Month: October 2024

There are of course a variety of reasons unrelated to economic policy to choose between Kamala Harris, Donald Trump, and other candidates running for President of the United States. But as an economist …

It would be nice to vote for someone who acknowledges that the US budgets and the accumulating US debt are a problem, and has a serious proposal to address it. Proposals for additional tax cuts and spending are not an arithmetically likely solutions.

It would be nice to vote for someone who recognizes that Social Security and Medicare are facing real and severe solvency problems in the not-too-distant future, and offers some proposals to address them. Reducing taxes on Social Security benefits or increasing benefits for those with low incomes, whatever the justifications for such policies, will not help the solvency problem.

It would be nice to vote for someone who sees “inflation” as what happens when too much demand is chasing too few goods, not as an upsurge of greedy sellers nor as something where interfering with the Federal Reserve is a useful approach.

It would be nice to vote for someone who doesn’t think that government controls over prices–whether for rent or credit card interest rates or prescription drugs or groceries–are more than a temporary and dysfunctional band-aid. Also, it would be nice to vote for someone who has a plan for slowing the rise in US health care costs, without pretending that price controls are the answer.

It would be nice to vote for someone who has a specific plan to dramatically increase the quantity of housing being built across the United States while working within the constraints of local control over zoning and building codes, rather than focusing on handing out subsidies to potential buyers for the existing housing and potential builders of new housing, and hoping for the best.

it would be nice to vote for someone who emphasizes that the role of government in encouraging economic growth should be to focus on an educational system that provides a stream of skilled workers, support for research and development, and ensuring that competing firms have a chance to grow, and not on handing out big subsidies to favored industries (say, semiconductors or green energy).

It would be nice to vote for someone who makes a point of emphasizing that the US needs a much more “active labor market policy” for the unemployed: that is, a policy of government support for active job search, job training, and mobility between jobs, not just paying unemployment benefits.

It would be nice to vote for someone who emphasizes the potential gains to the US economy from a rise in skilled and legal immigration–and focuses on this issue separately from questions of border enforcement.

It would be nice to vote for someone who doesn’t believe that the problem of carbon emissions can be solved with ever-expanding subsidies, and is willing to support putting a price on carbon. It would also be nice to vote for someone who has an actual plan for dealing with the fact that more than half of all global carbon emissions come from countries in the Asia/Pacific region, with China alone accounting for nearly one-third of global carbon emissions.

It would be nice to vote for someone who cares a lot about professional day-to-day administration and oversight of government programs–spending, taxes, and regulations–and not just giving speeches about the goals of such programs.

Of course, I am aware that when Harris and Trump occasionally bump into these issues as they carom along the campaign trail, they do not offer identical verbiage. I am also aware that these kinds of issues are mentioned in policy papers hidden away on campaign websites, which I assume are unread by anyone, including the candidates. I am personally familiar with the practical need to vote for a “less bad” candidate, rather than a one I can wholeheartedly support. But still, it is disconcerting to me that the campaign discussion of so many major economic issues seems to me evasive at best, and misguided at worst.

Orley Ashenfelter interviews Samuel Bowles “on his deep interest in the causes of inequality & his work to transform economics” (“The Work Goes On” podcast, posted October 7, 2024). The entire interview is worthwhile: for example, I did not know that Bowles attended school in a tent in India when he was 11 years old (his father was Ambassador to India at the time; or that he worked for the government of Nigeria as a teacher in a remote area after graduating from college; or that he offered economic advice to Martin Luther King, Jr. Bowles recounts the episode t his way:

I had the good fortune of being asked by Dr. Martin Luther King if I wouldn’t give him some advice about economics and of course, I was thrilled. I knew Dr. King through anti-Vietnam War activity that he and I had engaged in at the time. And so, he said he would send me some questions and I said, “well, I’ll definitely get back to you.” I opened the envelope and here’s a set of questions. And they’re all about economics … I looked at these questions and I said, “these are damn good questions. I don’t have a clue how to answer these.” I didn’t know where to look. They were empirical questions, but also conceptual ones. Imagine, a new successful PhD, and this could have been the high point in my life. This is why I studied economics so I could actually get into the fray and help out and make the world a better place. But that was kind of a shocker for me, and I decided that there was something wrong that I was actually teaching the grad students in micro. And I decided then and there that I was either going to leave economics, I considered that very seriously, or I would try to change it. And that’s what I’ve been trying to do since.

