Wednesday, November 15, 2006

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I, for one, welcome our protectionist overlords

Kos is right -- if this Wall Street Journal editorial is any indication, James Webb is no conservative:

The most important--and unfortunately the least debated--issue in politics today is our society's steady drift toward a class-based system, the likes of which we have not seen since the 19th century. America's top tier has grown infinitely richer and more removed over the past 25 years. It is not unfair to say that they are literally living in a different country. Few among them send their children to public schools; fewer still send their loved ones to fight our wars. They own most of our stocks, making the stock market an unreliable indicator of the economic health of working people. The top 1% now takes in an astounding 16% of national income, up from 8% in 1980. The tax codes protect them, just as they protect corporate America, through a vast system of loopholes....

In the age of globalization and outsourcing, and with a vast underground labor pool from illegal immigration, the average American worker is seeing a different life and a troubling future. Trickle-down economics didn't happen. Despite the vaunted all-time highs of the stock market, wages and salaries are at all-time lows as a percentage of the national wealth. At the same time, medical costs have risen 73% in the last six years alone. Half of that increase comes from wage-earners' pockets rather than from insurance, and 47 million Americans have no medical insurance at all.

Manufacturing jobs are disappearing. Many earned pension programs have collapsed in the wake of corporate "reorganization." And workers' ability to negotiate their futures has been eviscerated by the twin threats of modern corporate America: If they complain too loudly, their jobs might either be outsourced overseas or given to illegal immigrants....

America's elites need to understand this reality in terms of their own self-interest. A recent survey in the Economist warned that globalization was affecting the U.S. differently than other "First World" nations, and that white-collar jobs were in as much danger as the blue-collar positions which have thus far been ravaged by outsourcing and illegal immigration. That survey then warned that "unless a solution is found to sluggish real wages and rising inequality, there is a serious risk of a protectionist backlash" in America that would take us away from what they view to be the "biggest economic stimulus in world history."

More troubling is this: If it remains unchecked, this bifurcation of opportunities and advantages along class lines has the potential to bring a period of political unrest. Up to now, most American workers have simply been worried about their job prospects. Once they understand that there are (and were) clear alternatives to the policies that have dislocated careers and altered futures, they will demand more accountability from the leaders who have failed to protect their interests. The "Wal-Marting" of cheap consumer products brought in from places like China, and the easy money from low-interest home mortgage refinancing, have softened the blows in recent years. But the balance point is tipping in both cases, away from the consumer and away from our national interest.

With this new Congress, and heading into an important presidential election in 2008, American workers have a chance to be heard in ways that have eluded them for more than a decade. Nothing is more important for the health of our society than to grant them the validity of their concerns. And our government leaders have no greater duty than to confront the growing unfairness in this age of globalization.

The op-ed consists mostly of a critique of the existing situation -- not a lot of suggested solutions. For that, we have to go to his campaign web site, where we find:
This country is splitting into three pieces. As a result of the internationalization of the economy, the people at the top have never had it so good. The middle class is continuing to get squeezed by stagnant wages and rising cost of living. And we are in danger of creating a permanent underclass. We must reexamine our tax and trade policies and reinstitute notions of fairness, and also enforce our existing trade laws so that free trade becomes fair trade.
"Fair trade" is a vague term, but given Webb's rhetoric, it's safe to say that he kind of policies that Webb favors will:
a) Have little effect on the income of the richest Americans -- though their capital gains will fall dramatically;

b) Benefit some middle-class Americans in the form of preserving their import-competing jobs, while hurting other middle-class Americans by destroying their import-reliant jobs;

c) Have a mixed effect on the poorest Americans -- even if their wages rise from halting illegal immigration, their costs of living will rise even higher from the higher price of goods in the stores.

Combine that with reduced overall growth, and, well, it's gonna be a scary Senate for international economic policy.

UPDATE: Arnold Kling and Greg Mankiw have more. Mankiw makes a good point here:

[L]et's suppose for a moment that a free-market economist were hired by the Dems to offer policy advice. If the boss's goal is to reduce income inequality, what is the best way to do that?

The standard Democratic fare would be quickly rejected. Erecting barriers to trade, raising the minimum wage, encouraging the cartelization of labor via unions, and bashing Wal-Mart are inefficient and poorly targeted ways to redistribute income.

