What Policy Agenda Follows From "You Didn't Build That?"

Jul 20, 2012Mike Konczal

(Note: There's a previous post on this subject of "you didn't build that," taking apart the conservative agenda around "job creators," which you can read here.)

(Note: There's a previous post on this subject of "you didn't build that," taking apart the conservative agenda around "job creators," which you can read here.)

The right is freaking out about President Obama's "you didn't build that" comment. Well, let's hope the conservatives in the audience have their fainting couches nearby and pearls sufficiently clutched, because I am going to start by kicking out two jams by my man, Franklin Delano Roosevelt, from back from when he was on the campaign trail:

"Our Republican leaders tell us economic laws--sacred, inviolable, unchangeable--cause panics which no one could prevent. But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings." (Nomination Address, July 2nd, 1932, Chicago, IL)

"To insure the first set of rights, a Government must so order its functions as not to interfere with the individual. But even Jefferson realized that the exercise of the property rights might so interfere with the rights of the individual that the Government, without whose assistance the property rights could not exist, must intervene, not to destroy individualism, but to protect it." (Commonwealth Club Address, September 23, 1932, San Francisco, CA)

Now as long as people are guessing as to what the true, deeper, esoteric meaning is of President Obama saying, "Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that," let throw something out there. It may be less a legal argument for how all property is the creation of the state - or as Roosvelt said, "the Government, without whose assistance...property rights could not exist" - and more a genuine call for actually building roads and bridges, something Congress is no longer capable of doing in these times. The current House went to war over whether or not to fund transportation infrastructure. It barely passed in a last-minute bill that left many issues still on the table. Former Republican congressman and now Transportation Secretary Ray LaHood told Politico that the original proposal was “the worst transportation bill I’ve ever seen during 35 years of public service.” Given that capital markets are willing to lose money to loan to us for 20 years and there's lots of unemployed people around, this should be a no-brainer.

There's two responses I've seen on the right to this topic that I'd like to address on the "you didn't build that" point, and both come up in Julian Sanchez's post "What Follows from 'You Didn't Build That'?" One is that President Obama is addressing a strawman, and that unless you are speaking to an anarcho-capitalist nobody would disagree with this. "Even we minarchist libertarians are already on board with" basic public goods, he writes, and President Obama's vision of the role of the state is much more expansive than that. I disagree that there is no disagreement. I think that the current vision animating conservatism broadly and GOP policy narrowly is one of an economy in which value is created top-down by "job creators," which I outlined at length here. Rather than "Social Darwinist," as the president refers to it, I think it is clearer to say that the current GOP policy, centered around the Ryan Budget, is "Randian." Now, that doesn't mean the opposition believes every part of Ayn Rand's theories; it just means that their political compass is orientated towards her vision, and if you step in that direction you are getting closer to your goal.

The other response is that what Obama says is largely true, but there's no actual politics that falls out of it. Sanchez writes, "It’s not that the 'you didn’t build that' argument is wrong as a factual matter—it’s that it’s true about everything, and therefore doesn’t get you much of anything."

That's a good point. What does a "you didn't build that" agenda look like? Here's what I think it should include broadly, and what matters it should be concerned with, at least on all things related to economics. (Noting in advance that I'm pretty sure the mainstream Democratic Party and President Obama aren't going to sign up for most of this.)

The first step is what President Obama was calling for in the speech, which is progressive taxation. This doesn't require the state to do more than what it does now, or less than what it does now, but instead changes how we pay for those things. And here the idea would be that those who have benefitted the most have an obligation to contribute the most. This has historically been a controversial policy - when the French economist and statesman Turgot was presented with a project for progressive taxation he responded "we must execute the author, not the project" - and I think it is useful to consider the Ryan Plan as ending progressive taxation. There's a lot of ways to argue for progressive taxation, including shared sacrifice of marginal utility, and this is another.

Another would be emphasizing that public goods are actually that: publically provided and shared. There's been a move to both privatize large parts of the government and to emphasize putting costs for the use of publically provided infrastructure directly on end users instead of making them paid for broadly. Higher education, for instance, is now less a conscious set of planning the government does to make sure all who need education can receive it, which is paid for broadly through taxes, but instead of a series of coupons -- grants, loans, tax subsidies -- to subsidize individuals purchasing a self-investment by and for themselves, with the assumption that the "for-profit" sector and innovation broadly will expand in size and quality to pick up the slack of decreasing public provisioning. A broader question is what is treated as a commodity, and under what terms. Fighting back against both of these issues would be part of the agenda.

