Fetters and Fairness

When will the left stop saying dumb things like this?

The U.S. economic-policy debate is in fact dominated by the assumption that unfettered markets work best, a view that's applied to our domestic economy and to that of other countries through international financial institutions that the United States controls. John Kerry's recent statement that he is “not a redistributionist” indicates how dominant this view has become.

That's Lawrence Mishel in TAP.

If the economic-policy debate is in fact dominated by the assumption that “unfettered” markets work best, then why don't we see fewer fetters? Bush's shrimp tariff surely indicates how dominant this view has become. No? Or the US's continued attempts to stonewall the WTO on US free trade violations in order to protect inefficient domestic interests? Kerry's statement is just a lie, and, in any case, not being a redistributionist doesn't imply support for unfettered markets. One might be against redistribution but want fetters on the market in order to slow the rate of growth for ecological reasons, say.

Mishel's concern, however, is redistribution. He's worried about inequality. The top 1% of families earned 19.6% of all income. That sort of thing. Yet that sort of thing tells us almost nothing interesting at all. But Mishel leaps forward:

Because of the inequality in the United States, even though our per-capita income is higher than many countries, our low-income families are not better off than those in other places where per-capita income is lower.

This is a confused sentence. He seems to imply that the fact that the income of American low-income families is lower than the income of low-income families in some other countries has some logical connection to inequality. But there is no logical connection. (If one guy, Rick, discovered a trillion dollars of unobtanium in a hole, it would skew the inequality figures, but wouldn't have anything to do with explaining why the least well-off have what they do.) And if Mishel's actually making sense, as opposed to positing dubious causal power to inequality, all he's saying is that given two sets of numbers, one set's having a higher average doesn't imply also having a higher lowest element, which is so trivial there's no point in mentioning it.

More:

The social class a person belongs to really matters — it determines your health, how long you live, where you live, your exposure to crime, your success in school, and the likely success of your children.

This is a bit much. Your class determines none of these things. It influences them. And “class” here just means something like “income bracket.” Mishel is correctly saying that your health, longevity, lifestyle, safety and success will be improved by having more money. No doubt! Will the the folks at the bottom (and, ahem, that's me!), do better if we put more fetters on the market? It seems unlikely.

It strikes me that Mishel is confusing matters of regulation with matters of distribution. Now, it happens that economic regulations are very often implemented in order to bias distribution in favor of certain interests over others. (Shrimp!) But suppose we had a clean slate and committed to restricting regulation to only those that are generally efficiency enhancing. This would mean wiping out almost all trade restrictions and huge swathes of the government bureaucracy. Such a system would surely count as “unfettered” in Mishel's terms. Now, suppose we set a tax rate sufficient to guarantee a minimum income sufficient to provide the means to develop human capital to a certain critical level. Now, this may or may not cause a reduction in the overall rate of growth, although some slowdown strikes me as likely. But, notably, this kind of guaranteed minimum within the context of a relatively minimal state does not seem to entail especially fettered markets. We haven't added any regulations on the market other than those needed for the purposes of our very streamlined tax system.

This is in fact my big beef with economic egalitarians. Most of the time they aren't really talking about equality at all. They're talking about the poor getting enough. A society in which the top 1% has 50% of the stuff, but where the poorest person has a million dollars looks pretty great to me. A million dollars is enough. Who cares if someone else has a house made of diamonds?

When the left starts wanting to actually help the poor, then maybe they'll start arguing for the de-fettering of the market in order to enable a truly efficient and effective redistributive welfare state.

Mishel concludes:

I daresay that there's no reason to believe that unfettered markets provide us with the type of society our faiths guide us to have in terms of the lives of the poor, the treatment of workers, and the solidarity of our communities.

Well, I double-dog daresay that markets much more unfettered than ours would better serve the kind of welfare state Mishel professes to want.

  • Molly

    Interesting pdf file name: art1full

  • Devin Finbarr

    Will,

    I simply cannot fathom how intelligent people pay any attention to the CPI or GDP numbers. Both are entirely subjective numbers that are created by a political process. You might as well have the Pontificus Maximus read the flight of birds and then tell everyone the most politically correct conclusion. It would at least be more honest.

