Economic Hypocrisy

Published on Real-World Economic Review Blog, by Peter Radford, Jan 26, 2013.

It takes a particular type of gall for someone hiding behind the comfort of a cozy tenured professorship to yelp about the way in which unions distort the otherwise – presumably – smooth operation of a mainstream style economy. Apparently one person’s guarantee is another’s structural impediment.

This really stinks. It reeks of hypocrisy. It is devoid of ethical self-understanding. It is just rotten.

But it happens all the time. Far too often. 

Today’s Financial Times has another in its series focusing on America’s so-called debt problem. This one is decidedly on the side of the austerity seekers. It is written by Ken Rogoff who seems determined to tarnish the good name he earned when he co-authored a book called “This Time is Different” in which he correctly highlighted that recoveries subsequent to a financial melt down are more difficult and prolonged. Unfortunately he drew  some conclusions from his data that have a somewhat tenuous cause and effect connection.

Indeed he may have it all backwards.

At any rate his article acts as a rallying point for anyone.like myself, who sees us as having not a debt problem but a demand problem.

He sets his argument up by noting the intractable partisan conflict in Washington between those who advocate small government and unfettered private enterprise, and those – like me – who see room for a larger government to mitigate the risks of laissez faire.

He then declares his colors: government is just a bad thing. Unless it’s spending on a massive military operation.

As he goes through what he suggests are our budgetary problems to resolve he begins with defense spending. After noting that such spending is a huge strain on our finances, and that we outspend anyone else by a ratio of 2:1, he simply says that we probably can’t cut it down much because we would lose influence. We wouldn’t be able to boss things like we used to. And that might make people less likely to buy our debt.

This is an interesting theory. It sounds as if Rogoff is suggesting we hold a gun to people’s heads as they decide which bonds to buy. Quite how this fits into mainstream theory I am not sure, but we can duly note it and move on.

Next up is the perennial “what should government do” argument. Here Rogoff doesn’t give us much to chew on other than his observation that our schools are antiquated. He hints rather heavily that this is the government’s fault. He presumably tosses in a good dollop of criticism for that evil teacher’s union as well, because as we all know our falling school standards are entirely the result of rotten teachers protecting themselves from market forces, competition, and the good old magic that those things bring. Private educational establishments do not suffer from a decline in standards at all of course. Harvard, where Rogoff teaches, has positively zoomed ahead in recent years. Notwithstanding its quaint attachment to the anti-market institution of tenure. Presumably market restrictions stop magic from working in primary schools, whereas they help hugely at universities.

But let’s give him his due: he does say that the future belongs to online classes and other IT enabled productivity improvements. I imagine he is hoping he has retired before the competition for students intrudes into his own cozy corner. After all his attitude towards the distribution of the gains from productivity appear biased towards capital and away from labor. He has forgotten that he is on the labor side of the equation at Harvard.

Then there’s spending on infrastructure. Here he thinks that we all agree. More spending would be nice. Our third world rail network, collapsing bridges, congested airports, rotting electrical grid, and gridlocked roads could all do with help. But, according to Rogoff, we won’t make progress because some folks think that the unions will scarf up too much of the investment as wages. Rather than pay a decent wage to construction workers, these people, and Rogoff appears to agree with them, would rather our infrastructure decays even more. They would prefer we use private investment, which, of course, means non-union and cheap labor. If cheap labor built the first railways and the Vanderbilt fortune, it can re-build the railways and be the basis for someone else’s fortune. The intervening emergence of our middle class and democracy can be overlooked. Who needs them anyway?

Next up: immigration. This gets a nod because the big businesses that pay for much of Harvard’s research are pressing for immigration liberalization in lieu of investing in our schools. It’s another form of outsourcing. We outsource the cost of education to, say, Europe, and then entice the cream of their educated class to come here and make profits for our businesses. I suppose this is better than holding a gun to Europe’s head and demanding a supply of engineers, but only a little better. What’s really cool about this trick is that we can laugh at the European tax rates needed to pay for those schools while benefitting from the product we didn’t have to pay for.

Parenthetically, this same sort of outsourcing goes here in the US. Our higher tax states tend to be net suppliers of educated labor to our lower tax states. The latter pretend they are cost effective and small government, but, in fact, are living off someone else’s taxes … //

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Links:

Tax amnesty and bank-client confidentiality: Hot topics for cool heads, on Current Concerns (Source: Der Schweizer Treuhänder 6-7/2003), by Christine Hirszowicz, January 14, 2013;

UK credit rating under threat as borrowing rises again – eurozone crisis live, on The Guardian, by Josephine Moulds and Nick Fletcher, Jan 22, 2013;

Zuma: RSA ‘cannot grow’ linked to EU and US: South African president cites colonial ties to ailing economies and mining industry as challenges, on AlJazeera, Jan 24, 2013.

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