The tax system is probably the best vehicle to accomplish the Dems' goal. One possibility would be to reduce the payroll tax rate and to make up the lost revenue by increasing, or perhaps even eliminating, the cap on taxable payroll. That would benefit, approximately, the bottom 90 percent of the income distribution.

This policy change would, of course, have an efficiency cost. By raising taxes on taxpayers who already face the highest tax rates, the deadweight losses of the tax system would surely rise. But almost any attempt to achieve a more equal distribution of income would entail efficiency costs. The Dems' goal should be to minimize the efficiency cost for any given amount of redistribution. And that is most likely accomplished through the tax system rather than by more heavy-handed market interventions.

posted by Dan on 11.15.06 at 04:23 PM


The conventional wisdom:

"Trade will make us more prosperous."

What actually happens:

Trade makes some much more prosperous and other much less prosperous.

Do you really expect the "much less prosperous" to just sit back and take it?

Take a look at the Ohio elections and especially the firebrand Sherrod Brown.

There will always be inequality. The degree is what deterrmines the debate.

posted by: save_the_rustbelt on 11.15.06 at 04:23 PM [permalink]

Webb is a prototypical Perot voter, what someone called the "radical middle," which is very different from the "sensible center." These people are economically nationalist, and thus inclined to protectionism, socially conservative, and unilateralist but not interventionist in global matters. Their distrust of both economic elites and the federal government makes them extremely erratic on redistributionist measures. A total nightmare for someone like Mr. Drezner.

posted by: y81 on 11.15.06 at 04:23 PM [permalink]

Question here: When Dan talks about the "efficiency costs" and "deadweight losses" of shifting taxes to higher income people, what does he mean? Could you give some examples?

posted by: amorphous on 11.15.06 at 04:23 PM [permalink]

What Mankiw wants is for the democrats to continue his policy of making the problem worse.

Tax policy plays a minor role in the growing income inequality, but what the existing tax policy does is reinforce the underlying trends that create the growing inequality.

Mankiw keeps arguing that higher incomes for the top few leads to increased savings and investments. But the evidence it overwhelming that the policy has not worked as lower marginal tax rates have been accompanied by lower savings and weaker investments.

So why should we pay any attention to him?

posted by: spencer on 11.15.06 at 04:23 PM [permalink]

This is eloquent testimony to James Webb's conservatism.

Confederate Memorial Speech

This is conservatism as behavior, practice, and respect -- not slavish devotion to unproven economic theories.

posted by: Mitchell Young on 11.15.06 at 04:23 PM [permalink]

Just for the record, Sen.-elect Webb has made a beeline for three Senate committees -- Armed Services, Foreign Relations and Veterans Affairs -- on which he is unlikely to work on trade issues at all.

posted by: Zathras on 11.15.06 at 04:23 PM [permalink]

Dan, you always confuse libertarianism with conservatism with right-wingism[?].

posted by: NeoDude on 11.15.06 at 04:23 PM [permalink]

A recent survey in the Economist warned that globalization was affecting the U.S. differently than other "First World" nations, and that white-collar jobs were in as much danger as the blue-collar positions which have thus far been ravaged by outsourcing and illegal immigration

Because, of course - sorry if this is really obvious - there's a huge pool of cheap Anglophone office labour in e.g. India ready to do a lot of whitecollar work for US (and UK) companies. The key here is "Anglophone". If you are a Danish bank administrator, you probably don't have to worry quite so much about your job being outsourced, because no one else really speaks Danish. Similarly Swedish, German, Finnish, Italian, Greek...

(It's the Revenge of Empire!)

posted by: ajay on 11.15.06 at 04:23 PM [permalink]

Unfortunately, y81 is correct. That said, Dan was warned before the election about this alarming trend but instead preferred "congressional oversight" which will at most last two years, while the economic beliefs of Webb and Sherrod Brown will have a bigger platform for at least the next six years.

I also found it humorous the National Review columnists that believed Webb was fooling Kos and was much more conservative than the netroots believed. Unfortunately, the joke was on them as Webb was pretty clear about his positions and people chose to ignore them based solely on his past hatred of John Kerry and Bill Clinton.

For some reason it never occurred to them that being a Clinton-hater didn't translate into having a sensible economic policy. In fact, as many Conservatives now acknowledge Clinton economic policies were fairly decent.

posted by: Ian on 11.15.06 at 04:23 PM [permalink]

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