Something I Red

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Offering #1: Bill Walker

For those who are interested, I’ve written some remarks below regarding Dr. Dimitrovic’s presentation this week.  No pressure, but please feel free to reply with comments.  I’ve simply sent this to people who I either saw at the lecture or talked to briefly afterward.  CL’s and Megan, I just included all of you, so feel free to ignore/delete.  Also, pass along to whoever. 

So ever since the Econoclasts lecture on Thursday and its widely well-received response, I’ve honestly been quite troubled.  Here’s why:

Supply-side economic theory has indeed throughout the 20th century successfully taken us into times of greater gross economic prosperity.  Dr. Dimitrovic spoke somewhat arrogantly as if he is the only one of the elite few to recognize this, which bothered me.  What I would call into question however is what this policy does for class disparity and distributive justice.  While the country as a whole will certainly increase its GDP under such practice, the rich will continue to get richer, the poor poorer, and the middle class strained.  Why?  Because the means of production are owned and controlled by a few at the expense and labor of many.  Jobs will be created, but they will be low-paying jobs.  Prices will decrease, spending will increase, and this will give us the impression that things are “getting better.”  The reality though is that this will be achieved because of fewer restrictions on low-cost production and cheap labor.  Large corporations driven by profit incentive will compete with cut-throat mentality by exploiting resources abroad without limits, all for the sake of a healthy bottom line, happy shareholders, and fat CEO bonuses.  This is what drives our innovative spirit.  The rules of the big players are not the same as those of the game for small businesses (the industry I fully support).  The numbers are there to back all of this up as well.  Roughly 80% of the country’s wealth is in the hands of the top 20% of the population.  Because of dereguation, we’ve let corporations grow out of control, monopoloizing markets – so much so that when they fall like AIG, Ford, etc., we have no choice but to bail them out.  Otherwise things would be significantly worse right now, and Dimitrovic failed to mention that.

Pause for a disclaimer – I am fully aware that my above paragraph is full of generalizations and could use some more careful nuance – you don’t want me to do that!

What Dimitrovic also failed to point out is that despite our high average growth rates during times of “restraining the institutions of 1913,” the poverty level has been consistently hovering around 16% for almost the entire century.  This is the problem with macroeconomic theory.  Something is clearly not working.  For those who would call on the church to fill in the gaps, I would say great, except that if this were ever going to happen and actually work, it already would have.  With the decline of the institutional church’s power and influence that we are seeing today, the situation looks all the more bleak. 

For an evangelical Christian culture that so easily concedes to dogmatism, I can’t help but not be surprised that people have been so able to put their faith in the trickle-down theories of wealth benefiting everyone in the long run – and yet it still hasn’t happened.  It’s kind of like blind faith in God to “be in control” and make everything work out, but in the background you hear Jesus’ words about the “least of these.”  Sounds a lot like Israel before the Babylonian captivity, or Constantinian Christianity before its fall.

My only point is this – supply-side economics does NOT benefit the poor.  It’s even debatable how much it has benefited the middle class, which is a very difficult class to define.  What is more, typically when defined it is done so with respect to income rather than power.  Power is hard to measure, but way more telling.  Historically, the American church has failed to pick up where laissez faire leaves off.  What other options do we have besides calling for a system that gives more protection to those who are on the underside?  I’d like to hear your thoughts.

I have a BBA in economics.  During my time in undergrad in this field, I was taught to believe exactly what Dimitrovic is advocating.  I’ve since come to highly doubt these presuppositions.

I do not think that many have intentionally overlooked these things.  Rather, they haven’t looked at all.  Frankly, I think it’s time we question our most fundamental assumptions. Oh, and just so I don’t get labeled a Marxist and lose my job or something, I am not even necessarily advocating socialism.  Over time, the lines between capitalism and socialism get very blurry.  If people in the early 1900’s saw the public services we offer today, they’d swear we were communists.  Of course that was before it was such a dirty word, so maybe they would be ok with it!  I believe in democracy in the truest since of the word, kind of like the autonomy of the local church (you see, this is a very Baptist principle).  I can assure that what we live in today is far from it (democracy that is).  Power is in the hands of but a few.

