Thursday, September 18, 2008


In the world of liberal economic policy, there are two basic approaches. Some policymakers proceed in a staid, conventional way: they want to subsidize health care, make the tax system more progressive, and generally offer a series of piecemeal interventions that benefit lower-income Americans. Others offer a more comprehensive vision, involving fundamental changes in the economy that will bring shared prosperity for all. They attack inequality and stagnant growth at their roots, "transforming America's economy through clean energy, innovation, and opportunity." These people manage to seem both more exciting and more mature than the former group, stepping beyond the tired mainstays of liberal politics to bring us an integrated approach to the challenges of the 21st century.

Only problem is that they're a bunch of hacks.

Now, that's a little harsh, especially when the Center for American Progress (which I pick as a representative example of a much broader phenomenon in political advocacy) and I are in agreement on many basic issues of domestic policy. But there's no avoiding the fact that supposedly "comprehensive" approaches to the economy tend to be exercises in windy rhetoric, far inferior to the boring incrementalist mix of progressive taxation, public education, and health care funding that keeps us less aspirational types busy.

Let's begin with CAP's opening essay: "Capturing the Energy Opportunity: Creating a Low-Carbon Economy." This happens to be a goal that I completely support. But beyond making the basic point that climate change is damaging and that we should cut emissions to avert it, CAP's document lacks any semblance of intelligent analysis. Consider this randomly selected paragraph:
Our traditional understanding of energy security has been largely limited to assuring adequate supplies of energy to fuel our economy. That will remain a necessary concern, of course, but not a sufficient one. Going forward our leaders will have to act on an understanding of energy security that turns not just on the supply but on the carbon content of the energy we use. Otherwise, we will consign ourselves long-term to the mercy of international markets and an increasingly variable climate.
Yes, we should start paying more attention to the carbon content of fuels, and this does represent a change from the traditional direction of energy policy. But take a look at the final sentence: "otherwise, we will consign ourselves long-term to the mercy of international markets..." How is this an "otherwise"? The point they're presumably trying to make here is that in the past, we've focused mainly on the security of energy supplies -- i.e., not consigning ourselves long-term to the mercy of international markets -- and that now we will also have to focus on the carbon content of fuels. "The mercy of international markets" is a supply consideration, not a carbon one. They claim that part of our current problem is an single-minded focus on supply, and then say that unless we change away from this focus on supply, we will be at the mercy of supply problems

It all makes very little sense. Perhaps they're trying to say that carbon-intensive fuels always have supply problems, and that cutting on carbon emissions is ultimately the best way to limit our exposure to this scarcity, but then they're wrong: coal is the most carbon-intensive fuel around, but it's in fairly abundant and secure supply.

You might think that this is nitpicking, but I think it's a very revealing example of the style that characterizes their entire report -- generic bits of policy-talk stuffed together with no underlying understanding of how the economy actually works. Although many of their proposals are good, even the solid ideas are buried by a gush of vapid "transformation" rhetoric. To wit:
What has been missing to date is the political will in Washington to seize the energy moment, put in place a series of tough, mandatory rules of the road, back them up with targeted government investments, and begin the work of transforming our economy. The old way of addressing environmental issues apart from the main workings of the economy—as “externalities” or “amenities” in the language of economics—no longer applies. We are confronted now with an issue that is paramount to the preservation of our environment and the sustainability of our eco-systems as well as critical to our national security and central to our hope for a new era of economic growth and prosperity.
Huh? How does the concept of addressing carbon as an externality "no longer apply"? What does this even mean?

The essay on international trade, "Virtuous Circle: Strengthening Broad-Based Global Progress in Living Standards," is even worse. It loves to talk about "cooperative" approaches to policy, US "leadership" in achieving "strategic objectives," and so on. But whenever it descends from its seemingly infinite reserve of generic policy jargon and attempts (even for a moment) to deal with actual facts, it reveals a shocking lack of understanding:
Globalization has helped lift an impressive 300 million (mainly Chinese) people out of extreme poverty over the past two decades, but it has also exacerbated inequality among and within most countries, quite significantly in many cases. The persistence of structural economic biases that promote export production over domestic consumption in emerging economies contributes to this trend or, at a minimum, represents a missed opportunity for reducing it and making economic growth in them and the world economy as a whole more resilient.
Actually, world inequality has been declining, primarily due to the export-driven Chinese growth that the authors are so ready to dismiss. Yes, the Chinese population could be doing a lot better if the government stopped trying to prop up the dollar and let its people enjoy the full products of their labor, but it's certainly not clear that this bias toward export promotion is bad for economic growth, like the authors claim. In fact, the entire point of artificially undervaluing a currency to promote exports is that exports are a critical sector for growth in developing economies, and that the compounded gains of rapid economic growth will overwhelm the welfare loss from lesser consumption in the short run. I'm not sure whether this logic is valid or not -- while economists traditionally have been skeptical, Dani Rodrik is presenting a decent case -- but it's simply obtuse of the authors not to mention (or recognize) it at all.

The paper goes on in similar fashion: a serious-sounding list of worries about globalization that in reality reflects little more than paranoia about "unfair" trade practices and an astonishingly crude understanding of the theory behind international trade. It's disappointing, but it shouldn't be surprising, given that none of the authors of the major CAP economic policy documents have any actual economics training. (click through to the biographies)

And this brings us to one of the major reasons I'm excited about an Obama administration. Although he sometimes descends into shady, CAP-like rhetoric about globalization and "green jobs" on the stump, he's put legitimately qualified people like Jason Furman and Austan Goolsbee in charge of formulating his campaign's economic policy. I'm sick of hacks with law degrees posing as experts on the economy (as I hope I've demonstrated, the results aren't pretty) and I can't wait for a return to boring, economically-minded liberal incrementalism.

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