Tag Archives: economy

Unintended Consequences?

One of the dangers of even thoughtful policymaking is the possibility of unintended consequences; as I used to tell my students, even the best-intended legislative efforts can create unforeseen “spinoffs” that range from unfortunate to truly damaging. That’s why careful attention to policy details, consultation with people having expertise on the subject, and thorough review of available evidence are all so important.

So what happens when people in positions of authority are incapable of thoughtful policymaking and dismissive of evidence and expertise? We are about to face the consequences of policymaking by ignorant egomaniacs, and Paul Krugman has identified some of the most obvious.

Krugman notes that the new PM of Canada has ordered a review of that country’s plan to buy a substantial number of U.S.-made F-35 fighter jets, joining European nations that are similarly reconsidering their dependence on U.S. weapons.

This turn away from military dependence on the U.S. is understandable. America is no longer a reliable ally to the world’s democracies; indeed, between Trump’s turn toward Putin and his talk of annexing Canada and Greenland, we don’t look like an ally at all. Rumors that U.S. jets have a “kill switch” that would allow Trump to disable them at will are probably false, but sophisticated military equipment requires a lot of technical support, so you don’t want to buy it from a country you don’t trust.

He then considered several other emerging responses to the chaos being caused by our mad kings, pointing out that a nation “that can’t be trusted to honor agreements or follow the rule of law has to have monetary as well as political and diplomatic consequences.”

Several of those monetary consequences will be very damaging. Krugman says he’s been exploring the available data, and “U.S. exposure to foreign revulsion looks quite large.”

Military hardware isn’t the only export likely to suffer from our new rogue nation status. Our trade deficit in goods is partly offset by a surplus in services trade, but several of our major service exports will definitely be hurt by America’s turn to the dark side.

One of these is education. Many foreigners come to America to study, attracted by the quality of our colleges and universities. In 2023, the most recent year for which data are available, they spent more than $50 billion. But if you were a foreigner considering study in the U.S. next year, wouldn’t you be worried that you might find yourself arrested and deported for expressing what the current administration considers anti-American views? I would. So we can expect a hit to higher education, which, although we rarely think of it this way, is a major U.S. export.

Personal travel — basically tourism — was even bigger, more than $100 billion. But you can be sure that we’ll be seeing a lot fewer Canadians this year and next. And it won’t just be Canadians reconsidering their plans.

Media is already reporting cratering European tourism.

Krugman admits that he’s much more worried about Trump’s threat to our democracy than his bad economic policies. He also notes that– even in purely economic terms–the self-inflicted damage from tariffs and deportations is likely to outweigh the costs caused by other countries’ loss of trust in the United States. That said, those costs are real.

One way to think about this is to say that Trump is doing to America what Elon Musk is doing to Tesla, destroying a valuable brand through erratic behavior and repulsive ideology. Did I mention that Tesla sales in Europe appear to be cratering?

True, there are differences between a private business and a nation-state. I don’t think people visiting Tesla showrooms are subject to random arrest, or that Musk will kill your car if you say something he doesn’t like (although to be honest I’m not entirely sure on either count, especially since Musk seems to be running much of the government.) On the other hand, Tesla depends a lot more on buyer goodwill than the United States as a whole does.

Still, Trump’s belief that America holds all the cards, that the rest of the world needs access to our markets but we don’t need them, is all wrong. We are rapidly losing the world’s trust, and part of the cost will be financial.

I think it’s unlikely that either of our mad megalomaniacs considers the probable or improbable consequences of their actions. The hard core of MAGA cultists will refuse to acknowledge even the outcomes that negatively affect them (and the data suggests that Red states will likely bear the brunt).

We can only hope that a sufficient number of “softer” Trump supporters will realize that the costs of voting their racism have become too high.