But what do I know, I’m just a chaplain and in seminary!  Though I am in the honors college, so maybe I get to do this just once.  The voice of the prophet speaks.

Bill

P.S., For those who want to research this more, I highly recommend a book entitled No Rising Tide by Joerg Rieger at SMU.

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Offering #2: Sarah-Jane Murray

Hi Bill! Thanks so much for your note. I really enjoyed reading your thoughts. I’d be interested in hearing Dimitrovic’s own response to this–I suspect (given his affiliation with ISI) that he would be very sympathetic of your discussion of the poorer classes in the US today. I also wonder how he deals with this in his book; I have not read it yet. Have you found anything?

A couple of thoughts. (I’m going to try and base them solely on my recollections of the lecture, rather than current events, for the sake of rethinking his approach.) The first is simply regarding tone. I’m not convinced Dimitrovic was arrogant. I do think, however, that he was employing rhetoric to an actually quite fine degree to get one of his main points across: there are times in the country’s history (if indeed his figures are exact) when the “misery index” has been much higher than it is now, and he believes taking a look at those periods and the responses to them can help us understand an emerging trend in the success of macroeconomics (historically, that is). In other words, he’s studying the phenomenon as a historian, documenting what things have looked like in the past, and how a glance at that can help us interpret the present–he makes no claims as to being a modern economist. His tone served his argument well, and makes us uncomfortable (as effective rhetoric can): why has there been no study of this over time until now? I think there’s a premise that we may be missing, too: that Dimitrovic is simply presenting his point of view as a well-trained academic. He’s going to provide the strongest articulation of that thesis, and then prepare to discuss it and consider objections people bring with them. That doesn’t imply that he has everything figured out and will never change his mind if he does not come across other empirical data.

Now, I should provide a disclaimer here. Intellectually, and compassionately, I sit on your side of the fence. I have never been a big fan of the supply-side theory, nor have I been EVER able to feel good about trickle-down effects caused by tax cuts for the richer sectors of the population. Nonetheless, Dimitrovic has gotten me thinking that, at the very least, I should read his book and be more amenable to studying the cases in which this allegedly has worked. Interestingly enough, I doubt today’s decisions are being based on that kind of historical analysis if, indeed, few studies of the 1800s and early 1900s exist in that vein. (The implication would be, as you suggest below, the rule of macro economic theory.) Dimitrovic is advocating, rather, that we study the past with greater scrutiny.

What do you make of the radical slashing of the “misery index” Domitrovic brought up? He suggested that in each case he studies in his book where supply-side practices succeeded, the misery index diminished radically. This completely surprised me, as I am, like you, worried about poverty levels. That’s what the misery index measures to a great extent… and I doubt (although I need to read the book to find out more) that any business owners back in the 1800s were cutting themselves fat bonus checks. I didn’t hear Dimitrovic advocate for that in the lecture at all. Again, he seemed to be approaching and overviewing facts from a diachronic historical approach. And his suggestion was a simple one: in each case this approach has been implemented, throughout history, it has sparked economic activity. We’re not witnessing such sparks right now. Might there be some reason for thinking about imitating our ancestors?

Now, here is where I think some weakness creeps into the argument–although he may deal with this in his book. So I’ll suspend judgement until I read it. Had I been able to stay for more Q&A, I would have wanted to ask what further variables have been introduced into today’s playing field that may (or may not) radically change the effectiveness of the supply-side approach. A simple example would be the recent “tax cut” across the board. A lot of reports suggested that people were hoarding, rather than spending, their stimulus checks. Ouch. Do any of you know what effects the housing tax rebates are having yet? Or is it too soon to tell?

Anyhow, did you get a chance to engage him about this during Q&A after I left? If so, I’m really interested in hearing what he had to say.

Thanks again for your note. May the conversation continue!