Continuing the inter-generational pact of the welfare state is another part. David Frum recently described the current GOP as "a going-out-of-business sale for the baby-boom generation." Not wrecking the entire social safety net and the mechanisms of the goverment on the way out the door, and instead thinking of the government as a pact through time, is another important point to emphasize.

Now for property. Conn Carroll at the Washington Examiner brings up Robert Hale and the progressive, legal realist attack on laissez faire, and Sanchez brings up the similar arguments of the Nagel/Murphy book “Myth of Ownership.” These arguments are partially inherited from people like Jeremy Bentham, who argued that “property is entirely the creature of the law.”

One of the critiques that comes out of these arguments is that the picture of property rights as a vertical relationship between a person and an object, one where the issue at play is whether the person's right over the object is “deserved all the way down,” is flawed, or at least insufficient. Property is really a horizontal set of relationships between people; it isn't just your control of an object but your control over others with respect to that object. The fundamental right of private property, of course, has always been the power to exclude others. But in the 1910s, a law professor named Wesley Hohfeld formalized property "rights" into a series of four capacities: "right," "privilege," "power," and "immunity." They contrast with four incapacities: "duty," "no-right," "liability," and "disability" (see here or here for more). Each type of property right is predicated on being able to force others to respond a certain way -- you have certain immunities while others have disabilities in response, certain powers while others have liabilities, and so on.

And so "liberty" for one comes at an expense of "liberty" for another. Since there's no neutral way for the government to set these rules, certainly no abstraction like "economic liberty" to guide the path, the question over social control of property, as Leonard Trelawny Hobhouse put it, is "not of increasing or diminishing, but of reorganizing, restraints." The issue here isn't that everything is up for grabs - it's that there is no "neutral," and appealing to higher abstractions as "rights" or "ownership" don't get you anywhere.

Perhaps you find that objectionable or maybe you don't, so let's build out the You Didn't Build That Agenda in regards to property. The first stop is that there needs to be a democratic element and accountability in setting up these rules. If only because trying to back out a system of rules from vague appeals to "liberty" (especially as interpreted by courts) don't actually get us anywhere. The second issue would be acknowledging and confronting the issue that the current set up of the rules of property and economic exchange are important in creating our current economic inequality, from the runaway wealth of the top 1% to the stagnating wages of everyone else.

The way we set up the rules creates a lot of winners. The top 1% consists mostly of corporate CEOs and financial wealth. The former are influenced by the way we structure corporations through law -- read Demos' Anthony Kammer on "Reimagining the Corporate Form: Toward a More Democratic System of Corporate Governance" -- and compensation packages through tax law. The latter has a clear link with financial deregulation and much of the system exists in a way where finance's failure can pose huge externalities on other market actors and the macroeconomy as a whole. Another example is patent law which, as many note, provides large windfalls for owners. Over half of the windfall that comes from the fact that we privledge income from capital over income from labor in taxation goes to the top 0.1%. Dean Baker’s e-book, "The End of Loser Liberalism: Making Markets Progressive," is great on these points.

The way we set up the rules also creates a lot of losers. Bankruptcy law has become tougher on regular people while corporations do fine under it, something Robert Kuttner writes about as an important double standard. It is harder to unionize, and simple measures to allow for card check have failed in Congress. Inequality at the low end can be largely attributed to decreased unionization (for men) and a stagnant minimum wage (for women), both of which reduce bargaining power for their respective parties.

There's also macroeconomic policy, something the government does (or doesn't do) that has significant impact on economic outcomes but that impacts all kinds of claims to property. As Ryan Avent notes, commenting on the You Didn't Build That issue, the "operating monetary principle over the past generation—price and financial stability at all costs, help for the unemployed if we get around to it and only to the extent that the first priorities aren't endangered—has facilitated the creation of an enormous amount of financial wealth," as well as stagnating wages for everyone else. Full employment for all is a great start, though there's no way to appeal to it by referencing abstractions of economic liberty.

What else needs to be part of the agenda?

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Investing In and Invigorating Head Start

Jul 11, 2012Amy Baral

Head Start is a good start to revitalizing national education but there is still room for improvement. 

