An Economic Issue

In a fascinating London Review of Books essay earlier this Spring, the distinguished historian Peter Clarke engages in a singular attempt to resuscitate the reputation of Enoch Powell, the late British parliamentarian and classicist who became infamous for a xenophobic address in Parliament in 1968 that was later dubbed the “Rivers of Blood” speech.

Acts of political rehabilitation are to me suspect, particularly in the case of a man whose legacy has been hijacked by the lunatic fringe. This one is difficult to dismiss out of hand because it is taken from the perspective of history. Clarke does not attempt to justify or defend Powell’s most odious ideas: if Clarke is an apologist for Powell, he appears motivated not by ideology or ulterior drives, but by a sense that history is ill-served in settling for a one-dimensional caricature of an influential figure.

Let us be clear: Enoch Powell rode into the scrap heap of history at full gallop and of his own free will. But a cursory review of his life reveals at least  two salient truths: first, that artful couching, superb logic, and fine language do not improve a repugnant idea; and second, that the espousal by an individual of one or more bad ideas does not prima facie brand all of the other ideas espoused by that individual as bad.

I will return to that second theme in another post.

One idea that is worth consideration is one that drove Powell through most of his political career: that some government programs, policies, and actions have value that cannot be measured by economic or purely utilitarian means, and indeed that some policies and actions that may appear economically foolhardy are nonetheless good ideas. As Clarke notes:

It wasn’t part of [Powell’s] doctrine to scrimp on the legitimate functions of the state as he saw them; and if a function were deemed legitimate, he made very high claims indeed. Intuition rather than economic logic guided him. For example, he began a speech in 1981 – in favour of public subsidy of the ferry service to Northern Ireland – by stating his premise as the sort of mere common sense everyone would accept: ‘Communication is the essence of all government: it is not for nothing that the mail is the Royal Mail.’ The idea that such conclusions can be reached by treating the royal status of the mail as axiomatic would surprise many latter-day Thatcherites, who argue that the market could sort this problem out more efficiently.

This was a tough one for me to get down initially: it flies in the face of good business sense and an approach to policy-making that has been ascendant for at least 160 years. It implies that the Congressional Budget Office brand of economics-based cost-benefits analysis does not always produce the best policy.

My instinct is to argue the opposite: I do not think we give enough consideration to non-partisan cost-benefits analysis when making policy decisions; that programs are born and outlive their usefulness because of ideology, pork-barrel politics, or bureaucratic self-interest.

But Clarke’s article on Powell compels me to rethink my orthodox adherence to that principle.

Here are the questions I am pondering:

  1. If we cannot measure the return-on-investment of a policy, is it worthwhile?
  2. What makes that policy more or less worthy than a policy whose impact can be measured in a material form?
  3. Have we placed too much reliance on economics as a measure? Or do we place insufficient reliance on economics and cost-benefits analysis?
  4. Is it time we recognize that decisions taken by non-commercial actors (individuals, organizations, governments) may and sometimes should be made for reasons that defy economic logic or even pure utility?
  5. Should we identify and recognize other determinants of policy quality?
  6. On what basis do we decide which means of analysis is best for a given policy?

I have been long away from the study of these matters, so I recognize I may have meandered onto well-trod ground. If so, please tell me.

A government run by roving bands of ideologues, self-interested legislators, and nest-feathering bureaucrats is a recipe for revolution.  At the same time, government by abacus taken to its logical end is a tyranny. On a river of hard questions we must navigate our way back to a passage between those two extremes. The alternative is The End of America As We Know It (TEOAAWKI).

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Agriculture

It is a mistake to tar our entire modern agriculture and food distribution system with the worst behavior of its meanest participants.

The proper response to the excesses of industrial agriculture is not to destroy it in favor of small scale farms and locovore culture, but to punish the miscreants, remove perverse incentives, and generally to redress the problems in the system.

Fix big ag. With a hammer. And the threat of an alternative.

Jeff Immelt and Bernie Sanders

Sanders says that he is upset about GE’s operations abroad — as though a company that has customers in more than 180 countries should have no presence in any of them. He never mentions that we are one of the United States’ prime exporters, annually selling in excess of $20 billion worth of American-made goods to the world. Nor does he mention that our sales around the world support our manufacturing base here at home, along with the thousands of U.S. companies in our supply chain. You want to cause big problems for our suppliers — many of whom are small and medium-size businesses — and their workers? The surest way would be to pull out of those countries and lose those customers.

Source: GE CEO: Bernie Sanders says we’re ‘destroying the moral fabric’ of America. He’s wrong. – The Washington Post

While the op-ed in the Washington Post is an obvious creation of some deft public relations folks, I applaud Mr. Immelt for engaging in the debate.