All best,
SJM

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Offering #3: Craig Clarkson

Just a few things I can contribute from having just finished the book.
Domitrovic…

• …makes a distinction between trickle-down and supply-side, and focuses his arguments on supply-side economics and explains why “trickle-down” is not an appropriate characterization of supply-side economics.
• …does a good job maintaining clarity regarding different aspects of the historical periods he covers: intellectual and academic developments and contention over theory (particularly in the discipline of economics), government policy (and the myriad of other stuff that contribute to it) and politics (for example looking at the interplay between the legislative and executive branches, and the fact that there are successes and failures from both sides of the aisle when it comes to successful economic policy).
• …does work under the presumption that economic growth is good and definitely better than the alternative, pointing out (with numbers) that the rich and powerful have advantage in boom or bust and that suffering is suffering. In other words, he denies that supply-side should bear fault or responsibility. Neither does he argue that supply-side economics tries to or claims to create a society where there are no poor and power and wealth are properly distributed, etc.
• …does, after presenting his argument for the efficacy of supply-side economics to do what it says it will do (and what policy makers want done), reflect upon the fact that there is an issue of moral and virtuous living in times of prosperity that is not addressed by any economic policy. In essence, I think Domitrovic would argue that criticisms about rich getting richer, etc., and inequality in wealth are valid issues to consider but to lay them at the feet of supply-side economics is a category error. There are a raft of theologians who agree with this implicitly because they lay these issues not at the feet of supply-side economics, but at the feet of capitalism in general.
• …does write about wealth inequality and cheap labor during and since the boom, introducing additional variables and considerations necessary for a fuller picture of the demographics.
• …does write about the role of regulation and “tax reform” in the overall policy mix (see above, the way in which the book addresses both the economic theory and the exigencies of policy).
• …criticizes rebates and stimulus checks as opposing the principles of supply-side economic theory.
• …makes the case for the proximate causes of the current economic situation (including bailouts in the financial and corporate sectors) and its relation with supply-side economics.

I agree with your compassion and concern and I think Domitrovic would, too. The book is worth reading. I think it is good history and good scholarship. An expert may be able to bring up other evidence to advance our understanding and critique his conclusions, I don’t know. My point is that he argues from his evidence (both metrics and historical), makes a clear and plausible case, and clearly delimits the case he is trying to make. I don’t think he is trying to make the case that you are critiquing.

-cc

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Offering #4: Adam Telatovich

Hello all,

Thanks Bill for the thought provoking response to the lecture. Poverty and inequality of income are serious issues, (and has become a major focus of a quite controversial economist who I believe is mentioned in the novel you recommended, whose name is Paul Krugman by the way). If I have understood correctly, the problem here is that professor Domitrovic’s lecture did not adequately address the problem of economic inequality in the US, which is a serious issue. The point I will make attempts to patch up the points Domitrovic excluded, namely the question of who best distributes aid to the poor. I come to the conclusion that newly implemented government aid programs, though well intended, have unintended social consequences that may be far worse than not doing anything at all–to paraphrase the Hippocratic oath. If you don’t have the time to read this…essay, if it can be called that, then please at least read the quote I have in the middle marked with  four stars (****).

Unfortunately I don’t have much time to respond, but I would like to give my perspective on professor Domitrovic’s lecture on supply-side economics. The supposed “lack of concern for the lower- and middle- class” in his lecture needs to be addressed first. To clear the air, gross domestic product (GDP)–a concept that went around a lot during his lecture–does not take income distribution into account, and is indeed often criticized for that limitation. Perhaps Domitrovic should have made that point a bit more clear. However, what GDP may tell us, according to empirical evidence in the last century, is that places with high GDP tend to have better health, education, infant mortality rates, longer lifespand, and better nutrition–basically, the material basis for human flourishing is, well, better where GDP is higher. And the above stated things are good. Now, there have been several attempts in the past to introduce legislative reform to reduce poverty levels–and a renowned economist Paul Krugman highly advocates gvt. social welfare programs aimed at reducing income inequality–but the problem is that government simply does not know enough about the reciprocants of social welfare programs to determine who is needy, who is needy and capable of working, or who is needy and incapable of working! Bundling everyone into one “needy” category doesn’t solve anything. Those who ran the Soviet Union’s central planning agonized over solving this perennial conundrum–and their intentions weren’t necessarily bad either, though we often look back on the country in disdain of their actions: they simply wanted a more equal society.

