Category: economics

Debtmageddon vs. the robot utopia

It seems likely to me that almost everything prescribed by politicians as a remedy for America’s economic doldrums is wrong. I’m not an economist, so my opinion should probably be taken with a grain of salt. But since reading the news has begun to take on an Alice in Wonderland quality for me, I wanted to try to set down in words how my understanding diverges from theirs.

Just so you know where this is headed: I suspect that the flow of money in America has broken down because wealth is too highly concentrated, and that for at least a generation or so, the government ought to tax the rich heavily and spend on the poor and middle class just as heavily.

Why do all politicians and most pundits recommend the opposite? Flawed metaphors, I think. Most people make a natural comparison between a nation’s budget and a family’s. If a family is sliding into debt, the only remedies are to earn more and spend less. But a nation’s economy is not at all like a family’s. For one thing, within most families, communism prevails: the rule governing money is, From each according to his abilities, to each according to his needs. For better or worse, this doesn’t happen to be the rule governing money in America at large. Also, within most families, money is not exchanged for labor. In a pedagogical, largely symbolic way, Jimmy may be given $2 a week in exchange for taking out the garbage. But the person who cooks and cleans does not clock his hours; the children do not buy their dinners. The exchange of labor and goods within a family is for the most part unmeasured and invisible, and it makes more sense to understand a family as a group of people functioning a single economic agent. If the sort of thing that brings a family from debt to prosperity also helps a nation, it’s logical coincidence. Family and nation are so unlike each other that there’s no reason to expect it to.

The nation-family metaphor is nonetheless powerful. Even though most economists believe that reduced government spending will worsen the current recession, almost all politicians have caved into the “common-sense” idea that a nation in economic trouble ought to reduce its debt, leaving Paul Krugman to cry in the wilderness. The metaphor also drives, I suspect, another popular economic idea with almost no empirical support, namely, the notion that instead of taxing the wealthy, the government should reward them, in hopes that the wealth they accumulate will trickle down to others in the nation. The wealthy have proven that they know how to make a profit, this line of reasoning goes; get out of their way and let them make the economy grow.

The notion appeals, I suspect, because it, too, would make sense if a nation were like a family. In fact it’s excellent economic advice for a family. If Mother is a whizbang software engineer and Father’s just a freelance writer, it doesn’t make economic sense to tax them with household chores equally. Father should change more diapers and wash more dishes, freeing up Mother to devote more energy on coding the latest breakthrough app. (Whether this sort of inequity is good for the marriage bed, as well as for the pocketbook, is a different question. But it’s well understood that marriages are economically more than the sum of their parts only when spouses differentiate in their skills and tasks, rather than splitting all responsibilities identically.) If the richest people in a nation were analogous to the primary breadwinners in a family, and if income taxes were analogous to housekeeping chores, then it would make sense for the nation as a whole to indulge the rich in their profit-making and to believe in the existence of the trickle-down fairy. But neither analogy holds. Mother the software engineer, remember, deposits her paycheck every week in the family’s communal bank account; this bank account feeds her freeloading children, not to mention the dog; Mother may even let Father the freelance writer buy a new laptop that his personal earnings don’t yet justify. By contrast, when a corporate executive is given a break on his capital earnings tax, he is thereby exempted from, say, providing food for fellow Americans who can’t earn enough to feed themselves or investing in the future earning potential of a worker who’s not yet up to speed. Yes, he’s now able to make money faster, but the reason that other family members make sacrifices for Mother the software engineer is that they know she’s going to share her wealth—that her wealth is also theirs. The wealth of the little-taxed corporate executive is only his.

Proponents of trickle-downism will argue that the little-taxed corporate executive will in fact share his wealth by spending it, and that his purchase of goods and services will drive economic growth more efficaciously than mere giveaways would. But it turns out that the executive doesn’t spend more, or not enough more for his increased spending to be helpful to the economy—for the simple reason that he doesn’t need to. In the hands of rich people, money moves slowly. That’s what it means to be rich: you have more money than the cost of all the things you need or want. A poor person, by contrast, needs more than he can afford. The poor therefore spend money faster. If you want to boost a nation’s economic growth, it’s better to give to the poor, not the rich. A dollar given to a poor man multiplies faster, Keynes observed, than a dollar given to a rich man.

