Monday, October 05, 2009

Douthat Wants It All (And He Wants It Now!)

No secret, I'm no economist. So when somebody presents an argument premises upon economics that's transparently wrong to me, it's safe to infer that they have no business writing on the subject. Case in point, Ross Douthat. Let's leave aside his political arguments for the moment, and focus on his economic argument. Having noted that there is a massive, growing disparity of wealth in this country, Douthat proposes,
For one thing, the lazy liberal’s cure for income inequality — soaking the wealthy with higher tax rates and cutting taxes for everybody else — simply isn’t going to happen.
Back up, Ross. Wealth and income are not the same thing. Certainly there are many people on the left who argue that higher income taxes on the wealthy can help pay for government, the alternative being a continuation of GW's bloated budget deficits, but I really can't think of any prominent voice who has argued that a higher income tax on the wealthy will significantly affect their wealth. Let's go uber-left, and take a look at Michael Moore's new movie, Capitalism: A Love Story. Moore (making one of the mistakes Douthat also makes, confusing marginal tax rates with effective tax rates) points out that this nation flourished, and many people became fabulously wealthy, under a 90% marginal tax rate. Douthat repeats his mistake with the corporate tax code, noting that the marginal rate "is one of the highest in the West", while ignoring the effective rate.

Second, as Douthat is looking only at pre-tax income inequality, it should be obvious to him that changes in the marginal tax rate do not affect income inequality. If I make $100,000 before taxes, and you make $20,000 before taxes, whether I pay 10% tax or 90% tax our income inequality remains the same. Douthat skips over something near and dear to the hearts of the super-rich - the tax code's beneficial treatment of their primary source of spending money, capital gains.

Third, if Douthat believes that high incomes result from supply and demand, then as effective tax rates go up, so should the income of top earners. That is, it's reasonable to infer that income disparity will increase as high earners get raises to help preserve their standards of living. Their post-tax incomes may be lower than before, but their pre-tax disparity would go up. But perhaps Douthat looks at himself, President Bush, and some of his pundit and editorial page colleagues, thinks of the Peter Principle, and figures that there are ample people who can fill the high-wage jobs such that there would be no pressure to increase their wages to make up for a tax increase.

Leaving aside his confusion over taxes, Douthat's principal argument is a straw man - one he sets up so that he can easily bat it down. First he states,
Liberals, though, have spent decades telling a more simplistic story, in which conservatives bear all the blame for stagnating middle-class wages and skyrocketing upper-class wealth. So it’s fair to say that if a period of Democratic dominance doesn’t close the gap between the rich and the rest of us, it will represent a significant policy failure for contemporary liberalism.
But then he admits,
In part, this is because the Democrats have become as much the party of the rich as the Republicans, and parties rarely overtax their own contributors.
Is Douthat arguing that "liberalism" now means "serving the rich, just like the Republicans"? (He's a self-described Republican - that's how he sees his party's agenda?) He reminds me of his own defense of the Republican Party, that it somehow departed from conservatism and thus shouldn't be held responsible for the ineptitude and destruction wrought by the Bush Administration. He can't have it both ways: If the Democratic party fails to promote equality because it is catering to the rich, its service of its effective base doesn't represent a "failure" of liberalism - it represents the fact that the Democratic Party has abandoned liberalism in favor of serving the wealthy .

Douthat also complains about immigration, arguing,
For instance, inequality is driven in part by low-skilled immigration: it nudges wages downward for native workers, and the immigrants themselves are taking longer to achieve upward mobility than earlier generations did.
Surely Douthat isn't arguing that immigration of low-skilled workers applies downward pressure on the jobs held by the wealthy, or even the bulk of the middle class. He doesn't appear to be adopting John McCain's line, that Americans wouldn't pick lettuce even at $50 per hour, one of the Republican defenses of bringing low-skilled workers into the U.S. He doesn't explain how the effect of a Democratic immigration policy would differ from Bush's idea of bringing in a class of unskilled workers who would never qualify to immigrate, or whether the Democratic alternative would be more stabilizing and help immigrants better establish themselves in the United States.