Here’s a different insight, from research about inequality from pre-history and today. Bowles says:

I was curious about how inequality wealth moved over time, and as I studied more and more, I came to be interested in pre-history. That is a period of time in the past in which I think there was a really big change in how humans lived. And so, let’s go back five to ten thousand years, go back to the time around when agriculture started maybe 11-thousand years ago. And before then we were hunting and gathering populations, quite egalitarian. We’ve of course since measured wealth inequality, both human wealth and material wealth among hunters and gatherers. We’ve measured the intergenerational transmission of wealth in these societies. But the first farmers were very egalitarian. They had a very equal distribution of wealth. They were, in fact not much different from the hunters and gatherers.

So, the first thing we learned is that most people think that inequality really came on when farming happened. It’s not true. We had something like four or five millennia, millennia of farming before we had this big uptick in wealth inequality. Now of course, we measure wealth inequality in fairly elementary ways like the size of houses or the size of storage areas or how much the goods that are buried with people in their burials. But there’s a very dramatic change that takes place sometime around five-thousand years ago, and that was associated with a change in technology, the introduction of plows and oxen, which basically was a labor-saving device. The ox-drawn plow was the robot of the late Neolithic early bronze age because it displaced labor and it made land scarce and it made labor abundant. And then there was also the development of political concentration of political power in the form of governments. And those two things, the concentration of power in the hands of the well to do and the technology which made labor redundant and material goods scarce, that seems to be where the thing
started.

Now, obviously running forward, what’s extraordinary is that we achieved five-thousand years ago levels of inequality which are fairly much like what we have today and not much happened between five-thousand years ago and the present. There are some ups and downs but try to figure out anything that matters for wealth inequality, whether it’s modern-day Sweden, feudal Europe, the city states of Italy and so on. Wealth inequality is at a very high-level Gini coefficient of point-six or point-seven right across the board. So, we found two things really. We found a dramatic increase doubling of the Gini coefficients taking place about five-thousand years ago, and a remarkable constancy since then.

I really like the idea that “ox-drawn plow was the robot of the late Neolithic early bronze age.” Technological change is not a recent event.

Back in high school, the first book I read making the arguments against global corporations and globalization was Global Reach, which had been published a few years earlier back in 1974. Since then, anti-globalization arguments have been a consistent drumbeat in the background. I remember controversies over the “Tokyo round” of world trade talks in the 1970s, and “Uruguay round” of talks in the 1980s. I remember the extreme fears of how trade with Japan was going to overwhelm the US economy from the 1970s into the late 1980s, and then the fear about how trade with Mexico would injure the US economy (if the North American Free Trade Agreement was signed) in the early 1990s. I remember highly vigorous protests against globalization and the World Trade Organization in 1999 in Seattle, and then in other cities. And of course, I’m aware of anti-globalization protests in the last quarter-century, as well.

Even as the US and the world economy have evolved in the last half-century, it feels to me as if the arguments against and for globalization have not changed very much. This seems odd. Surely, the accumulation of experience with globalization should influence the arguments for and against?