Head Start is a 8 billion dollar federal grant program that provides preschool and other early childhood learning opportunities to about 1 million 3 and 4-year-old children that meet federal poverty guidelines.  When Head Start was first created, as part of President Johnson’s War on Poverty, the program was designed to help improve the child development and developmental needs of disadvantaged children.

Head Start is a good start to revitalizing national education but there is still room for improvement. 

Head Start is a 8 billion dollar federal grant program that provides preschool and other early childhood learning opportunities to about 1 million 3 and 4-year-old children that meet federal poverty guidelines.  When Head Start was first created, as part of President Johnson’s War on Poverty, the program was designed to help improve the child development and developmental needs of disadvantaged children.

While Head Start has grown slowly since its inception in the 1960s, critics have never been far behind to challenge the programs successes and budget.  Most recently, TIME’s Joe Klein challenged Head Start as a failing to “yield results” and called for the end of the program.  Klein opined that because some studies show that children in Head Start do not see sustained academic and developmental growth after they have finished the program, that the program itself was a failure and a waste of money.  Klein raises some interesting points. First, is $8 billion a year for poor preschoolers a valuable use of the federal government’s money?  Second, does Head Start actually improve academic outcomes long-term? And finally, is there a way to improve the Head Start program or should it just be scrapped as wasteful government spending?

First, is the federal government justified in spending $8 billion a year on preschool education for American’s poorest children?

America provides a system of free public education, usually Kindergarten through Grade 12.  However, most young children often attend a series of private preschool programs before starting Kindergarten.  In contrast, most European countries provide about 2 years of pre-school or early childhood development programs for all young children before the kids begin primary school.  Instead, in America, mostly all preschools are privately run, with average costs of about $3,000 - $12,000 per child per year. 

America does provide limited subsidized preschools at the state and federal levels, usually based on poverty level, and Head Start is one of these programs. But, Head Start only serves about 1 million children a year and in 2010, there were 6.3 million children in poverty.  So maybe the question is not whether the federal government is justified in spending $8 billion a year on preschool programs for poor children, but whether $8 billion is enough to serve the needs of these children.  With potentially 5.3 million children going without adequate access to preschool services every year, it is clear that America’s early childhood education programs benefit those that have the means to access these private programs and harm those without similar access.

But, America is in a recession and the federal government is struggling to allocate money for even well supported government programs, like subsidized student loans.  Before one advocates for expanding a program such as Head Start, it is important to ensure that the program actually works.  This leads to the second question, is Head Start achieving educational and development success among the children it serves?

Head Start’s successes in early childhood development and long-term academic and social outcomes for poor children are disputed.  While there are some studies that highlight the successes of Head Start in terms of keeping people out of prison and leading to higher education rates, other studies, like the Head Start Impact Study show only minimal long-term effects.

Still, many of these minimal long-term effects can be attributed to the weak schools that Head Start graduates will attend upon program completion.  Faced with failing schools, a lack of resources, overcrowded classrooms, and even bad teachers, it is of no surprise that the students targeted for Head Start programs cannot maintain their academic improvements over time because the odds are simply against them.

It’s clear that America has many poor children who go without access to quality preschool programs due to their poverty level and the limited reach of the Head Start program.  Further, poor children who do have access to Head Start often do not see sustained academic outcomes throughout their time in public education. Maybe the true issue is that early childhood education through Head Start is only one part of the process to improve educational and life outcomes for poor children in the United States.  This leads into the third question, can Head Start be improved to ensure effective program performance and long-term benefits or should the program just be scrapped?

Obviously, Head Start should not be scrapped unless the federal government and the states figure out a better way to provide access to high-quality preschool programs for our nation’s poorest preschoolers.  There are too many preschoolers in this country who go without access to early childhood development programs, and while Head Start is just one option, it’s an option that is helping 1 million of these preschoolers.

Still, as with any government program, it is necessary to ensure that federal money is being spent correctly.  In 2007, Congress passed “Improving Head Start for School Readiness,” an act that allows the government to take a stronger federal oversight role of Head Start programs and requires teachers in Head Start programs to hold associates and bachelors degrees.  The Obama Administration has already used its power under this bill to close unsuccessful Head Start programs and provide more funding for programs that were succeeding.  To ensure that federal money is being spent correctly and that children are receiving high-quality preschool education, it is essential that federal oversight of Head Start programs continue.

