Saturday, January 02, 2010

Creative Destruction Is Both

I've mentioned a few times that I appreciate the writing of Jim Manzi on the question of climate change. He does a good job of cutting through to the fog to find what seems to me to be the most reasonable position on AGW.

So it doesn't surprise me that Manzi has an interesting piece in the fantastic new journal National Affairs on the tension between policies promoting growth and those promoting social cohesion. You should read it all but one of the propositions is that, while liberals assume the material wealth that they seek to distribute without an adequate regard for the way in which redistributive policies will impede its production, conservatives assume the cohesion - I would prefer the word "social capital" - that the operation of markets and individualism promoted by capitalism can tend to undercut.

The conservative ascendancy was, in large part, as result of Democratic policies that either ignored the creation of wealth or believed that it was no longer possible. If conservatives are to avoid a liberal ascendancy, we need to think about cohesion and the importance that the benefits of growth - while they need not and probably cannot - be equally distributed, ought to be widely shared.

One of the things that brings to mind - and Manzi addresses it rather indirectly - is the extent to which the dichotomy between economic and social issues is a false one. One of the persistent causes of poverty is the deterioration of social capital in poor communities. There is a reason for many of the "judgmental" moral standards that have traditionally characterized American society.

The problem, it seems to me, is that we have lost our ability to discuss these things. The overriding memes of our generation - tolerance, equality and individualism - make it almost impossible to talk about anything but materialistic and reductionist responses to social problems.

Cross posted at Marquette University Law School Faculty Blog.


Anonymous said...

The Manzi article is impressive in its scope, but suffers from the weakness that often characterizes your assessments here: the inability to carry an argument from broad theoretical points to concrete policy conclusions.

Manzi paints conservative and liberal ideology with a broad brush – a little harder on the liberals and softer on the conservatives, but whatever – gives a nod to the problem of income inequality, but then really gets to the purpose of the article in its indictment of the Obama administration, which is supposedly driving American life as we know it off the map.

The key turn comes in the “Toward Social Democracy” section where Manzi tries to paint the stimulus bill as essentially a social spending program, government involvement in the financial and auto industries as solely attempts at nationalization, and health and climate change bills as pieces of legislation aimed at putting the government in control of those industries. This is where the wheels come off the article and the argument, the transition from the theoretical to the concrete.

Take this: “Only about 5% of the money appropriated is intended to fund things like roads and bridges. The legislation is instead dominated by outright social ­spending: increases in food-stamp benefits and unemployment ­benefits; various direct and special-­purpose spending relabeled as tax credits for ­renewable-energy programs; increased funding for the Department of Health and Human Services; and increased school-based financial ­assistance, housing ­assistance, and other direct benefits. The objective effect of the bill is to shift the balance of U.S. government spending away from defense and public safety, and toward social-welfare ­programs.”

OK, only about 5% on roads and bridges, so it must be a social welfare bill? Most people aren't going to consider tax credits for energy efficiency home improvements and first-time home buyers and funding for financial aid to be social welfare spending. He needs the stimulus bill to fit into his cohesion/liberal-innovation/conservative dichotomy, so he fudges it by trying to cover up his lack of evidence by using forceful language like “outright social spending” and dismissive phrases like “relabeled as,” but it just doesn't compensate.

Perhaps the most obvious evidence of the flawed argument is the complete lack of discussion about the economic collapse of 2008, as if it's not central to the actions of 2009 that Manzi is trying to contextualize. Instead, Manzi jumps from income inequality resulting from policies of the '70s and '80s to legislative actions in 2009, as if the actions of last year were driven by developing income trends of the past 30 years. In fact, the stimulus package and the government involvement in the auto and financial industries were a direct result of the deepest economic recession in 75 years, and the social spending that is in the package (increased unemployment checks, food stamps, state Medicaid funding) is temporary and driven by the negative impact of the recession on employment and employer-provided benefits. For instance, state Medicaid rolls aren't overflowing because of the stimulus bill is enacting a fundamental change to our way of life; those rolls are overflowing because of the deepest economic recessions in 75 years, and Medicaid spending in the stimulus bill is a reaction to that.

In the end, Manzi tries to make the emergency actions of 2009 out to be a calculated transformation of American life, reacting to developing trends over the past quarter-plus century and fitting firmly within the broad & cozy cohesion/innovation dichotomy, but he just doesn't have the evidence to support it. He tries to make the broad theoretical outlines from the bulk of the paper drive his argument about concrete policy actions and, ultimately, his indictment of the current White House and Congress, but he comes up woefully short on the particulars needed to support such claims.

Grant said...

either ignored the creation of wealth or believed that it was no longer possible

Amen, brother.