Jason Furman is a few years younger than I am, but he expresses sentiments that I share in “Globalization With Minimal Apologies,” delivered as a keynote address at a World Trade Organization Public Forum (September 11, 2024). Furman argues:

I first started learning economics at university in the late 1980s. At that point in time, a certain amount of economic theory said that there should be convergence among countries, where poorer countries grow faster than richer countries. But that theory wasn’t working in practice. Global inequality was growing, the rich countries were growing faster than the poor countries and pulling further apart from them. You might be tempted by that observation to subscribe to theories like Dependency Theory in Latin America, that rich countries were getting rich at the expense of poor countries, that trade was zero sum, and that to reverse this global inequality somehow needed to separate yourself from the rest of the world.

If you were sitting in the United States when I first started learning economics, you were 20 years into a dramatic productivity slowdown, a dramatic reduction in the growth of living standards, an increase in inequality, and you were also looking at other countries—in our case, at the time, Japan—worried that somehow they were getting rich at your expense and taking advantage of the United States. …

Now, after a quarter century of hyper globalization, the poor countries are, on average, growing faster than the rich countries. That’s happened on a sustained basis for about 30 years now. That’s even true if you take China out of the equation and look at the rest of the developing and emerging economies. This has happened because growth has increased in developing and emerging economies not because it has slowed in the rich countries. In fact, if anything, relative to when I first started studying economics, productivity growth has picked up, especially in the frontier economy of the United States.

This isn’t just an abstract set of economic statistics. … [O]ver the last quarter century, a billion people have been lifted out of extreme poverty. Even at the same time that the global population has increased by 2 billion, so if you look at the share of people in deep poverty around the world, it’s fallen by 70 percent. It’s not just poverty. It is life expectancy, maternal mortality, literacy, all of the things that matter to a good life, all of the things that are most important to us as humans, have gotten dramatically better over these 25 years.

Part of the improvement has been a function of the increase in incomes. Life expectancy, maternal mortality, all of those are very much a function of income. But also, amazingly, for any given income, you see less maternal mortality, less child mortality, higher life expectancies than you did before. So, we’ve also gotten more efficient at translating GDP into the things that matter for people.

Yes, globalization isn’t the only factor in these changes. But as Furman points out: “[N]o country has been very successful anywhere in the world without a very big component of that success being that their country is a major part of the phenomenon of globalization. And conversely, countries that have tried to separate themselves from it have done the worst job participating in this miracle that I’ve talked about.”

Even if one just focuses on the US economy, it seems clear that US economy did not crumble under competitive pressure from Japan, and has not crumbled under competitive pressure from China. Yes,. globalization has disrupted industries and jobs, but such disruptions are standard for as economies evolve and grow. For example, the disruptions in the US economy earlier in the 20th century as the workforce shifted from agriculture to manufacturing and then from manufacturing to services, or the shifts as the US population and economy shifted toward “sun belt” states of the south and west, were also considerable. The revolution in widespread use of information technology and its applications, especially since the internet entered into widespread use in the 1990s, would have disrupted the US economy for reasons having nothing to do with international trade. Indeed, the US economy, with its mammoth internal market, is much less disrupted by trade that most other countries in the world: for example, US imports of goods and services are about 15% of GDP, but imports for the average country in the world is 30% of GDP–and it’s much higher for many smaller economies.

Furman digs into some of reasons why positive effects of globalization are not more widely appreciated, and I’ll let you read that part of his essay on your own. But I did want to emphasize one of his other themes: the resilience of globalization. Furman writes:

I’ve been hearing about the imminent end of globalization for pretty much my entire career. Yet globalization has been much more like a dandelion than it is like an orchid. Dandelions can thrive no matter what you throw at them. Orchids are very sensitive and need to be nurtured with exactly the right conditions. Trade and other types of globalization are like a dandelion because the benefits are so large. All the things that I was talking about, all the gains from trade, are precisely why it is so strong and so resistant.

The nature of globalization does seem to be shifting: in particular, services and information flows delivered across national borders are becoming more important, compared with physical goods. But although government policy decisions will shape the course of globalization, the the fundamental drivers of globalization are about how gains from trade across international borders benefit people’s lives.