Ross Douthat lectures us that, while the U.S. may have had a miserable decade, other nations did okay.
A billion-odd Chinese had a pretty good decade, and so did a billion Indians: their economies just about doubled in size, minting new millionaires and lifting countless peasants into a growing middle class. Brazil boomed, Indonesia prospered, and even Africa enjoyed a season of substantial growth. Nobody would mistake Vladimir Putin’s Russia for a liberal democratic paradise, but most Russians seem to prefer its stability to the basket-case republic Putin inherited from Boris Yeltsin.Douthat drones for a while about the Bush/Obama approach to bailouts - fairly attributing the policy to Obama, but eliding that it was a continuation of the prior Administration's policies and not the departure he suggests, concluding,
Social democracy has its benefits, but global competitiveness isn’t one of them.Let's see... He just got through telling us how great things went in China and Russia, and in the economies of India, Brazil, and parts of Africa, and he's lecturing against "social democracy"? Communism and totalitarianism "good", social democracy "bad"... except in India and Brazil? Meanwhile, Douthat ignores that emergency spending polices don't reflect long-term strategy - for all of his whining about Democrats, it was Reagan who started the massive run-up of the deficit, Clinton who restored fiscal sanity, and G.W. who massively expanded entitlement spending, initiated the bailouts, and broke the bank.
I know what Douthat is trying to argue, or perhaps I should say would be trying to argue if I believed he had an understanding of the topic - that in a developed nation's economy, there is a trade-off between employment and productivity, and if you tilt the balance toward full employment and greater wages and benefits for workers you're going to see a reduction in productivity and likely a shift of manufacturing jobs to nations with lower costs of labor. Mind you, you're going to see that shift anyway - that's another chapter of the story - but you may be able to claim a higher percentage of your GDP as resulting from manufacturing as you diminish compensation for labor-intensive manufacturing or implement labor-saving technologies that boost productivity at the expense of jobs. For all of Douthat's loosey-goosey usage of terms like "global output", he should keep in mind that auto manufacturing represents about 4% of GDP. So when he cites a source that brags that, from 1947 through 2001, U.S. manufacturing output consistently hovered around 14% of GDP, he should consider how well that brag would work had GM and Chrysler been allowed to fail. His source likes to speak of "economic output per person", something that has been grossly inflated in the U.S. by the financial sector - had that sector been allowed to collapse as a consequence of its own incompetence, how much of that "economic output per person" would remain?
Douthat's source, although better written, can be equally silly:
From 1980 through today, America's share of global output has been constant at about 21%. Europe's share, meanwhile, has been collapsing in the face of global competition — going from a little less than 40% of global production in the 1970s to about 25% today. Opting for social democracy instead of innovative capitalism, Europe has ceded this share to China (predominantly), India, and the rest of the developing world. The economic rise of the Asian heartland is the central geopolitical fact of our era, and it is safe to assume that economic and strategic competition will only increase further over the next several decades.Yeah. Because nobody could get confused and draw the ridiculous conclusion that the U.S. has ceded jobs and "global production" to nations like India and China. Unless they actually think about it. But fortunately the financial sector has made up for the losses....
Douthat offers up his source's conclusions,
Unwind the partnerships forged between Big Business and Big Government in the wake of the 2008 crash; seek financial regulations that “contain busts,” by segregating high-risk transactions from lower-risk enterprises; deregulate the public school system, to let a thousand charter schools and start-ups bloom; and shift our immigration policy away from low-skilled immigration, and toward the recruitment of high-skilled émigrés from around the globe.Were Douthat more courageous, he might have noted that his source doesn't just want the U.S. to "unwind the partnerships" resulting from bailing out failed and failing industries - he wants the U.S. "to take the loss and move on". That is, he's flat-out endorsing lemon capitalism. I think it's more than fair to ask how it benefits capitalism, competitiveness or responsible business management if we allow industry to privatize profits and nationalize losses... but apparently that's not a concern for Douthat's brand of conservatism. Industry demands the bail-out, the Douthats of the world screech about "social democracy", then industry and the Douthats join in a chorus of "remove the strings from the bailout money to totally socialize our losses while 'freeing' us to 'compete' as irresponsibly as before." Douthat also fails to mention that his source not only wants to avoid any further stimulus spending - he wants to roll back the existing stimulus programs. For all of the Republican caterwauling about stimulus spending (that most are happy to take credit for obtaining for their districts), what responsible economists are saying that less stimulus spending would presently be good for the economy. Anyone?