Clay Barham said...

Is it self-centered greed or legitimate self-interest that is the main concern with those who do not understand Ayn Rand? Those who admire and criticize Ayn Rand’s beliefs about people who stand on their own feet often say she promoted selfishness, thereby greed, which is self-centered and anti-individual creativity. That is anti-Rand. Rand admired the creative individual, people like railroad builder James Jerome Hill, on whom she was reputed to have based her character Nathaniel Taggart in Atlas Shrugged. Independent “I’m OK, you’re OK” people are OK with Rand, not the criminal takers. If we look at Howard Roark’s summation to the jury, from Fountainhead, we do not see a self-centered individual destroying his work. If he was greedy he would have simply accepted his payment. We see an other- and outer-centered individual in love with his own dreams and creations, as one would love a spouse, child or family and refuse to allow them to be assaulted. That is the kind of self-interest that built America. Though love for anything spiritual may be missing, a great idea or vision also measures up to that which is spiritual, beyond self, and that view is not even inconsistent with Christianity.

Rick Esenberg said...

Anon 1:43

But I think there is a coherent criticism of the stimulus package. If it was a classic measure based on the assumption that money had been driven to paralysis and that it is necessary to take it from those who won't spend it, it would not have been backloaded. There would have been more of an emphasis of spending the money now.

If it were predicated on the view that we need to remedy long neglected public investments - something that might increase productivity in the long term - then more would have been spent on projects like roads and bridges.

As it was, we got a frightfully expensive mess that was largely a product of Democratic interest group politics that, at best, forestalled the process of reforming unsustainable policies or just shifting consumption forward a bit.

As to whether the reactions to 2009 were a "calculated" way to change American life, I think it is fair to say that - at least after Obama took office - they have been crafted by people who do want fundamental changees in the relative roles of the state and the private sector, in the tradeoff between security and risk taking, in the ambitiom of regulation.

We know that because they have repeatedly told us as much.

Anonymous said...

There you go receding into generalities, again -- "they have repeatedly told us as much." Ah, like when, who, and what? When did any leading Dem politician, let alone the White House, make the case for remaking the American economy and social fabric in the liking of a European state, as Manzi argues we are headed?

Saying you want to change the conservative economic policies born in the Reagan era, largely continued under Clinton, and furthered under Bush is hardly tantamount to ushering in a social democratic state in the mold of Europe. To be sure, the Dem policies pushed today do not even go as far as the economic policies that governed the US from FDR to Reagan, which brought about a sustained period of prosperity w/o the accompanying gap in income equality and were entirely American.

Rick Esenberg said...

Barack Obama, to begin with. Calls for a larger "safety" - a better word is "security" - net are standard Democratic fare. Obama has endorsed the concept of single payer health care. He has proposed tax increases that will bring us rather close to the pre-1986 marginal rates without the pre-1986 deductions. Listen to Pelosi, Frank, Waxman, Schumer, etc. and tell me that you don't think that they want to make a very significant change in direction.

As far as the policies that governed us from FDR to Reagan, whether the current Democrats want to go "farther" depends on the details. We certainly did not have federal direction of 16% of the economy back then and percentage of gdp that goes to the federal government is higher today - much higher - than in any year since the end of WWII. (In fact, that's a weakness in the assumption of both Manzi and you that there was a post-1980 sea change in American policy. The federal government's share of GDP never stopped growing.) I can think of nothing in post-war economic policy (save Nixon's silly imposition of wage and price controls) that involved as much centralized control of the economy - and opportunity for rent seeking - as the proposed cap and trade bill.

As for post-war prosperity, it is impossible to attribute it to redistributive economic policy (which I never said was not "American")since the global economic environment was very different. Europe was in ruins and the developing countries were not yet global players. There certainly must be a point at which income inequality retards growth but I don't know that the US has ever approached it.

Anonymous said...

Again, a change in direction -- even to pre-1986 marginal tax rates -- is not the same as moving toward a European welfare state, or socialist state to the teabaggers. The case Manzi is trying to make, and you seem to endorse here, is that there has been a give and take between cohesion and innovation between liberals and conservatives over the course of the past 60 years, but now what Obama and the Dems are doing is somehow driving way beyond that normal give and take, to something more akin to Europe than what we've had here in America, which is ridiculous. What is un-American about the tax rates in the 1950s and 60s, which were significantly higher than anything proposed today and under which there was a sustained rise in prosperity w/o corresponding rise in income inequality? (You say highly progressive redistributive policies of the postwar period didn't drive prosperity, but the case you're trying to make here is that they necessarily impede prosperity, which isn't the case; but, again, no one is suggesting going back to those rates, just rolling back the Bush tax cuts.)