Finally, the federal government should work to expand access to free and reduced preschool programs for poor children.  Preschool has a profound impact on the educational attainment and development of children.  Further, because most middle-class children have the ability to attend preschool, expanding access to preschool programs for poor children could help close socioeconomic achievement gaps.  Most importantly though, gains made in preschool need to be sustained overtime through strong primary and secondary public education for all students.  American needs to work towards improving its K-12 educational opportunities for all students to ensure that all children have access to high quality education from preschool to college.

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Amy Baral is a Roosevelt Institute Pipeline Fellow.

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38 Million Missing Quits, the Battle to Quit and Replacing Government with a UBI: Three Points on Workplace Coercion

Jul 7, 2012Mike Konczal

There's a lot of discussion on the workplace as a site for private coercion building out of the epic Crooked Timber post Let It Bleed: Libertarianism and the Workplace, by Chris Bertram, Corey Robin and Alex Gourevitch (BRG). They are responding to the worldview of the Bleeding Heart Libertarians (BHL).

There's a lot of discussion on the workplace as a site for private coercion building out of the epic Crooked Timber post Let It Bleed: Libertarianism and the Workplace, by Chris Bertram, Corey Robin and Alex Gourevitch (BRG). They are responding to the worldview of the Bleeding Heart Libertarians (BHL). Corey has two posts (I, II) collecting a wide variety of great responses. I'd like to make three quick points I haven't seen others mention.

I - Over 38 Million Quits Missing

If we view individuals quitting their job as a check on private coercion, which I believe the BHL crew thinks, then there's been a massive increase in private forms of coercion in the past several years. Here's JOLTS data from the Bureau of Labor Statistics on the number of quits that are happening in the labor force:

There are, roughly, 38.4 million quits that should have occurred that didn't since the economy went into recession. I'm assuming nobody believes that employers decided to become very nice all of a sudden in December 2007, but that instead the economy went into a deep recession. As a result of this recession, where the number of unemployed versus job openings has skyrocketed (because both the unemployed have increased and job openings shrunk), it is very difficult to find a job. This translates into declining labor share of income, as workers are left with little bargaining power in the Great Recession. If one assumes that labor management techniques are sticky, or that hysteresis creates the conditions where people who have lived through bad economic times have weaker bargaining power, this coercion is likely to cement and be long-lasting.

The academic unemployment literature goes far beyond the Economics 101 idea that wages are simply equal to contribution (marginal product). That literature now looks to bargaining over surpluses/rents that come out of the labor contract as the crucial issue for how wages are determined. If you look to Chris Pissarides' Equilibrium Unemployment Theory (a textbook summarizing the work that just won him the Nobel Prize), you see arguments such as, "We assume that the monopoly rent is shared according to the Nash solution to a bargaining problem...The way that market tightness enters the wage equation in our model is through the bargaining power that each party has...The worker's bargaining strength is then higher and the firm's lower, and this leads to a higher wage rate." Tight labor markets mean more of the surplus is captured by labor through wages. If you view workplace conditions as an extension of the wage equation, then full employment makes a giant difference even under neoclassical economic assumptions.

BHL is not an economics blog, but I find it weird that they aren't ringing the alarm as much as possible on this. They should be willing to go to some great lengths to keep the labor market at full employment as a "free market" way of mitigating abuses, which would involve accepting mass job creation programs, larger government deficits, unorthodox monetary policy, putting losses on creditors instead of debtors, and so on. For many libertarians these solutions are the real "abuses."

Macroeconomic stability, everyone having a right to employment, and labor capturing their fair share of the pie aren't the passive results of "economic liberty" or of economic contracting. They are the result of an interventionist government focused on managing the macroeconomy, one whose political compass is set by groups organized to protect the interests of workers, of which organized labor are the leaders.

II - Freedom to Quit Was Forged in Political Battle, Not Markets

Alex Tabarrok at Marginal Revolutions wrote this: "If you think that the freedom to quit is without value bear in mind that under feudalism and into the early 19th century in the U.S. and a bit later in Britain employers and even potential employers could prevent workers from quitting and from moving. The freedom to quit was hard won. We should not disparage the liberation brought by a free market in labor."

Early 19th century? British Master and Servant law made employee contract breach a criminal offense until 1875. Anti-enticement laws, where employers would be fined if they hired someone who was currently under contract, were popular in the sharecropping American south into the early 20th century, and upheld in courts as late as 1923.