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Taking Credit

What do scolds like yours truly mean when we bemoan low levels of civic literacy ? Rather obviously, it’s an accusation of  lack of knowledge of America’s legal/philosophical framework–the Constitution and Bill of Rights, an understanding of what is meant by the “rule of law.” But it’s also, increasingly, a reference to citizens’ lack of historical knowledge and worrisome ignorance of the realities of the governing and economic environment they inhabit.

Civic ignorance isn’t all the fault of individuals who simply don’t care or don’t pay attention. For many years, high schools have neglected civics instruction and whitewashed America’s history. And the fragmented nature of our information environment positively encourages misunderstanding –or often, offers politically-motivated mythology–about the performance of Presidential administrations.

We’ve just emerged from an election in which Trump benefited handsomely from that latter ignorance, as voters blamed Biden for an inflation that was worldwide, even though, under his administration, the U.S. brought it under control far more quickly than other nations managed to do.

Trump’s narrow win points to a major problem posed by Americans’ low levels of civic literacy–the erroneous assignment of credit and blame.

Simon Rosenberg recently considered that problem.

Joe Biden and Kamala Harris inherited one of the worst first days an American Presidential Administration in our history. Trump left us a dadly bungled pandemic response that caused hundreds of thousands of Americans to die unnecessarily, an economy in deep recession and a global economy teetering, a Capital City and our democracy that had just been attacked by Trump and his mobs. What Joe Biden and Kamala Harris walked into on January 20th was without doubt one of the worst first days an American Administration has ever faced.

Trump and Vance will inherit one of the best. The Biden-Harris job market has been the best since the 1960s. Wage growth, new business formation and the # of job openings per unemployed persons have been at historically elevated levels. Inflation has been beaten, gas prices are low, interest rates are coming down and our recovery from COVID has been the best of any advanced nation in the world. The dollar is strong. GDP growth has hovered around 3% for all four years of Biden’s Presidency and the stock market keeps booming. The uninsured rate is the lowest on record. Through historic levels of domestic production of renewables, oil and gas America is more energy independent today than we’ve been in decades. Crime, overdose rates, the flows to the border and the deficit have come way down. Biden’s big three investment bills are creating jobs and opportunities for American workers today and will keep doing so for decades if Trump doesn’t gut them. We’ve begun stripping away the requirement of a four year college degree for government employment and other jobs too. We’ve lowered the price of prescription drugs, capped insulin at $35 and this year all seniors will enjoy a $2,000 Rx price cap. The Iranian-Russian-Hezbollah-Hamas axis in the Middle East has been deeply degraded. The Western alliance has been rejuvenated…..

Rosenberg morosely itemizes what we know is coming: Trump will take credit for Biden’s accomplishments. If he doesn’t manage to tank the stock market, its health will be due to him.

The economy will be strong due to him. Crime will be down due to him. Seniors will have their prescriptions capped at $2,000 due to him. Bridges will be built due to him. Record domestic gas and oil production will happen due to him. Gas prices will be low due to him. Iran and Russia will be weakened in the Middle East due to him…….

Rosenberg writes that Americans need to engage in a “long and deep conversation” about why the story of the Biden-Harris administration failed to resonate with the public–why so many Americans simply failed to understand its really remarkable performance–and dramatically mis-remembered the chaos and ineptitude of the prior Trump administration. As Rosenberg writes,

There has been one big story in American politics since 1989 when the Berlin Wall fell – Democrats have made things better for the American people, Republicans have made them worse. We’ve repeatedly brought growth, lower deficits, rising wages, American progress. Republicans have brought 3 recessions in a row, higher deficits, American decline and now unfathomable MAGA ugliness and extremism.

Americans’ confusion of celebrity with actual accomplishment is responsible for some of the phenomena I lump under “civic illiteracy.” If Joe Biden had the glamour and oratorical skills of a Barack Obama, perhaps the successes of his administration would have been more widely understood.

Trump will take credit for Biden’s accomplishments. Those of us who know better need to be loud and persistent truth tellers.

