leftie talking points, loosely scattered as if he had dumped out his box of three by five cards--a bit like locked in a semi-dark room with a loop tape of the Rachel Maddow show.

Ironically, a giveaway as to the content is that Stiglitz spends far more time talking about fairness versus unfairness in distribution than he does about his "costs" argument.  This is telling: fairness functionality are both important principles: one might well want an economy to be both functional and fair.  But it's not clear that Stiglitz even recognizes the difference.   Quite the contrary: much as he cites as principle of fairness, Stiglitz nowhere spells out just what his principle of fairness is.  Rather, he falls back time and again by telling us what the public perceives as fair/unfair.  He never seems to notice that these references tell us nothing about fairness per se; a public might very well perceive a fair world as unfair or vice versa.

This is frustrating.Although I should stress I don't have a lot of trouble with content.  As to particulars, I think I'd sign on to somewhere between 60 and 90 percent of what Stiglitz has to offer (lot of nuances, but let that be).

But none of this is what is really maddening. I guess what really gets me is what I wrote about in passing when I was sizing up Chris Hayes a few days ago.  In the end, it is a massive exercise in preaching to the choir, telling his audience what they already know, beefing them up with soundbytes to annoy their relatives at the Thanksgiving dinner table.  In the process, it sidesteps or minimizes virtually almost any difficult or perplexing argument that complicate the case.

I could offer a number of particular examples but let me concentrate on a thematic difficulty:  Stiglitz' near-complete schizophrenia on the issue of "competition" and its evil twin, "economic rents."  You can probably guess he framework: competition good.  Rents bad.  Goal of policy, dismantle rents, restore competition.  

In individual cases, this is bound to be a beguiling argument. But it sidesteps the core paradox of the economic world-view: everybody wants free competition for others.  Nobody  wants it for themselves.  And who can blame them?  A competitive world is a grey, bleak and heartless kind of a place--a world in which as Albert O. Hirschman says, "every individual firm considered in isolation is barely getting by, so that a single false step will be its undoing."  Or as the fella says, absolutely the last thing you want in the world is a job where you get paid what you're worth.

I think this problem is pervasive in Stiglitz' book but it takes on particular poignancy for two reasons.  One: Stiglitz is in his own way a conservative or better, if there is such a word, a nostalgiast (id that a word?).  He's a sucker for the old ways, meaning particularly the old ways of the Roosevelt New Deal and the broad social compact that organized the United States from the end of World War II until the first Arab oil shock.  Strong bank regulation, good manly jobs and in particular, strong unions.t

Unless I missed it, he never once faces up to the stark fact that this entire model subsisted in a warm bath of economic rents and restricted competition.   American industry had a huge home market, protected from foreign competition by law and by the disaster of World War II.  There was a lot to go round, even for the low-skilled.  But the best jobs were in the most protected places: big auto, big steel, big telecom: these were the places where management and labor could agree to split up the proceeds, secure in the knowledge that they wouldn't be undercut.

Stiglitz' nostalgia for the Good Old Days carries over into what may be the weakest part of his book.Oh yes, he says, good thing, globalization. bit you've got to do it right and the financiers have done it all wrong.  Let's concede that big finance has committed great mischief in the pursuit of globalization.  Still, I see almost no recognition in Stiglitz that a newly globalized word has less starvation, less abject poverty and yes, more equality (between nations if not in nations) post-globalization than it did before.  As Paul Collier says, we used to talk about "the bottom five sixths;" we now talk about "the bottom one sixth."  And scandalized as we may be over the abuses of labor in the developing countries, I don't know of anyone who has ever made the explicit argument that our nation should be rich while all others are poor.

The problem of rents-versus-competition imbues his discussion of our own current internal agonies as well.   Specifically, I don't see any acknowledgment in Stiglitz that governments as well as private persons can be rent-seekers as well; that, indeed, our current politics may perhaps be best understood as a competition between two different alliances for control of the rent-seeking machine: young people and public employees on one side, old people and finance on the other.

I know.  Almost anyone who has stuck with me this far is sputtering that but, but I don't understand, there are various kinds of rents, and not all rents are alike, and we can have good competition and bad competition.  Well, very likely we can; I certainly hope so.  But any attempt to understand that point will have to start with an account of the present that is far more clear-sighted and yes, ambivalent, than what is on offer here.

That's my point.  Actually, I've got (at least) one more point I'd like to make about Stiglitz and his ilk but I guess I'll save it for a separate post (which I may or may not get round to writing).