At the same time, Mr. Immelt should not be disingenuous. He must grant that he has been among the most determined in his efforts to draw subsidies and assistance from the government, and that this puts him – and his company – in the crosshairs of a growing bipartisan movement to put an end to government subsidy and commercial favoritism.

The rest of us must grant that, as a company, GE has done the good things that Mr. Immelt enumerates, most notably employing lots of Americans, building new factories in the USA, making stuff that extends human life, cutting greenhouse emissions, making transportation more efficient, and exporting $20 billion of American products each year, all in the face of competition from places like China where the government coffers are wide open to local companies seeking to squash GE and firms like it.

Thus GE’s challenge is not the Senator from Vermont. It is to accept that it is operating in a new era, one in which it must face and defeat global competitors without the aid of subsidies from the American people.

Our greatest challenge is not GE – we can end corporate welfare with unity, determination, and the stroke of a pen, as we must and as we will. Our real challenge is going to be facing the onslaught of companies from places like China, companies who service a dream of a planet humbled and answerable to Beijing.

WaPo: Sanders’ Trade Policy is Deeply Flawed

“Blaming freer trade for the loss of manufacturing jobs fails to tell the much bigger story of economic transformation that has swept the world over the past several decades. Technological change, automation, productivity improvements and other factors have eliminated old-school manufacturing jobs all over the world. Mr. Sanders cannot bring back the U.S. economy of the 1960s, and it would be harmful to try.”

Source: Mr. Sanders peddles fiction on free trade – The Washington Post

I have in this space been an unsparing critic of the policies that Bernie Sanders is promising to implement if elected President. I have been particularly dismissive, admittedly without citing support, of Mr. Sanders’ efforts to articulate a coherent foreign policy.

In this first of several post that will critique aspects of Mr. Sanders’ foreign policy platform or introduce the criticism of others, I will actually step between Mr. Sanders and his critics.

In the above linked article, the editors of the Washington Post offer their rebuttal to the underlying logic of Senator Sanders’ proposed foreign trade policy. It is an eloquent and poignant critique of the protectionism that oozes from Mr. Sanders’ foreign policy.

And yet I find myself siding against the Post on this item.

The Ebb of Globalism

For most of my life I have been a trade globalist, endorsing the idea that freer trade is broadly beneficial. Yet even as a callow young B-school student I understood that there are limits to the macroeconomic assumptions that support free trade. History has proven that international trade systems are only as good as their most abusive participant. As long as everyone agrees that the system is more important than the needs of any individual nation, the system will thrive. But when enough participants – or one participant of sufficient scale – begin to game the system, the game becomes beggar-thy-neighbor again.

While the Bretton Woods free trade system managed to address a constant patter of abuses, it appears increasingly unable to contain the challenge posed by China – a single, giant global player determined to game the system, and large enough so that in doing so it gives lie to the system itself.

We thus appear on the verge of an era where global free trade is replaced by a resurgence in protectionism and the replacement of the WTO with a series of bilateral accords and multilateral trade arrangements.

Against that background, the Washington Post’s protest that protectionism will not bring back manufacturing jobs is correct. Unfortunately, the Post doesn’t address the larger question: is trade free enough? Or is it too free already?

Regardless of your reaction, the answer is that the time has come for us to have this debate in America. The effects of trade policy are felt by all – it is no longer sufficient to allow the matter to be handled by elites. If the case for trade is compelling for America, let’s make it. Let’s demonstrate that the benefits will redound to the least prosperous among us as well as the affluent.

 

Breaking the Pelican State

The Louisiana-is-good-for-business story of the past eight years appears to have been largely built on the state paying corporations to do business here. That “look forward, don’t blame” strategy is exactly what the national GOP wants us all to do regarding the Bush years, because it’s what they’ve been doing.

Source: What Jindal Did To Louisiana | The American Conservative

Louisiana was broken by corporate welfare and tax give-backs. It will not be the last state to suffer such fates.

It is equally interesting to note that this story comes from The American Conservative. The GOP had best take note: conservative ideology is in headlong retreat from its support of tax breaks and corporate welfare. Supporting such policies is increasingly risky, if not downright foolhardy.

I did not support the dismantling of a social hammock only to have those funds turn into an easy chair for a select group of US corporations. Yet that is exactly what happened.

Enough already.

Martin Wolf on The Cycle of Corruption in America

“Regulation will be eroded, both overtly and covertly, under the remorseless pressure and unfailing imagination of a huge, well-organized and highly motivated industry. This is not about fraud narrowly defined. It is more about the corruption of a political process in which organized interests outweigh the public interest.”

via Athanasios Orphanides | The Political Roots of the Financial Crisis.