To provide my own disclaimer, I came into Baylor as an economics and mathematics major thinking that the American economy was… a bit too laissez faire. I felt some people, including myself for that matter, just had too much “stuff.” I used to equate economic compassion to liberal programs enacted by government to provide relief to the poor. However, after taking a semester of honors microeconomics and doing some extra research in American health care, I found my view profoundly changed. I admit, I have some degree of bias: after all I enjoyed my economics professor’s class. I read two books in particular–one by Paul Krguman, a self-pronounced economic ‘liberal,’ and one by our own Baylor economics professors Earl Grinols and Henderson. As a freshman, I have limited experience in the field of economics; however, I have come across an interesting quote from one of the oldest economists, which I’d like to share as food for thought. It addresses, in a nutshell, the profound impact of taxes and government social welfare programs–two things that have been augmented significantly during this most recent presidency:

****Please read this slowly. Alexis de Tocqueville once said, “The law strips the man of wealth of a part of his surplus without consulting him and he sees the poor man only as a greedy stranger invited by the legislator to share his wealth…[and the recipient] feels no gratitude for a benefit which no one can refuse him and which could not satisfy him in any case…[Government charity] ranges each one under a banner, tallies them, and, bringing them face to face, prepares them for combat.” (Alexis de Tocqueville, Democracy in America)****

There are many private charity organizations in the United States that help the poor, including various different Churches, and that have had a good amount of success. The goal of politicians today is to take people out of poverty, but the programs they enact only make people feel more comfortable in their low economic position. Incentives are important in economics: if an ambiguous source gives a healthy poor person, who has the means of working, welfare money–then he or she has no incentive to go and seek work–and hence loses the desire to emerge from poverty.

You might ask, why am I talking about all this, instead of the lecture? I promise, this will all tie in. I say all of this because I believe there is a widespread misconception that supply-side economics, also called capitalism, is inherently greedy, and that raising taxes for the top-income tax bracket is only logical (if one has a heart at all, right?). I do not know much about theology, but I am a practicing Christian who believes in providing alms to the poor. Here at Baylor, the student population, consisting of on average considerably affluent young people, contributes hundreds of thousands of hours of service every year. This is another thing that is not taken into account in GDP. Volunteer work does not get counted in GDP! What does this mean? Well, it means that many wealthy people out there still have sympathy for the poor. Have we lost faith in Christians’ charitable nature? President Obama often refers to an economic theory that the middle-class hasn’t experienced the benefits of the massive growth in the economy over the past decade. But hold on a minute. Is the middle class really doing so bad, in the grand scheme of things?

We forget that there was a time a hundred or so years ago when people struggled to put food on the table. It was something of great pride to do so, and now it goes without saying that even in the poorest American families, a mom, or dad, or local church, fulfills this need for the most part. In other words, “The economic struggle for subsistence,” to which economist John Meynard Keynes often refered in his writings, is ‘no longer a struggle.’ How many families, in all honesty, in the United States of America, struggle to put food on his/her family’s plate? Think seriously about this.

Also, why are we so concerned about America’s middle-class ‘keeping up’ when there are so many other countries in which capitalism has failed for lack of democratic rule-of-law? America is, by and large, democratic: we have a rule of law which allows people to go to work without the fear of having their possessions repossessed by the common theif or by a corrupt government. (My father works in a country where police often arrest foreigners until they give them a bribe (Nigeria). This happened to him just last month. Also, it is not uncommon for police to refuse theft and even kidnapping cases because those crimes is so rampant. Could one imagine that going on in the US?)