You keep moving the goal posts to cover for the fact that your theory doesn't stretch down to justify your policy assessments. OK, Obama has endorsed the theory of single payer. He's also said that moving to such a system in the US is untenable; in other words, he knows when sound theory doesn't translate into sound policy.

You can think of nothing with as much centralized control as cap and trade? Well, I guess that solves it then. Seriously, what happened to presenting evidence and explanation for a conclusion like that? Seems to me it requires evidence that cap and trade does equate to centralization, and what form of centralization (regulation vs. ownership). Then it takes a more thorough assessment of 20th century economic policy to see if the government has ever regulated (since that's the type of centralization it is, not ownership) an industry on the same level. But the work still isn't done there. Then it takes a look at what cap and trade is intended to do, what it would do economically, and then what would happen economically if nothing is done. That's a rational assessment of the policy -- not, it's the biggest that I can remember, breaks the normal cohesion/innovation balance, makes America like Europe, and is going to tank our global place in the world. Honestly, it's talk like that that keeps us from being able to discuss these things, not tolerance, equality, and individualism.

Dad29 said...

The overriding memes of our generation - tolerance, equality and individualism

Or, if you prefer, "relativism," condemned by both B-16 and Leo Strauss.

Dad29 said...

What is un-American about the tax rates in the 1950s and 60s, which were significantly higher than anything proposed today and under which there was a sustained rise in prosperity w/o corresponding rise in income inequality?

Take a harder look at those rates. Notice that SocSec taxation is MUCH less, and family/child deductions are MUCH higher (relatively speaking) than they are today. State tax burdens have also risen (look, e.g., at the Wisconsin state sales-tax.)

You might also consider that it ain't only taxes; regulatory costs (some of which are just fine) have increased significantly since the 1950's, at both State AND Federal levels.

And there are local taxes, too...

Anonymous said...

Washington Post reporting on CBO analysis from April (CBO site appears to be done right now, so I couldn't get a direct link to it): Americans' Tax Burden Near Historic Low

Dad29 said...

So long as you don't consider SS to be a "Tax," that's just fine.

But 7.5% of gross looks like a tax to me.

Anonymous said...

SS is a tax, it's just not progressive in the same way as the income tax (the benefit payout is progressive, but not the taxing side, which is capped). So, the extent that it has replaced the decline in marginal income tax rates since the 1950s (in which you need to stretch the definition of "replaced" -- a 3% increase in the SS rate since 1960 hardly compares to a 55% drop in the top marginal tax rate during the same period), it's worked against any redistributive impact of federal taxation, which is at the heart of this discussion -- that is, is the current administration trying to move the country to a social welfare system more akin to Europe than anything seen in the US before? In other words, if you're looking to argue that the current US taxation system is as redistributive as it was in the 1950s and 60s, the increase in SS tax rate probably works against you, not for you.

Dad29 said...

Actually, that's a SIX percent increase in SS--remember, the employer pays 'the other half.'

As to 're-distribution,' I'm not certain that such is occurring--yet. It is most certainly the case that any 're-distribution' is going into the pockets of the States and Locals--not to mention the too-big-to-fail Wall Street firms and certain other favored organizations (the UAW at GM, e.g.)

What I see, personally, is Statism with a slight mix of Fascism, if you define Fascism as a co-op between State, Labor, and Industry.

However, ObamaCare is certainly a knockoff of Euro policy. You can't seriously argue otherwise; and that is a VERY large elephant in the china shop.

Is it Part One? Maybe.

By the way, are you forgetting about the family deductions? State and Local taxation?

Or is the Fed the only thing?

Anonymous said...

I'm not going to do your legwork for you. If you want to demonstrate changes in federal deductions and state/local taxes have made-up for the drop in marginal federal income tax rates beyond your assertions that they have, be my guest. But I'm not sure how that relates to this discussion about the level of redistribution inherent in tax policies of the 1950s and 60s vs. that of today, unless you're also able to show that federal deductions have been heavily skewed toward the lower and middle classes, and the state/local taxes have been progressive enough to make up for the declining progressiveness of the federal income taxes they've supposedly replaced.

Again, what we're discussing here is the claim that the current administration is trying to move the country to a social welfare system more akin to Europe than anything seen in the US before. The fact that you "see, personally" in the current administration "Statism with a slight mix of Fascism" moves me even less than Rick's statement about not knowing of anything as centralized as cap and trade.

Dad29 said...

Well, since you persist in ignoring the obvious, even the stuff I put into pixels, it's no surprise that you are 'unmoved.'

AnotherTosaVoter said...

