Thursday, December 8, 2011

David Frum on Obama's Speech

David Frum's reaction to Obama's big speech in Kansas was similar in some ways to mine. On Obama's description of how the crisis came about:

There's a lot missing from that story. But still ... close enough for government work.

Just what I thought.

So what exactly does the president propose as a policy response to this generational economic disappointment?

The program he proposes is hazy, but seems to include four main elements:

1) Increased spending on education intended to upgrade American skill levels

2) Higher taxes on upper-income earners to decrease inequality

3) More government investment in infrastructure, both as a source of jobs and in hope of supporting a more middle-class economy

4) Stricter financial regulations

Now how exactly is any of this supposed to address the challenge the president himself described?

We are back to my favorite political theme; many thinking people agree on America's economic problems, but nobody really knows what to do about them. Like me, Frum is dubious of expanding higher education as a solution:

If higher education spending could do the job of sustaining a middle-class society, that job would be done. Total education spending in the U.S. doubled between 1992 and 2005. . . . Americans invest enormous faith in schools and schooling. But it seems that higher and higher investments in education are not translating into higher wages or greater opportunities.
It should be noted that the reason education spending has gone up so much is that college is getting more expensive, not that we are sending more people to college. But since Congress doesn't control the cost of college, expanded subsidies will likely go down the same hole. Of course Frum, a conservative (even if a heretical one), doesn't like 2 and 3:

It's helpful to think of ideas number two and three as forming a package: Higher taxes on upper-income earners buys more public services — and thus, more (comparatively) well-paid public-service workers.

Frum makes a good point about the danger of this approach, using the example of Britain under New Labour (1997-2008). If you tax the rich heavily and use the money to create or subsidize middle class jobs, then your economy becomes increasingly dependent on the achievements of the rich. Their incomes vary a lot from year to year, since they depend on the capital markets. When the financial crisis hit Britain, the government's budget was savaged, because its tax revenues fell by much more than the overall economy.

This is not an unsurmountable problem for the US, since our rich people are not so heavily concentrated in one industry as Britain's (where most are in finance or depend on it). But it does require careful, multi-year budgeting, saving the surpluses built up in boom years to pay the bills when the inevitable crash comes. A more broadly-based tax system is more stable. The northern European countries much loved by American liberals (Denmark, Sweden) actually have much flatter tax systems than we do, and get more of their tax revenue from ordinary and even poor people.

But Frum doesn't even consider whether more infrastructure spending would help the country as a whole, and while I agree that it would be nice if the private sector would just create more middle class jobs, Frum offers no reason for thinking that it would. Nor does he mention financial regulation, which I think is essential. So, yes, Obama's platform does not really address the underlying problem that modern capitalism is better at creating billionaires than at raising the incomes of ordinary people. But what would? I don't think that a full enactment of Obama's liberal approach would solve our problems, but I think it will work better to ameliorate the inequities of our age than any conservative measure.

1 comment:

leif said...

using 2010 numbers *per state*, the states with the highest numbers of citizens ages 25-34 with a degree enjoy the following:

p = -0.55 correlation with receiving food stamps
p = -0.58 correlation with nonviolent crime
p = -0.65 correlation with burglary
p = -0.67 correlation with % in poverty
p = 0.67 correlation with average income rising
p = 0.66 correlation with median AGI
p = 0.69 correlation with average AGI
p = -0.61 correlation with population in prison

there is also a slightly negative correlation with having republican senators (p=-0.37) and a strong correlation (p = -0.87) with firearm deaths per 100k people.
there's a pretty strong correlation with living a healthy lifestyle (p=0.75)and a strong correlation with longevity (p = 0.70).

though there are lots of non-correlations with education level, such as forcible rape, recipients of government aid and number of breweries in the state, the previously mentioned correlations are strong-moderate correlations, enough to think there might be something to it. why NOT underwrite higher education?