    Take hedonics and chain weighting the prices – both attempts to measure changes in quality over time. But these changes in quality are impossible to measure numerically. For instance, how many times better is a 2002 desktop computer than a 2008 computer? One person may say that the 2008 model is 5 times better, because the processing power is 5 times greater. Another person might say that they are equal, because they only use Microsoft Word, and that works equally well on both computers. A third person might say that the 2008 version is worse, because Vista sucks and crashes constantly. The judgment is entirely subjective. Plausible arguments result in an order of magnitude difference in the result. And yet, numbers like these are actually used to determine the CPI and GDP. Every component of CPI is this bad. Which is better an average 1950’s house – ( 1,300 ft, 15 minute commute, in a neighborhood with a very high walkability index) or the average 2008 house ( 2,200 square ft, 25 minute commute, have to drive everywhere)? Which is better, Grey’s Anatanomy or a Vaudeville Show? Thanks to Napster/BitTorrent/NetFlix, the average person has an infinite supply of music, tv, and movies. Is that an infinite gain in wealth? Of course, Napster and the Internet seemed to have killed the music industry, and no great bands have arrived on the scene since the late 1990’s. Since I love guitar rock, this is a terrible loss for me.

    For most items comprising the CPI basket of goods, plausible arguments could be made that result in not only order of magnitude difference in growth, but an actual change in direction of growth. Yet magically, the number comes out to consistently be 2-3% a year. It’s not a conspiracy, but it’s obvious the number is purely the creation of a messy political process.

    What happens is that every so often people subjectively feel that the number is wrong. For instance, in 1995, measured inflation was causing social security payouts to go out higher than people thought were necessary. So the Boskin Commission found plausible arguments for reducing the inflation number. I am sure that when they figured out all these hedonic and chain-weighting measures, the committee members simply kept adjusting the model until the numbers looked right.

    The number is so divorced from reality that our cities can turn into desolated war zones ( the 1970’s) or the internet can give us an infinite amount of entertainment for free, and neither makes much of a blip in the GDP number.

    What’s more, the actual method used to determine increase in quality – chain weighted prices – does not measure increase in quality at all, but measures the fact that people will consistently pay more for the newest item regardless of whether it is any better. The newest fashion accessories always sell for 20% more than last seasons, but no one argues that fashion increases in quality by 20% a year. The GDP number is essentially based on this constant, “status factor”, and mixed and adjusted with other fudge factors, and ends up consistently growing 2-3% a year no matter the economic conditions.

    It’s simply astounding that economists run so many regressions against the inflation and GDP number, when it was so obviously designed by a subjective, political process.

    If you really want to track changes in the standard living over time, statistics can certainly play a roll. But you have to use your brain. If I was studying the changes in the standard living, I would look at each part of a person’s budget individually. I would make an objective comparison of price of good versus median income. For instance, I’d look at the price of eggs or flour or fish versus median income over time to see how much richer in terms of food we were. I’d then subjectively compare the offerings in a typical super market today versus 1950. I’d look at the price of the median home compared to median income in 1950, versus today. But then I’d also have to subjectively compare the size of the home, location, commute, etc.

    Statistics, such as median income or the price of eggs, can be very useful in combination with subjective comparisons. But many of the models of modern economists use junk statistics and get junk results.

  • Greg

    Devin, your comment sounds like a crock. Inflation went into the teens and twenties in the late seventies and eighties. Why didn’t the political process magically produce 2-3% CPI then? And if a few cities turn into desolate war zones, what does that have to do with inflation? Sure, there are some fudge factors involved, but it’s a fairly good number as national statistics go. I also love how you complain about the “subjective, political process” for computing CPI and then say you would conduct far superior subjective analyses if you were in charge. Pure Monday morning quarterbacking.

    I’m more of a fan of GDP criticisms. In the short term, broken windows get added into GDP, which seems to me to be a big issue. But then, I’m not an economist, so I take my own views with a grain of salt.