I give this article credit for acknowledging the truths inherent in both sides of the argument, as you did in acknowledging the moral necessity for providing health insurance in some form for those who cannot afford it. This is in great contrast to the brainless masses of both the conservative and liberal movements for whom only one truth can exist and any evidence to the contrary is to be feared and dismissed.

Outside of the argument over the stimulus and corporate takeovers, I agree with Manzi’s policy prescriptions, but they’re pretty tame. Schools and immigrants? Great. Don’t make permanent the stimulus and bailouts. Fine. But what about the billions/trillions of tax breaks handed out by the GOP to favored industries? I hear conservatives complain about favoring “green” energy sources but they themselves grant huge protections to existing fossil fuel industries, among others. Go read “Triumph of Politics” by David Stockmann sometime.

It’s telling that he doesn’t really offer any solution to the moral issues. He claims that an erosion of traditional values as a result of the 1960s is a major contributing factor to the problem, and to a point I agree. But I think he doesn’t give enough weight to the fact that economic displacement has led to many of the moral breakdowns he criticizes. When an unskilled, less than brilliant individual has almost no chance to support a family economically because his job has been sent overseas or his pay and benefits have been slashed, it reduces the incentive or even ability to act responsibly. Conservatives like you often just tell these people to “clean up and get a damn job”, but if the opportunity isn’t there, there isn’t a lot that person can do. Public policies that could support these people, such as daycare, health insurance or food stamps, are criticized and slashed by conservative politicians, which then exacerbates the cycle. The article acknowledges the issue, but doesn’t do a lot to offer a solution. Of course economic displacement doesn’t justify outrageous behavior, and we’d have to deal with the free rider problem.

An additional issue I have is that it presupposes economic gain and American dominance are priorities. Are they? Do we need to dismiss family-friendly and family-strengthening policies like paid medical leave or paid vacation such as they have in Europe simply because of the alleged economic effects? Maybe those policies help with family cohesion, which then reduce the cohesive problems Manzi identifies, which would improve the economy because less tax revenue would be required to support unwanted children and the inmates they usually become. This discussion gets back to American exceptionalism and the fact that conservatives have an invariably arrogant view of it.

The argument you and Anon are having reminds me of the fights over tax increases in the early 1990s. Conservatives claimed slight increases in marginal tax rates and the gas tax would ruin the economy; they were wrong both times. Innovation proceeded rapidly throughout the 1990s. I think bombast over a few percentage points in those tax rates is inappropriate. If you start talking about returns to pre-Kennedy era rates then fine, but simply going back to Clinton-era rates is not going to permanently cripple anything (especially considering the economy did just fine at the time).

By the way Rick, incentivizing gays to enter into committed marriages wouldn’t hurt either. ;)

Anonymous said...

The Manzi article hits the big-time. Douthat cheers, Kilgore responds.

The call and response looks much like this post and comment thread, actually.

AnotherTosaVoter said...

From Douthat,

"To this list, I would add tax reform and entitlement reform. The former should broaden the tax base while cutting taxes on work, childrearing and investment. The latter should means-test both Social Security and Medicare, reducing both programs’ spending on well-off retirees rather than questing fruitlessly for their privatization."

More policy prescriptions I could support. As long as he adds unwinding corporate-government arrangements such as energy and agribusiness subsidies supported and passed by Republicans as well.

This is good stuff, but which I think would not be found nor supported by the loony, tea-bagging right. It also doesn't go far enough - I still haven't seen serious proposals for spending cuts beyond Douthat's solutions, despite the right's complaints about spending.

Dad29 said...

By the way, Anony, today's paper tells us that the TOTAL tax-load in Wisconsin (2009) was the least since 1970. (Fed/State/Local inclusive) The only reason it was so small in '09 was that there were no profits, no taxable income, and no sales to tax (I exaggerate only slightly.)

That tells me that before 1970, the TOTAL tax load was smaller than it has been until 2009 at least in Wisconsin.

But I sent for the WisTax document. Maybe I'll even put up a post on the issue.

Dad29 said...

Heh. Here's a cite of interest.

Between 1960 and 1980,
real per capita taxes collected by state and local governments
(excluding federal aid and charges) grew at a compound yearly rate of nearly 3 percent. During the same period, federal
taxes per capita increased a t a compound rate of 2.4 percent.


Gee. I'm shocked.

As a matter of interest, the "total tax take" in Wisconsin, 1980-2009, has NOT grown as consistently as the above numbers; for 1980-2000, the TTT averaged around 36% of Wisconsin individual income. In 2008, it was only 34%; in 2009 it was a paltry 28.8%.

The Doyle tax increases should show up in 2011 and ffd.

Regulatory-mandated cost increases are not included in any of the above.

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