I simply cannot, over the course of my fifteen years living abroad, imagine living in a country more democratic, and with so many goods available–to not only sustain people but also meet almost any leisurely desire conceivable–than the United States. It is because of the country’s ability to continue producing at high rates–caused by supply-side economics, and hurt by high taxes–that we see this today. As students, high GDP means we probably have more monetary and physical tools available to expand our educational system in the US. So we want high GDP, and this should be a concern for us. (It’s seems ironic to me, by the way, that so many young people endorse Obama’s health campaign, when it’s the young who will bear the cost of it.) On moral and intellectual grounds I support the idea of limited trade barriers–supply-side economics–in this era.

To address Bill’s statement, yes, the rich are getting richer, and yes, there are many problems plaguing the poor. Domitrovic did a disservice to the audience if he gave the impression that higher GDP brought on by lower taxes means “everyone is doing better.” That is not the case though, and maybe his soft-spoken voice at times was the cause of this misunderstanding.

Bill, I would like to challenge your claim that new jobs in the US will be low-paying. One of the big reasons the gap between the rich and poor has been rising is that low-skilled work as been outsourced more often to developing countries, while high levels of education in the US has meant that the demand for high-skilled work has increased. As a result, people with less skills–meaning less education, in this day–have a harder time competing in the job market. (This should be a bigger economic issue we address nowadays: how to get a real education more broadly spread.) A sad reality is that people with a higher level of education by and large tend to do better, at least financially, than people with less education. That is not to say there aren’t problems with our current system: nobody likes to hear about fat CEO bonuses. But another sad reality is that CEOs won’t stick around in companies if there’s a higher bidder. Obama has tried to stop this problem by raising taxes on the rich, and we have to wait and see how that turns out.

Please, please respond if you have any questions and/or would like to challenge my points on supply-sided economics, which is definitely doable considering my limited level of economic knowledge. Issues like the above mentioned are what motivate me to study economics.

My best regards,
Adam

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Offering #5: Bill Walker

Thanks Craig, Sarah Jane, and Adam for responding and participating so thoroughly!  Your comments have given me more than enough to think about, and I particularly enjoyed talking to Adam this morning at length about some of these things (a very intelligent future economist I might add).  The dialogue has been fruitful.  In summary, I do think little of what we have been discussing was actually addressed by Domitrovic, as it was probably not the point of his book or his lecture.  I was just having a hard time “hearing” him with all of the other looming questions in the backdrop, so I probably shouldn’t have called him “arrogant.”  Here are some of my remaining questions (perhaps only rhetorical):

Provided that social welfare programs are reformed in a democratic and more efficient way, at what point (if any) is it ok to redistribute wealth via income tax for the wealthy?

Adam brought up a good point about charity and community service hours not be included in GDP, but I can’t help but wonder how much of this is only a bandaid on a gaping wound.  Is it responsible to rely on charity from the wealthy to FIX (not just treat) our socioeconomic problems in a world of a sinful people, while our constitution states that everyone’s right to “pursuit of happiness” should be protected?

What is the difference between political and economic democracy, and do we really have both?

As Adam helpfully mentioned, what is the role of government with regard to being concerned about the economic well-being foreign countries?  So, as a country with a fairly small percentage of the world’s population that consumes I think about 30% of the world’s resources (which are depleting at an exponential rate), at what point does it become a duty for government to put more limits and restrictions on consumption (and income) in a “free” society?

Adam also brought up education.  President Obama argued in his State of the Union address that improved equal opportunity in education is the best way to fight poverty.  I think we both agreed here, as lowering paying jobs are being outsourced and higher paying ones are less obtainable by lower-middle class because of a lack in education . . . but, how can this possibly be done in the public school system without policy’s like the Robin Hood act?

If the rules are so different between big and small businesses, and entrepeneurship is at the heart of our idea of “opportunity,” shouldn’t government have to play a greater role in regulating monopolizing force that make competition and market penetration nearly impossible the little guy? (this might be an alternative to the income tax approach – it seems this is another “right” the government is constitutionally supposed to protect)

Finally, should the church try to serve the poor, or better yet, BE or LIVE in solidarity with the poor, as best it can w/o relying on government?  Is this even realistic today?

Thanks again everyone, and sorry if this was too much/uninteresting for some (hopefully you’re just ignoring it). 

Bill

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