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The Big Sort

I have frequently cited a 2009 book by Bill Bishop, titled “The Big Sort.” Bishop pointed to a then-emerging trend of “voting with one’s feet”–the tendency of many Americans to relocate to places that they find philosophically and politically compatible. The consequences of such sorting can be troubling. What happens when most neighbors agree with your outlook and values, reducing the need to accommodate disagreement or defend your woldview?

I read “The Big Sort” when it first came out, but I still ponder many of the issues it raised. One issue that it didn’t raise, however–at least, I don’t recall Bishop paying attention to it–involved “macro” outcomes: what if the sorting led to very different economic and quality-of-life differences between what we’ve come to identify as “Red” and “Blue” parts of the country?

More than a decade after the book, we are seeing major differences emerge. A recent column by Michael Hicks focused directly on that outcome. As he writes,

Of the 20 richest states today, 19 are solidly Democratic. Of the poorest 20 states, 19 are solidly Republican. The GOP dominates in poor, slowly growing states, while the Democrats dominate politics of prosperous, faster-growing states.

Hicks notes that these differences are largely an outcome of the nationalization of our politics. In former times–in fact, up until the late 1990s– there were conservative Democrats and liberal Republicans. But then, state parties began to align with national politics.

Even races for local municipal government tend to be nationalized. State and local issues are often ignored, or barely discussed in primary or general elections. The homogeneity of national politics will naturally cause parties to represent more similar places.

Hicks then echoes Bishop, finding household sorting by politics. “Though most sorting happens at the sub-state level” (presumably, rural and urban) “the nationalization of politics means that state borders now affect household location choice.” Voters are choosing the political landscapes they prefer.

Hicks notes that when he began researching state and local policy some quarter-century ago, state legislators focused more on local issues; now, many take their “legislative marching orders from national think tanks or national parties. Today, elected leaders from both parties are expected to advance similar legislation, typically written by think tanks, everywhere at once.” (That is certainly the case in Indiana, where our dreadful General Assembly obediently does ALEC’s bidding.)

Education, Hicks tells us, is the most consequential policy difference between thriving Blue states and struggling Red states like Indiana.

The most likely cause of divergence between rich and poor places is the fact that human capital — education, innovation and invention — replaced manufacturing and movement of goods as the primary source of prosperity. In other words, places that grow will collect more human capital. However, the educational policies pursued by both parties are vastly different.

The GOP has largely tried to adopt broad school choice, while cutting funding to both K-12 schools and higher education. The Democrats have largely eschewed school choice, but amply fund both K-12 and higher education. Today, 17 of the 20 states with high educational spending are Democratically controlled and 17 out of the 20 lowest funded states are GOP strongholds.

There’s more to education than spending. Still, higher educational spending, even if it means higher tax rates, is leading to enrollment and population growth. Educational attainment differences alone explain about three quarters of the difference in per capita income between states.

At the same time, school choice effects are smaller than almost anyone hoped or expected. Today, it’s clear that the average student in private school underperforms their public school counterparts (charter schools tend to out-perform both). So, if poor states spend less on education and rely more on school choice, they will become poorer than states spending more on public education.

Economists have been saying this for three decades, with little effect. The prognosis is simply that poor states like Indiana are going to get poorer for decades to come while rich states will grow richer.

Here in Indiana, incoming Governor Braun has made expansion of the state’s voucher program a key priority. He wants to make it “universal,” meaning the eradication of income limits. Indiana’s program is already disproportionately used by upper-middle-class parents; Braun’s proposed giveaway would allow participation by even more privileged families (So much for the pious assurances that vouchers would allow poor children to escape “failing” public schools.)

Vouchers don’t improve educational outcomes, and they drain critical resources from the public schools that continue to serve the overwhelming majority of Indiana children.

If Hicks is reading the data correctly–and I believe he is–states like Indiana will continue to decline, and educated citizens will choose to move elsewhere.