Tabarrok draws on Robert Steinfeld's excellent work in that link, but a crucial thing to draw from that literature is that laissez-faire "economic liberty" and "freedom of contract" movements were the enemies to building the modern freedom to quit one's job. Employees faced criminal penalties for quitting and the loss of back pay if they did quit, and the common law of the time made it impossible for workers to end this. Laissez-faire advocates fought for this and against organized labor's efforts to dismantle it.

It seems like people are discussing the right to quit as if was something that just emerged out of our rich society, and something that "naturally" came out of extensive, individual, economic bargaining, when that couldn't be further from the truth. Only through the concentrated efforts of organized labor, a bloody, ugly fight, was this modern freedom able to be built. Karen Orren's book Belated Feudalism places the end of this old regime Tabarrok alludes to at the New Deal's 1935 Wagner Act, which comes after decades of union organizing and battling. Who will build the next set of contractual labor frameworks we'll take for granted, given that the freedom to quit was a political battle that never emerged from the labor market on its own?

III - How Much Does a UBI Cost, and Should We Replace the Government With Cash?

There's also a question of how much a Universal Basic Income (UBI) would cost. BRG suggested it would be 20 percent of GDP, added to the roughly 20 percent baseline of taxation that already exists to provide current government services, for a total of 40 percent. This is correct. Our GDP per capita is roughly $50,000. If you want to give everyone $10,000, that will require taxing 20 percent of GDP.

A lot of people suggested that was too high. Those people are usually, almost by definition, doing one of a few things. They are excluding some populations from the UBI (such as giving children nothing or much less), they are really discussing a negative income tax (a means-tested UBI done through the tax code), they are also removing current government services (such as unemployment insurance, or food stamps), or they are redefining "cost" to just focus on the redistribution element (associated with the negative income tax). Changing those numbers would change the final result.

Some means-test the UBI as a negative income tax, which would have significantly less cost. This has the normal "submerged state" problems any tax code program has, where people wouldn't see it as a government program. The means-tested part makes it not universal in basic sense. The negative income tax wouldn't avoid stigmatization as not everyone would receive it, and could still create poverty traps, two issues the UBI is meant to overcome. Indeed a negative income tax with a work requirement, the EITC, is ground zero for the accusation that too many people pay nothing in taxes but receive government services.

Charles Murray essentially dismantles the welfare state and the government and replaces it with a UBI in his argument. He segments 30 percent or so of the UBI to be mandated (!) for purchasing catastrophic health insurance though.

If one is going to dismantle the government to provide a UBI what parts will be left should be discussed. As many have pointed out (Anderson, Scanlon), just because you would prefer X over something Y that we believe everyone should have doesn't obligate us to provide X. If you are a rational person who would prefer to trade in your right to a fair trial for $100 to buy a fancy hat, that doesn't mean society owes you the hat over the trial, even if that right to a fair trial costs society over $100.

There are also goods where the needs are disproportionately varied and we actually need the insurance component of social insurance for risk-sharing (e.g. health care). And there are also a variety of functions through which the government can make sure a baseline of demand is met for all who need them, if the private market is unable to provide or will insufficiently allocate them (e.g. education). It's not clear that disbanding these functions and giving away a coupon is a smart idea.

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Health Care Reform and the Supreme Court: Politics Over Constitutionality

Jun 26, 2012Richard Kirsch

The Obama administration's neglect did not cause this constitutional challenge to the individual mandate. Republican strategy did.

The Obama administration's neglect did not cause this constitutional challenge to the individual mandate. Republican strategy did.

On the eve of the Supreme Court's decision, after numerous lower court opinions and treacherous questioning by conservative justices, the overwhelming consensus in the legal community remains that the requirement in the Affordable Care Act to buy health insurance is unquestionably constitutional. As recently as mid-June, Bloomberg News asked law professors at the nation's top law schools whether they thought there was any question that the Affordable Care Act’s individual mandate requiring the purchase of health insurance was constitutional; 19 of the 21 who responded replied that it was. They were only confirming the opinions of two very conservative appeals court judges, who upheld the provision last year.

But the widespread view that the only reason we have a question before the Supreme Court is their receptivity to right-wing political manipulation of the law was not the story told by the New York Times on Sunday, under the headline, "Supporters Slow to Grasp Health Law's Legal Risks." The Times's Peter Baker faulted the Obama administration and Congressional Democrats for being unprepared for the legal challenge.