It does appear that immigration depresses earnings in service fields and the building trades, jobs which historically could provide anything from a decent second income to a decent middle class wage. But in terms of the middle class, isn't the effect of immigration dwarfed by the effects of outsourcing and globalization? Is the problem best addressed by pointing a finger at immigrants and whining, "You're taking our jobs", or by acknowledging that if you want a solid, middle class, upwardly mobile lifestyle in this country, your best bet is to pursue education and to develop specialized job skills?

Douthat brings his social conservatism into play, suggesting that "the collapse of the two-parent household" plays a significant role in inequality, and whining,
But today’s Democratic Party increasingly represents “unmarried America” — the single, the childless, the divorced. This makes it an unlikely vehicle for policies that discriminate, whether through tax code or the welfare state, in favor of the traditional nuclear family.
Okay, we've had Republicans controlling the White House and Congress for much of the past three decades, so remind me: what social engineering feats did they bring about, reducing out-of-wedlock births and strengthening marriage? If the two-parent household continues to collapse after the Reagan "conservative revolution" and after eight years of GW, and we assume that the Republican Party actually cares about strong families, isn't that both a profound indictment of Republican policies and a strong indication that we're not going to stop divorces or reduce out-of-wedlock births through federal social engineering? (Although, as "abstinence only" education shows, we can increase the rate of out-of-wedlock births through ill-considered federal policy.)

Douthat repeats a tired argument on education:
Inequality is perpetuated by our failing education system — and especially by the bloated cartel responsible for educating the nation’s poorest children.
Education is one of those subjects people pretend to care about, but only at the surface level. The Republican "cure" for failing schools is privatization (despite an absence of evidence that it's necessary, will save money, or that it will improve learning, let alone that it's the best approach) and standardized testing. I'm a huge proponent of meaningful improvement of public education at all levels, and I would like to see every inner city child go to school in a safe, orderly, well-maintained facility with quality teachers and administrators. But let's be honest for a moment, and return to Douthat's prior argument against increasing taxes on the wealthy - on their own, "reforms" like "standardized testing", "schools of choice", "vouchers," and "charter schools" don't cut it. If you want to offer quality inner city schools throughout the nation, you need to invest hundreds of millions of dollars in infrastructure, school security, teacher improvement, and wages.

Let's also be honest about the effect of education reform. Let's say that we close the quality gap between schools in the inner cities and those of suburban America, and further close the achievement gap. We would have a bigger than ever pool of high school graduates looking for work. Does Douthat believe that would increase starting wages for high school graduates, or would the effect in fact be similar to that he perceives from immigration? That is, without taking the additional step of helping high school graduates obtain college degrees or obtain specialized job skills, miraculous though our results would be, our efforts should bring about poverty reduction but would continue to fall far short of what it takes to create equal opportunity for inner city youth. We as a nation should be investing in higher education, to make it more accessible and to keep our system (well, arguably at this point, restore it to being) the best in the world. Where's the Republican Party on that?

Douthat suggests that growing government in proportion to the private economy may reduce inequality, and observes that this is "the logic of our current fiscal trajectory: ever-larger government, and ever-slower growth". It's reasonable to note that if you gauge the size of government by comparing total federal spending to the GDP, under Reagan and George H.W. Bush, the ratio was about 22%. The Clinton administration reduced that figure to about 18%. Although G.W. promised to shrink government, under his Presidency the figure bloated back up to about 21%. Douthat closes by arguing that if we end up in an era of greater economic equality, but with larger government and slower growth,
The question is whether Americans will thank [the Democrats] for it.
If in fact the growth of government spending creates "the more egalitarian America that Democrats have long promised to deliver", Douthat has a point - whether or not they like the effect of the growth of government on the nation, it's principally the Republican Party, not the Democratic Party, that people should "thank".

On the whole, Douthat is pushing a familiar canard: that the only policies worth pursuing are those which will bring about overnight change, and if you propose policies that will effect improvement over a longer term, be it a decade, a generation, or a century, that somehow translates into failure. With myopia like that, who can be surprised Douthat's a proud Republican.

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