Continuing the “sort.”

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Family Values

What are “family values?”

To hear Republicans describe them, family values are a traditional, a backward-facing insistence on sexual “purity” (for women) and heterosexuality: mom in the home watching the children (no pre-school or day care), gays in the closet, no access to abortion. Occasionally, there will be a nod to the importance of dad’s fidelity, but that gets awkward these days, given GOP allegiance to a male sexual predator.

Democratic policies illustrate a very different approach to valuing families.

For one thing, Democrats emphasize job creation, so that families can adequately care for the children they may–or may not–choose to have. (On that score, the GOP’s performance has been dismal: during the DNC, Bill Clinton noted that, since 1989, America has created about 51 million new jobs. Fifty million were created during Democratic administrations, one million under Republicans. This jaw-dropping statistic turned out to be true, albeit slightly misleading.)

Even if you discount the importance of a robust economy to the health of the American family, a glance at the policies pursued by the parties confirms that Democrats are far more family-friendly. Nicholas Kristof recently made that case. Calling Republican efforts to paint themselves as the “pro-family” party “chutzpah,” Kristof wrote

Children are more likely to be poor, to die young and to drop out of high school in red states than in blue states. The states with the highest divorce rates are mostly Republican, and with some exceptions like Utah, it’s in red states that babies are more likely to be born to unmarried mothers (partly because of lack of access to reliable contraception).

One of President Biden’s greatest achievements was to cut the child poverty rate by almost half, largely with the refundable child tax credit. Then Republicans killed the program, sending child poverty soaring again.

Can anything be more anti-child?

Well, maybe our firearms policy is. Guns are the leading cause of death for American children and teenagers, largely because of Republican intransigence and refusal to pass meaningful gun safety laws.

It’s because of the G.O.P. that the United States is one of only a few countries in the world without guaranteed paid maternity leave. Republicans fought universal health care and resisted the expansion of Medicaid; that’s one reason a child in the United States is three times as likely to die by the age of 5 as a child in, say, Slovenia or Estonia.

Kristof also noted several of the anti-child policies advanced in Project 2025, including ending Head Start–which has been a lifeline for low-income children– and dismantling the Department of Education.

Banning abortion and requiring women to give birth whether or not they can afford to feed and clothe a child is hardly “pro family”– even ignoring the fact that when women with dangerous pregnancies cannot access adequate care, they often die, leaving existing children motherless. And Republican extremism on abortion and birth control has led to obstacles to in vitro fertilization–for some families, the only avenue to producing those children Republicans want women to keep turning out.

Kristof also recognized the importance of the economy in supporting families. If marriage rates are important–and he agrees that they are–the evidence of economic influence is compelling.

Union membership among men raises their marriage rates, for example, apparently because they then earn more money and become more stable and appealing as partners. But Republicans have worked for decades to undermine unions.

And while marriage is important, so is access to divorce. Before easy access to divorce, large numbers of women were trapped in violent marriages that terrorized them and their children. (JD Vance is on record counseling women to remain in such marriages.) As Kristof notes,

One careful study by the economists Betsey Stevenson and Justin Wolfers found that the introduction of no-fault divorce in America was associated with about a 20 percent reduction in female suicides, at least a 25 percent reduction in wife-beating and an apparent decline in husbands murdering wives.

Which raises the question: can an anti-women party be pro family values?

In this policy arena–as in so many others–the fundamental difference between today’s GOP and the Democratic Party really does get back to dramatic differences in values. That’s why calls to “bridge our differences” and “achieve compromise” ring so hollow. If the debate is about the best way to achieve result X–say, feeding hungry children–then we can absolutely come to some sort of mutual agreement. But when one party wants to feed children and the other party doesn’t, compromise isn’t likely. 

Americans aren’t divided over policy; we are divided over values–and not just family values.