Footnote:  I seem to have hammered on this particular guitar before.  See:  Link, link, link all of whom impel me to believe, in various ways, that I'm not crazy..

Obama the Pragmatist

The ever-clearheaded Charlie Cook makes better than I can a point I have been trying to make for a while (link): Obama is a pragmataist, not a liberal (nor a populist, nor even a centrist) who is likely to have major headaches from Democrats alongside those he gets from Republicans. "Take, for example, his economic policy team," says Cook--"nary a Robert Reich in the bunch." Ooh, that's gotta hurt, but I must say that for Reich I might have substituted Joseph Stiglitz. Stiglitz seems to me to be a pretty bright guy--Reich, more or less of a shadow of Paul Krugman.

[There's a round of the old "ask for...hope for...settle for" game--Ask for Paul Krugman, hope for Joe Stiglitz, settle for Robert Reich.]

I do wonder how long Tim Geithner will last though. But then again, I didn't think this guy would last, either.

The Shadow Government

I've known Elizabeth Warren (not well) for something like 30 years now. Like almost everyone who ever met her, I've enjoyed her company: she's enthusiastic, energetic, warm-hearted and mostly on the side of the angels. And she has done me the occasional favor. I haven't weighed in on the great Warren Kerfuffle because I am too far out of the action to count. But I can't resist this insight from my good friend anon:

...she'll fit right with with Fed Chair Paul Krugman, Treasury Secretary Simon Johnson, and CEA chair Brad DeLong.

He forgot "counselor to the president Joseph Stiglitz." Hoo, ha, now there is a shadow government

[Anon also reports: I just don't see it happening, but then again I just didn't see the dissolution of the Soviet Union happening and thought Geithner was likely to be fired in early 09.]

Krugman, Unions and the Good Old Days

It's becoming more and more the meme to remember the period 1947-1973 as a kind of good ol' days: dynamic growth, sponsored (and unhampered) by high taxes,  supported by strong private sector unions.  I lived through those years and I'd have to sign on to a lot of that.  I'd add the qualifier that in many ways I hated the good ol' days: smug, narrow-minded, paranoid, racist times with tacky TV shows and maddeningly trite pop music.  I grant the economic virtues although in fairness, they are easier to see in the rear-view mirror.   I also join the chorus of those that believe the good ol' days nestled in an accidental sweet spot,  where major employers enjoyed semi-monopoly protections, generating incomes that they could share with semi-monopoly employees--and when we all (did I say this before?) drove crap cars.

I was therefore intrigued earlier this week to see Paul Krugman abandon his wonted tact and decorum and go to Defcon IV against the golden-age deconstructers.  He calls it "The Europe-in-Rubble Excuse."

Whenever I point out how well America did with strong unions and highly progressive taxation after World War II, I can count on conservatives trying to resolve their cognitive dissonance by saying “but it was easy then — all our competitors were in ruins!” ...

Sorry, guys, but that’s bad history and very bad economics.

 And:

[A]nyone who reflexively reaches for the idea that we were actually better off because Europe was in ruins as a way to explain the postwar economy should take a hard look in the mirror. Did you think this through? Or were you just grabbing for something, anything, to explain away a fact that your ideology says can’t have been true?

Now by disposition I tend to be a Krugman fan, but I think he misunderstands the argument here, and also draws the wrong inference.

First: I don't think those of us who gaze back at the golden age are focusing only on Europe-in-rubble (he could have added Japan.  And China).  For one, if we're being fair we'd have to grant that the ravaged nations mostly recovered far  more quickly and successfully than most people expected (and thank you, General Marshall).   And we'd have to grant that healthy trading partners can make us healthier: beggar thy neighbor is never a good long-term bet.

But rubble is only part of the story.  As Brink Lindsey aptly observes, there was a whole lot more going on in the golden age:

There was a pent-up demand for goods and services after the privations of the Great Depression and the mobilization of World War II. There was also a pent-up supply of new products that couldn’t be brought to market during the depression and war years. That pent-up supply was augmented by technological and organizational breakthroughs accelerated by the imperatives of total war. Big advances in transportation, communications, and air conditioning stimulated catch-up growth in the underdeveloped South and underpopulated West. And rapid upgrades in human capital (first explosive growth in high school graduates, then explosive growth in college graduates) doubtless helped to spur productivity gains.

Link  Reading Lindsey, DeLong concludes  that Lindsey drops an own-goal on his vaunted libertarianism.  DeLong is narrowly right  but it's irrelevant to my point.   For my money, Lindsey is quite right to argue that the old times were special in ways that might not be easy to replicate.

