Bad economic advice: Bad Advice from Economists Much of the sense of mass resignation is reinforced by the mainstream of the economics profession. It was Lawrence Summers, then President Barack Obama’s chief economic adviser, who called for a smaller rather than larger economic stimulus in early 2009, urged a bailout rather than a restructuring of Wall Street, and then promoted the president’s disastrous turn to austerity economics in 2010. We also hear from many leading economists and pundits that today’s widening extremes reflect irrevocable trends in capitalism and that the best we can do is strive for a better-educated population. Thomas Friedman famously wrote in The World Is Flat that when he was a child, his parents used to tell him to finish his dinner and to think of the hungry children in China, adding, “I am now telling my own daughters, ‘Girls, finish your homework — people in China and India are starving for your jobs.’” Friedman did not explain how his daughters, even if they received straight “A”s for their homework, might compete with Chinese wages. Mainstream economists offer a few basic stories about what accounts for the failure of the economy to generate broadly shared prosperity. The leading candidates include technology, increasing rewards to skills not possessed by ordinary workers; a long-term shift in the share of income going to capital as opposed to labor; “winner take all” effects that deliver super-rewards to entrepreneurial and entertainment superstars; and the inevitable consequences of a globalization that otherwise adds to the economy’s efficiency. The subtext of all of these overlapping accounts is that there’s not much we can do other than improve our schools. One of the most persistent claims is that the economy is rewarding skills more intensively now than in years past. This is espoused by such prestigious economists as Massachusetts Institute of Technology’s David Autor, who also call for more education as the remedy. The trouble with this view is that there is no good evidence that the economy is demanding skills at a rate above historic trends. Other moderately liberal economists, such as Harvard’s Lawrence Katz and Claudia Goldin, in their book The Race between Education and Technology, contend that we can solve much of the income-distribution problem with enough education. Lawrence Mishel of the Economic Policy Institute counters that the timing of recent trends contradicts the education and technology account. The very period of most intensified growth of the digital economy, the middle and late 1990s, was one of increasing equality, because it was also a period of full employment. Macroeconomic factors turn out to be more important in raising earnings, as they were during World War II. If jobs exist, people will be trained to take them. As Paul Krugman has pointed out, a true skills shortage describes only a small fraction of the labor market. There are good reasons to have a better-educated and -trained citizenry and to turn out more graduates in math and the sciences. But that remedy by itself will not solve the problem of inequality or stagnant wages for the vast majority. Some of our most highly skilled citizens were the Wall Street fraudsters who crashed the economy. Many highly skilled professionals have difficulty finding decent employment, and increasing numbers of college students are performing jobs that only require a high-school diploma. Summers gave an influential presentation late last year in which he suggested that the economy is vulnerable to financial bubbles and excessive consumer borrowing to sustain demand because it is not structurally capable of growing fast enough to generate adequate jobs. The economist’s term for this disease is secular stagnation. That was the sort of argument made in the late 1930s, until the wartime spending demonstrated otherwise. A number of influential economists blame machines. In their recent and well-reviewed book, The Second Machine Age, MIT economists Erik Brynjolfsson and Andrew McAfee describe how digital machines are displacing people at an accelerating rate. But machines have displaced people throughout the history of industrial capitalism. The practical policy question is how the fruits of all that new productivity are to be distributed. Like others, these authors call mainly for more and better education, but they do suggest some useful redistributive mechanisms such as a national mutual fund, more investment in infrastructure, government jobs programs and vouchers for basic necessities. A far more plausible account, told by such economists as David Weil of Brown University, David Howell of The New School and legal scholar Katherine V. Stone of the University of California, Los Angeles, law school is that the labor-market institutions of the postwar era, which defended the labor share of the total national income, have been drastically weakened, with predictable results. A companion trend is the liberation of financial capital from the salutary shackles of the war and postwar period, giving super-elites the ability to capture far more of the social product than they in any sense earn. It’s true that the globalization of manufacturing and the use of far-flung supply chains reaching into low-wage countries widen income inequality at home. But there is more than one brand of globalization. We could just as well have a version with decent labor and social standards. One of the effects of World War II was that America was able to emphasize domestic production and rebuilding without being charged with the sin of protectionism. read more at link: billmoyers/2014/10/08/hidden-history-prosperity/
Posted on: Mon, 10 Nov 2014 17:07:53 +0000
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