 
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We Need To Listen To Joseph Stiglitz

Joseph Stiglitz and Paul Krugman are my two favorite economists–probably because, despite both being Nobel Prize winners– both of them are able to explain their conclusions in language I can (mostly) understand, and because those conclusions usually strike me as eminently reasonable.

Stiglitz recently took on the neoliberalism that has characterized American governance since Reagan. Neoliberalism has been described as an economic system generally opposed to the provision or expansion of government safety nets, and highly skeptical of regulation, extensive government spending, and government-led countercyclical policy.

As Stiglitz notes,

On one side of the economic debate are those who believe in largely unfettered markets, in which companies are allowed to agglomerate market power or pollute or exploit. They believe firms should maximize shareholder value, doing whatever they can get away with, because bigger profits serve the common good.

The most famous 20th-century proponents of this low-tax/low-regulation shareholder-centric economy, often referred to as neoliberalism, are Milton Friedman and Friedrich Hayek. These Nobel Prize-winning economists took the idea beyond the economy, claiming this kind of economic system was necessary to achieve political freedom.
The strongest argument advanced by neoliberals is that economic freedom translates into political freedom. As Stiglitz points out, however, “not quite.”
We’ve now had four decades of the neoliberal “experiment,” beginning with Ronald Reagan and Margaret Thatcher. The results are clear. Neoliberalism expanded the freedom of corporations and billionaires to do as they will and amass huge fortunes, but it also exacted a steep price: the well-being and freedom of the rest of society…
Friedman and his acolytes failed to understand an essential feature of freedom: that there are two kinds, positive and negative; freedom to do and freedom from harm. “Free markets” alone fail to provide economic stability or security against the economic vagaries they create, let alone allow large fractions of the population to live up to their potential. Government is needed to deliver both. In doing so, government expands freedom in multiple ways.
Stiglitz’ basic argument is that the “Road to Serfdom” isn’t paved by governments that do too much; loss of freedom–serfdom– is a consequence of governing that does too little. He points out that populist nationalism poses a greater threat in countries like Israel, the Philippines and the United States than it does in in Sweden, Norway and Denmark. In those Scandinavian countries, high-quality public education, strong unemployment benefits and robust public health provide an economic floor that shields citizens from what he calls the “common American anxieties over how to pay for their children’s education or their medical bills.”
Discontent festers in places facing unaddressed economic stresses, where people feel a loss of control over their destinies; where too little is done to address unemployment, economic insecurity and inequality. This provides a fertile field for populist demagogues — who are in ample supply everywhere. In the United States, this has given us Donald Trump.
We care about freedom from hunger, unemployment and poverty — and, as FDR emphasized, freedom from fear. People with just enough to get by don’t have freedom — they do what they must to survive. And we need to focus on giving more people the freedom to live up to their potential, to flourish and to be creative. An agenda that would increase the number of children growing up in poverty or parents worrying about how they are going to pay for health care — necessary for the most basic freedom, the freedom to live — is not a freedom agenda.
Champions of the neoliberal order, moreover, too often fail to recognize that one person’s freedom is another’s unfreedom — or, as Isaiah Berlin put it, freedom for the wolves has often meant death to the sheep. Freedom to carry a gun might mean death to those who are gunned down in the mass killings that have become an almost daily occurrence in the United States. Freedom not to be vaccinated or wear masks might mean others lose the freedom to live.
Stiglitz provides examples of the various ways government regulation can enhance, rather than impede, individual freedom, and he ends by defining what he calls “progressive capitalism” (what I would call the “mixed economy.”) The goal of any economic system ought to be the creation of a broadly shared prosperity. The Isaiah Berlin quote captures the essential problem we face in today’s crony capitalist economy: we have a government that has been solicitous of the freedom and well-being of the wolves, and we’ve ignored the negative effects on the sheep.
Only government can (1) provide a social and political infrastructure accessible to all, and (2) prevent the wealthy and powerful from dominating and harming others. Neoliberalism fails on both counts.
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