But here is where I think Krugman misses the point.  That is:  he could perfectly well concede that the old times are special without accepting that "speciality" as an argument against unions.  He might say: yes unionism was easier in the good ol' days.  But that doesn't mean unions are any less necessary in a different kind of economy.  It just means we have to work harder to explain and justify their importance to a functioning democracy, and that we must work harder to assure these virtues are preserved.

He could argue that.  For myself, I would argue that, kinda.  As I said above,  I lived through those days.  I remember railroad featherbedding, bogus type in the print shop.   I remember how big steel and the steel unions bound themselves together in a dance of denial that would do Kubler-Ross proud, until it virtually destroyed them both.

But I also believe in the kinds of insights Joseph Stiglitz argues for (in the book which, ironically, I trashed just the other day).  A functioning workforce is the very definition of a healthy society.  Masses reduced to pauperism and beggary are no good for themselves and, paradoxically, not much good for their overlords either.  Some sort of union movement is almost certainly part and parcel of such that healthy society   So I can understand Krugman's eagerness to defend the golden age.  I just think he'd be on firmer ground if he went about it a different way.

An Assignment for Somebody: Wal-Mart Wages

Here's a job for which I am too old and sick and stupid and tired and lazy to do myself.  But it  society shouldn't be too hard.

Background: I've been boning up a bit on a particular notion of economics, once in fairly wide currency, now mostly unfashionable (excepting possibly Joseph Stiglitz).  That is: the idea that "spreading the wealth"--union wages, just better wages--might make the whole society richer in that you provide money to the people who will spend it.  Yes, it is akin to the current kerfuffle over Keynesian pump-priming: whether you can ever make the world richer by taking the money out of the hands of one and put it into another.  But I'm thinking of a a slightly different spin: the idea that the boss might  make make himself richer by raising the worker's pay insofar as it churns more money through the whole community.

It is a view exemplified, I think, by Henry Ford when he undertook to pay workers $5 a day so as to raise the general wage level and sell more Model Ts.  Reading Michael Lind,  I infer that it was, if not widely popular, still part of the common parlance in the 20s. Surprising how completely it has vanished from public discourse lately.

But here's my assignment for somebody.  Estimate Wal-Mart's payroll.  Multiply it by 1.5--i.e., give everybody a 50 percent raise.  Go to the P&L and adjust  bottom-line net income accordingly.  I.e., in terms of that holy of holies, "shareholder value," how much would it cost?  My guess is "not a lot," but if so, try it with 1.2--a 20 percent increase. Or just for fun, try 2--double the wages.  

For extra credit, identify a representative member of the class of Wal-Mart trust fund babies--i.e., the ones on the Forbes billionaire list.  Identifying (or estimating) their current shareholdings, estimate how many Mercedes they would be deprived of if the proposed innovation were put into effect.  My guess is: not a lot.  But if you come up with an answer, tell me and I'll blog it.

Election Guesswork: The Size of the GOP Gains

I just caught a few minutes of Charlie Cook with a panel of six political strategists--three and three, Republican and Democrat. Quel surprise: everybody is predicting Republican gains; the only dispute is over how much. But it was possible to suss out some new and interesting insights. Perhaps the most interesting (to me) came from Joe Trippi talking about the turmoil internal to both parties. On the Republican side, it is obvious: Sarah and company versus the grownups. On the Democratic side, it is not quite so easy to notice, but the progressives are really mad--over, as you might say, the Glenn Greenwald agenda plus the Joe Stiglitz agenda. So Trippi, if I understand him right, is expecting a lot of tough primary fights in both parties as the "extremes" try to take out the middle. He somehow thinks that this may lead to limiting the amount of bad news for Dems, but I'm not sure I follow that.

The second thing that struck me was a pitch by Alex Castellanos, the GOP strategist, arguing that the Obama Administration is making a George W. kind of mistake. That is (my paraphrase) in each case--Obama and W--you've got a President who achieved power on a not-very-specific agenda ("Yes, We Can!" is not an agenda). And then each turned out to have a fully articulated agenda which he was determined to pursue whether the voters wanted him to or not. In particular, I understood him to say, the Dems have taken a lot of their necessary support and left it more or less parked, enjoying 10 percent unemployment while the party in power worries about health care and bailing out banks.

I think there are a lot of flaws in that theory so complain to him, not me, but I think there is enough truth in it that attention must be paid.

Much more good stuff here, worth the listsen. But as a final note, for extr credit: why is it that I find all six of these commenttors (plus, of course, Cook himself) more sane, balanced and realistic than almost any of the party noisemakers I see on TV?