Economic inequity has been extremely high in the past decade, much as it was in the 1920s and 1930s. The popular understanding of the Great Depression is that it ended because World War II finally obliged American politicians to forget their prudence, and borrow and spend enormous sums. Supposedly this great deficit expenditure stimulated the American economy, like an adrenaline shot. Maybe. But what if the metaphor of stimulation is wrong too? What if it wasn’t the deficit spending of World War II that stimulated the American economy, but the war’s redistribution of wealth? The war obliged America to employ a literal army of people as soldiers and factory workers, and after the war, America felt obliged to continue to reward the working classes with expanded social services, including free higher education for veterans. The period from World War II to the 1970s turned out to be the greatest era of prosperity America has ever known. Is it a coincidence that it followed a massive, government-run redistribution of wealth, which happened to take the form of a war? When TARP and a fiscal stimulus bill were passed a couple of years ago, I remember thinking to myself, well, if the mainstream economists are right, and the problem with America can be remedied by an injection of deficit spending, then my gloom will be disproved. But if my suspicion is right that the underlying problem is economic inequity, then no stimulating injection, however large, will succeed. The economy will be lackluster until something happens that shifts wealth from the rich to the poor. Such a shift is unlikely in today’s political climate, of course. Political power naturally follows wealth, so the rich, owning as they do a disproportionate share of the nation’s wealth, now also control a disproportionate share of its political decisions. In a catch-22, the inequity undermining the economy makes impossible the political action needed to remedy it.

Why haven’t our current wars had the same effect that World War II did? I don’t know. Maybe we’re not paying our soldiers enough; maybe the military’s heavy investment in technology and equipment has muted war’s impact as a redistributor of wealth. (And maybe, of course, I’m wrong. I don’t have the statistical chops to back up this analysis.)

The mention of military technology brings me to my last idea. This is the challenge of the robot utopia. You remember the robot utopia. You imagined it when you were in fifth grade, and your juvenile mind first seized with rapture upon the idea of intelligent machines that would perform dull, repetitive tasks yet demand nothing for themselves. In the future, you foresaw, robots would do more and more, and humans less and less. There would be no need for humans to endanger themselves in coal mines or bore themselves on assembly lines. A few people would always be needed to repair and build the robots, and this drudgery of robot supervision would have to be rewarded somehow, but someday robots would surely make wealth so abundant that most people wouldn’t need to work and would be free merely to enjoy and cultivate themselves—by, say, hunting in the morning, fishing in the afternoon, and doing literary criticism after dinner.

Your fifth-grade self was wrong, of course. Robots aren’t altruistic beings; they’re capital investments; and though robots may not ask to be paid, their owners demand a return on their investment. We now live in the robot utopia, which isn’t one. Thanks in large part to computerized mechanization, manufacturing productivity in the past century has increased many times over. Standards of living are higher than they ever were, but we no longer need as many humans to work as we once did. Perhaps not coincidentally, human wages, in America at least, have stagnated since the 1970s. If humans made no more money in the past four decades, where did the wealth created by the higher productivity go? Toward robot wages, as it were. The owners of the robots took the money—that is, the capitalists. Any fifth-grader can see where this leads. At some point society has to choose. Either society accepts the robots’ gift as a general one, and redistributes the wealth that the robots inadvertently concentrate, or society allows the robots to become the exclusive tools of an ever-shrinking elite, increasingly resented, in confused fashion, by the people whom the robots have displaced.

The robots are here. By now they automate even much of our social lives. You might compare the political challenge they represent to what’s known as the “resource curse”—the infamous difficulty that oil-rich nations have in preserving democracy while sharing the oil’s proceeds. Do we want to be Norway or Saudi Arabia? The choice seems to be between democratic socialism and tyranny. I know my understanding will strike many as implausible, if not unspeakable: I’m saying that the country is suffering economically because it doesn’t know what to do with all its surplus wealth.

Tea and antipathy in novels about mild-mannered clerics

If a thing is weighing on one’s mind—a topic, say, like 18th-century tea smuggling or political paranoia—one tends to find it even when one isn’t looking for it. While reading novels, for example.

Americans were far from being the only people in the eighteenth century who smuggled tea. In fact, the ratio between the tax on East India Company tea and its underlying price was so high that it eventually became a classic example in economics of the way that overburdensome regulation may encourage illegality, and awareness of the problem seems to have spilled over from economics into literature quite early on. While researching “Tea and Antipathy,” I happened to read John Galt’s Annals of the Parish (1821), a charming novel that Galt himself liked to think of as a “local theoretical history.” The book is written in the voice of Reverend Micah Balwhidder, a Presbyterian minister, recently retired, who has decided to set down an account of his life in the Scottish parish of Dalmailing. Each year gets its own chapter, in which Reverend Balwhidder, with a guileless lack of self-awareness, summarizes the doings in Dalmailing, spiritual and nonspiritual. In 1761, the most remarkable thing in Dalmailing was the smuggling of tea and hard liquor:

It was in this year that the great smuggling trade corrupted all the west coast . . . . The tea was going like the chaff, the brandy like well-water, and the wastrie of all things was terrible. There was nothing minded but the riding of cadgers [sellers] by day, and excisemen by night—and battles between the smugglers and King’s men, both by sea and land. . . . I did all that was in the power of nature to keep my people from the contagion; I preached sixteen times from the text, Render to Caesar the things that are Caesar’s. I visited and I exhorted; I warned and I prophesied; I told them, that, although the money came in like slate stones, it would go like the snow off the dyke. But for all I could do, the evil got in among us. . . .