Some would view the fact that the Court is seriously debating a question that is so far out of the political mainstream, even among the most respected conservative jurists, as a testament to the groundbreaking work of a small set of conservative lawyers to change jurisprudence. They would compare their work to the careful strategy that led to decisions like the Warren Court's Brown v. Board of Education. I am not so generous. The legal arguments against the individual mandate remain flimsy and there is no comparable history of carefully plotted legal strategy. What has become more solid is the ground that the arguments are being made on, a Supreme Court majority whose magnet is not the Constitution or precedents, but the U.S. Chamber of Commerce.

In drafting what became The Patient Protection and Affordable Care Act, Democrats in Congress and the White House had myriad complex policy and political factors to juggle. The implication that they should have added in the minuscule chance that the mandate would be successfully challenged on its constitutionality is as silly as the opponents' legal arguments.

What might have given the law's drafters pause was the ruling on Citizens United, in which the Court majority dynamited a century of precedent to overturn the ban on corporate campaign contributions. But that decision was handed down in January of 2010, three days after Scott Brown won election to the Senate from Massachusetts, in a seeming repudiation of health care reform, which deprived Democrats of their filibuster-proof majority. At that point, there was neither the time nor the legislative maneuverability to consider changing the structure of the mandate, even if someone had raised their head and said that this Court is capable of doing anything it wants to further the corporate agenda.

In contrast with the Times article, Ezra Klein has a piece in The New Yorker titled "Unpopular Mandate: Why Do Politicians Reverse Their Positions?" Klein points out that the question of the mandate's constitutionality on the right changed when conservative politicians jettisoned their own idea, the mandate, after Obama accepted it. He describes how the Republican message machine legitimized the constitutional challenge once Republican politicians did an about-face.

Two days from now the Court will weigh in. Many of those same law professors surveyed by Bloomberg predict the Court majority will ignore precedent and overturn the mandate. The have reached the same conclusion as many Americans that the Court is driven by politics, not the Constitution. I'm hoping they will be proven wrong, and that the Court will put our founding document and two centuries of precedent before the partisan, corporate agenda. But whatever they decide, I won't blame the fact that the case has gotten this far on Democrats in the White House or Congress.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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Mike Konczal and Chris Hayes: How Meritocracy Produces Inequality

Jun 26, 2012Danielle Bella Ellison

In the most recent installment of “Fireside Chats,” the Roosevelt Institute’s Bloggingheads series, Fellow Mike Konczal talks with MSNBC host Chris Hayes, discussing the distortion of meritocracy and the problems of self-perpetuating elitism. As Konczal explains, the culture of “anxiety about the person who’s one step up from you” creates an environment where everyone knows everyone else is cheating, but "the rewards are so high, and conversely, the penalty for being left behind...

In the most recent installment of “Fireside Chats,” the Roosevelt Institute’s Bloggingheads series, Fellow Mike Konczal talks with MSNBC host Chris Hayes, discussing the distortion of meritocracy and the problems of self-perpetuating elitism. As Konczal explains, the culture of “anxiety about the person who’s one step up from you” creates an environment where everyone knows everyone else is cheating, but "the rewards are so high, and conversely, the penalty for being left behind... [is] so severe, then even the most unethical things become a no brainer that you’re just compelled to take part of.”

“There’s the depth of failure but also the breadth of failure,” Konczal says. In a myriad of areas, from Washington and Wall Street to the test prep industry and steroids in baseball, the system we have now is a “meritocratic competitive arms race.” This has lead to extraordinary corruption and crisis in every sphere of American life, and with it a collapse of trust in our institutions that are increasingly run by distant elites. 

To add insult to injury, this elitism is self-perpetuating. Any organization, even if it begins as completely egalitarian and democratic, will have to utilize the mechanisms of meritocracy to determine some sort of leadership. However, Hayes explains that those who end up with this power will “inevitably use that disproportionate power to subvert whatever mechanisms of accountability, turnover, mobility,” that were initially in place. Konczal laments that things have gotten so bad that failures such as WorldCom and Enron “just feel like historical footnotes now compared to Lehman Brothers." He concludes that “People need to understand that the game is rigged.”

