Welcome back everyone to a new fun filled semester of economic discussion and thought. I hope you are all as excited as I am to delve into this book.
Thus far, I am unimpressed. I intend to keep an open mind and seek out Frank's valid arguments. This has proven to be quite the task as his book is littered with blanket generalizations of the right and of libertarians. He puts forth many platitudes meant to be taken for granted which I am skeptical of.
So let us begin.
This first chapter, titled "Paralysis" attempts to lay out a framework for the problem in our economy and country as he sees it. His first thesis appears to be that we are in a state of "ignoramitocracy" and that we are currently experiencing, in addition to an economic recession, a state of "political paralysis." I, for one, would like a more accurate definition of "political paralysis." Thus far it only seems to mean that the political process is not moving in the direction he would like as quickly as he would like it. However, I would like to point out that our government was deliberately set up to be inefficient and slow. I for one fear a government that is too swift in its decision making and change.
Frank begins painting a beautiful nostalgic picture of the past. "During the three decades following World War II, for example, incomes were rising rapidly and at about the same rate - almost 3 percent a year - for people at all income levels." I, for one find it very hard to believe that everyone experienced real economic growth at identical rates across the board. This statement also ignores the difficulty in accurately generating these statistics in a meaningful way. But let's take a look at inflation rates for those decades. http://inflationdata.com/inflation/inflation_rate/historicalinflation.aspx
Hmm.. at about 3% (and higher!). So much for that real economic growth.
But let's move past Frank's imprecise history lesson on the first page. Now a days, he tells us, the situation is much worse. Only "CEOs of large U.S. corporations" have "enjoyed significant earnings gains" while "desperately needed new infrastructure, such as highspeed rail systems or a smart electric grid, consistently fail in Congress." The country is in ruin, apparently. "Schools are in shambles." People are.. uh.. having plumbing problems? I won't try to argue that any of these are untrue statements. But they are not as absolute as he would have us believe. Some areas in our country are indeed in need or repair. Some to the point that the word "desperate" might even be warranted. But many of these areas are the responsibility of the states, not the federal government. Similarly, how can we really measure in real terms the quality of our infrastructure? It could always be made better. How is the line drawn? We trust government to allocate their free money we love to give them yet they have failed us apparently by not spending it as he would like to see it spent.
Let me be clear though. While I am bashing Frank, I intend to give his arguments real consideration. I realize that all this on the first page is very informal. This book is intended for the citizen with a casual interest in economics. But platitudes of this magnitude in a book intended for such a reader scare me. While they might convince some, they break down his credibility for me. There may be truth to all of the statements I just took issue with, but because they cannot be proven or sometimes even measured, they have no place in an argument that will allegedly follow "...directly from logic and evidence that most of us already accept." (page 15)
One of his first thesis concerns the perpetual political gridlock we seem to be experiencing in our country.
Even if we temporarily agree with the "government paralysis" he is pointing out, it cannot be blamed on one side for not rolling over and agreeing with the other. Disagreement is how the political process works and both sides use subversive methods to push their agenda. Both sides throw money at the problem and pay for think tanks and propaganda. (BTW are we one of Koch's uber-libertarian think tanks? Page 5) That's not the cause of government paralysis from my view. But Frank categorically blames "libertarians and anti-government activists" as the cause of the political gridlock. He completely strawmans the Right throughout the entire chapter particularly on page 3 when he writes about "the same leaders who..." Who exactly are these politicians? Also, these issues are not as cut and dry as he presents them. There may be some other rational for their voting pattern. For example, conservatives may vote down funding the IRS because they believe the burden of our national debt should not be put on any citizen rich or poor. I am not arguing for or against this, but simply showing there is more to the issue. Just like there is diversity in economic thought and policy on the left, the same diversity exists on the right. We cannot lump them all together.
Next Frank attributes this "government paralysis" to a vast ignorance that has taken our nation. Can we really say that people are less informed than 100 years ago? If anything people in America are more educated than 100 years ago. They have more access to quality information and have methods to organize, display, and synthesize that data. There will always be people who are more informed than others and it is easy to point to those who disagree with us and call them ignorant. It certainly seems that way when you are confident of your position. So I discount that argument.
I think we first must specify what we mean by government paralysis. If we mean that the political process has not moved quickly enough in Frank's desired direction then I'm not sure he has a valid case. We have had a democratic president who has passed stimulus bill after stimulus bill and implemented a centralized health care program. Given the two party system I think those are significant movements in the direction of the left. Was this stimulus not enough? How much would have been enough? And was it therefore truly a waste? No, that's not a good definition of political paralysis. And the same argument can be made from the right. I disagree with both sides of that line of reasoning.
If we define political paralysis as the advancement of special interests over upholding the constitution, equal protection of the laws and what is in the interests of the "common good" (something impossible to adequately define) then I think we can make a case for political paralysis. I do not blame one side or the other. I'd rather naively assume that people on both sides are constantly operating under the best intentions. I do not believe that our political gridlock is purely the result of ignorance nor malice. Seeing as how neither ignorance nor malice can really be corrected through policy, I look to the study of public choice and the incentive structure of American politics as the real culprit. Politicians, like corporations seeking favors, are no longer competing to appeal to the "consumer" or, in this case, the voter. Instead, they compete for money from those who have it through protectionist policies and direct and indirect special favors. That's my take. And ultimately why I disagree with his political paralysis argument.
Every issue he discusses is presented with a tone of "any rational person can see..." But these issues, like funding a highspeed rail system, or decisions on investing in infrastructure, or global warming are not cut and dry. If they really were, they would not really be issues.
Now to his real argument. Finally.
I will grant him the possibility that he may be onto something when unfettered competition leads to negative externalities. I do not think that can be denied when it comes to the tragedy of the commons or when businesses are not competing for the consumers but for the politicians. But his examples thus far have not really made this idea real for me. Let us take his, in my opinion, most realistic example about workers assessing risk for pay so as to live in better areas zoned for better schools (page 9 and 10). The first thing that jumped out at me was not that he was worried about protecting people from their own decisions concerning risk, but was what I saw as a large oversight of basic economic principles. He said that workers, accepting more risk for higher pay, would then spend their income on nicer houses so their kids could go to better schools. This in turn would result in an increase in demand for such houses driving the prices up and making all their hard work for nothing. But wait. Isn't there something else that happens that we learn about in micro economics? Doesn't a positive shift in the demand curve not only result in higher prices but in turn increased supply? Why is this suddenly an exception to this rule? Would we not see a push to both build new houses closer to schools but also a push to renovate lower quality houses? Don't schools frequently rezone themselves based on changing populations? And back up even further, isn't this already happening? It doesn't matter whether or not an individual decides to exchange risk for pay. People always want their children to go to the best possible schools. Also, harder jobs, not just riskier jobs, fetch higher wages. Should we be worried about protecting people from the stress they cause themselves by working, as well? By this logic, we should (he isn't suggesting banning activities remember) measure people's stress and risk levels, then tax them for this undesirable behavior. Certainly Frank would not suggest such an absurd proposal.
I would be very careful of Frank's examples. Think them through with the economic principles you know to be true. I could go on but I think this is enough for a first post. This will be a fun semester.