Indeed, a year later, in 1762, the evil has made its way into Reverend Balwhidder’s own home, in part on account of the charitable interest he takes in an indigent widow, Mrs. Malcolm, who has begun selling tea. “I lost some of my dislike to the tea,” the minister admits.

It did no harm to the head of the drinkers, which was not always the case with the possets that were in fashion before . . . ; so, both for its temperance, and on account of Mrs Malcolm’s sale, I refrained from the November in this year to preach against tea.

By 1778, when the rage for smuggling returns, Rev. Balwhidder is not above chuckling over the story of a woman who has hidden a stash of smuggled tea in her mattress ticking and lies on top of it, feigning to a customs officer that it’s her deathbed. Loosened from strict virtue by time and his affections, the reverend even goes so far as to observe, “Of all the manifold ills in the train of smuggling, surely the excisemen are the worst.”

Not long after, while reading Oliver Goldsmith’s The Vicar of Wakefield (1766), I unexpectedly came across some 18th-century political paranoia—in particular, the variety known as the 18th-century Commonwealthman tradition. In chapter 19, the Vicar, Dr. Primrose, is invited to dine at the home of Wilkinson, a man so interested in politics that he reads six newspapers, seventeen magazines, and two reviews. Wilkinson complains that George III hasn’t let himself be managed the way a king ought to let himself be managed:

I don’t think there has been a sufficient number of advisers: he should advise with every person willing to give him advice, and then we should have things done in anotherguess manner.

When the Vicar protests that such management would be meddling, a lady calls him “sordid” and indignantly apostrophizes “Liberty, that sacred gift of heaven!” Wilkinson, too, takes offense: “Can it be possible . . . that there should be any found at present advocates for slavery? Any who are for meanly giving up the privileges of Britons?”

This was the lingo of the 18th-century Commonwealthman, which Goldsmith disliked, and the Vicar—or Goldsmith, in the Vicar’s voice—proceeds to dress Wilkinson down. The way he does so is rather interesting to an observer in 21st-century America, where income inequality is higher than it has ever been. The Vicar argues that the antimonarchical rhetoric of people like Wilkinson is obfuscatory piffle served up by rich oligarchs, who resent the king’s power as an interference with theirs—as interference with the manipulation by the wealthy of the poor and the oppression by the wealthy of the middle class:

It is the interest of the great . . . to diminish kingly power as much as possible; because whatever they take from that is naturally restored to themselves; and all they have to do in the state, is to undermine the single tyrant, by which they resume their primaeval authority. Now, the state may be so circumstanced, or its laws may be so disposed, or its men of opulence so minded, as all to conspire in carrying on this business of undermining monarchy. For . . . if the circumstances of our state be such, as to favour the accumulation of wealth, and make the opulent still more rich, this will encrease their ambition. . . . Now the possessor of accumulated wealth, when furnished with the necessaries and pleasures of life, has no other method to employ the superfluity of his fortune but in purchasing power. That is, differently speaking, in making dependants, by purchasing the liberty of the needy or the venal . . . the rabble of mankind, whose souls and whose education are adapted to servitude. . . . But there must still be a large number of the people without the sphere of the opulent man’s influence. . . . In this middle order of mankind are generally to be found all the arts, wisdom, and virtues of society. This order alone is known to be the true preserver of freedom, and may be called the People. Now it may happen that this middle order of mankind may lose all its influence in a state, and its voice be in a manner drowned in that of the rabble: . . . In such a state, . . . all that the middle order has left, is to preserve the prerogative and privileges of the one principal governor with the most sacred circumspection. For he divides the power of the rich, and calls off the great from falling with tenfold weight on the middle order placed beneath them.

A strong central government, the Vicar insists, is the middle class’s safest ally. The rich demonize such a government as tyrannical, because no other force in society is capable of standing up to wealth. Should the rich succeed in fooling even the middle class into distrust of government, the result will be a country where “the laws govern the poor, and the rich govern the law.”

The contradiction outrages Wilkinson. Before Wilkinson can throw the Vicar out of the house, though, Wilkinson’s master and mistress come home: it turns out that Wilkinson is really no more than a butler.