The second idea, regulation that "contains busts" and prevents the interconnectedness that would cause massive losses in one sector to spill over into others, is pure pie in the sky. Giving due credit to Douthat's goal of making the pie higher, how do we do that? We can talk about "tiers" of risk, "so that a bust in a higher-risk tier doesn't propagate to lower-risk tiers", but isn't that what we were promised would be achieved, for example, by securitization of mortgages? And how well did it work for AIG to segregate its highest-risk, least sensible operations into its financial products division - they still managed to take down the entire company.
As with the first, Douthat omits pretty much every relevant detail from his source's third "solution". His source sees voucher programs as likely to fail over time because eventually "taxpayers will appropriately demand that a range of controls and requirements be imposed on the schools they are ultimately funding". That is, he recognizes that if programs like "No Child Left Behind"... Republican social democracy... are imposed on schools accepting vouchers, many will very quickly demonstrate themselves to be substandard. His alternative is to move public schools into a decentralized model, with funding following students and teachers freed from NCLB and similar initiatives such that "far broader discretion is permitted to those who actually teach and manage in our schools". He suggests that we look to Europe, specifically Sweden and the Netherlands, as models. Yes, we should look to Europe.1 But while Sweden insists that the "same standard of education is to be provided throughout the country", Douthat's source apparently prefers that we do away with standards. Both the Netherlands and Sweden allocate per pupil funding to students in independent schools, forbidding the schools from charging additional tuition to parents, so we're back to that "social democracy" thing - nothing approximating a free market system. It's also a faith-based solution - faith that charter schools will suddenly start producing outcomes that exceed those of public schools, faith that the core problems in our school system can be addressed by charter schools, faith that the system won't succumb to profiteers and opportunists...
Beyond that, it seems fair to ask, if you look at overall school performance, why would we model our reformed system after nations that aren't on top? Why aren't we looking at Finland and Canada? Could it be, because the "solution" is based on ideology, not facts? By the measure of what supposedly makes for a great school system, at least in Douthatian terms, Finland seems to get a lot of things wrong.2
Douthat and his source also favor shifting immigration away from low-wage workers to "high-skilled émigrés" - something akin to what Canada does. His source laments,
We have chosen a strategy that provides low-wage gardeners and nannies for the elite, low-cost home improvement and fresh produce for the middle class, and fierce wage competition for the working class.Perhaps it's because European Ph.D.'s aren't interested in performing migrant field labor, or cleaning the houses and swimming pools of the wealthy? But isn't it closer to the truth that a lot of highly skilled people have emigrated to the United States, which historically has been a magnet for talented people who want to further their educations, start companies, join high tech firms, etc.? But that changes in the global economy have opened doors for those same people closer to home, while post-9/11 immigration reforms have made it harder for them to come to the U.S. either to study or work? Companies that might have brought foreign workers to the U.S. can now open overseas branches, or contract with firms in other nations, and have those same people work for them doing the same work at lower wages. What actual strategy does Douthat actually propose to turn things around?
Douthat can't help himself, and adds a couple of proposals of his own:
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.Douthat doesn't tell us what he means when he speaks of broadening the tax base, beyond describing it as part of "a right-of-center agenda". It's thus safe to say that he doesn't anticipate raising taxes on the rich, capital gains (he's in fact promising cuts), estate taxes.... And he's apparently also promising to cut income taxes. What magical population of untaxed people will Douthat "broaden" the tax code to reach? I have a child, but wasn't aware that I was paying a tax on childrearing... please, Ross, tell me more. And pray tell, how will your tax cuts balance the budget?
As for means testing Social Security, why not be honest? That's an undisguised part of the program to break it down as a social insurance program, separating the taxpayers from the beneficiaries, so that we can get the usual Republican class warfare - "Why should you pay Social Security taxes that only benefit them."
A better case would be made for means testing Medicare benefits if, in fact, everybody paid equally into the program during their working lives. But higher wage earners pay higher premiums throughout their working lives. I will grant, a case can be made for means testing for deductibles and copays, but I am skeptical of the political viability of such a reform. After all, when we start talking about "right-of-center" agendas, we should recall that the Bush Administration massively expanded Medicare through the prescription drug benefit without so much as a thought for how it would fund the expansion - and while legislating away the government's right to negotiate over drug prices. Social democracy, indeed....
1. Douthat's source also laments that we're not more European when it comes to unmarried couples raising children - unmarried European parents are much more likely to live together. One could argue that it's part of the trade-off between social stablility and economic growth - when a society does more to ensure that its people have stable jobs, it likely helps ensure that family units, married and unmarried, are more stable.
2. They might respond, "How can something so wrong feel so right?"