Watch the full video below:

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Mike Konczal and Chris Hayes: How Meritocracy Produces Inequality

Jun 25, 2012

In the most recent installment of “Fireside Chats,” the Roosevelt Institute’s Bloggingheads series, Fellow Mike Konczal talks with MSNBC host Chris Hayes, discussing the distortion of meritocracy and the problems of self-perpetuating e

In the most recent installment of “Fireside Chats,” the Roosevelt Institute’s Bloggingheads series, Fellow Mike Konczal talks with MSNBC host Chris Hayes, discussing the distortion of meritocracy and the problems of self-perpetuating elitism. As Konczal explains, the culture of “anxiety about the person who’s one step up from you” creates an environment where everyone knows everyone else is cheating, but "the rewards are so high, and conversely, the penalty for being left behind... [is] so severe, then even the most unethical things become a no brainer that you’re just compelled to take part of.”

“There’s the depth of failure but also the breadth of failure,” Konczal says. In a myriad of areas, from Washington and Wall Street to the test prep industry and steroids in baseball, the system we have now is a “meritocratic competitive arms race.” This has lead to extraordinary corruption and crisis in every sphere of American life, and with it a collapse of trust in our institutions that are increasingly run by distant elites. 

To add insult to injury, this elitism is self-perpetuating. Any organization, even if it begins as completely egalitarian and democratic, will have to utilize the mechanisms of meritocracy to determine some sort of leadership. However, Hayes explains that those who end up with this power will “inevitably use that disproportionate power to subvert whatever mechanisms of accountability, turnover, mobility,” that were initially in place. Konczal laments that things have gotten so bad that failures such as WorldCom and Enron “just feel like historical footnotes now compared to Lehman Brothers." He concludes that “People need to understand that the game is rigged.”

Watch the full video below:

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Debunking the Myths About Government

Jun 25, 2012

Rediscovering Government presented four mainstream, empirically based analyses of major government-related questions in the Myths About Government panel in Washington DC on June 21st. The panelists from the roundtable discussion addressed four common misconceptions about government and the economy. Read their summary responses below, and click through to view their bios and full presentations.

Rediscovering Government presented four mainstream, empirically based analyses of major government-related questions in the Myths About Government panel in Washington DC on June 21st. The panelists from the roundtable discussion addressed four common misconceptions about government and the economy. Read their summary responses below, and click through to view their bios and full presentations.

Does big government impede growth?

Government Social Programs and Economic Growth: Verdicts from History

Peter Lindert, University of California, Davis

Economic history does not find any net cost in GDP from democratic large-budget welfare states. The “free lunch puzzle” of welfare states is this: They avoided any net GDP cost while achieving many social goals: reducing poverty and inequality, extending life spans, and having cleaner government. In addition, their government budget deficits are no greater, and people are no less happy in these large-budget welfare states.

Peter Lindert Bio

Full Presentation

Presentation Handout

Do high taxes create disincentives?

Evidence on the Economic Effects of Taxes

Jon Bakija, Williams College

There have been many econometric studies of cross-country data that have attempted to estimate the effects of the overall level of taxes on economic growth, and many other econometric studies (using a variety of types of data) that have attempted to estimate the causal effect of changes in marginal income tax rates on peoples' efforts to earn income. This presentation displays the basic facts on these issues, discusses why neither approach has provided convincing evidence of a strong negative effect of taxes on long-run real economic activity, and explains why healthy skepticism of any claims to the contrary is in order.

Jon Bakija Bio

Full Presentation

Presentation Handout

Do markets distribute income fairly and equitably?

America’s Struggling Lower Half

Lane Kenworthy, University of Arizona

When the country prospers, everyone should prosper. In the period between World War II and the mid-to-late 1970s, economic growth was good for Americans in the middle and below. Since then, however, relatively little of our economy's growth has reached households in the lower half. Wages for this group have barely budged. Rising employment helped in the 1980s and 1990s, but that wasn't enough to ensure that incomes kept pace with economic growth, and employment stopped increasing after 2000. Government transfers are another key source of income for many households in the lower half, but they too have lagged behind growth of the economy. What are the prospects going forward? Will we see a return to rising wages or employment for Americans in the lower half, or are the trends of the past few decades likely to continue? What, if anything, could our government do to help?

Lane Kenworthy Bio

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Do Americans want smaller government?

Better, Not Smaller: What Americans Want from Federal Government

Ruy Teixeira, Century Foundation, Center for American Progress

Americans lack confidence in the federal government's ability to solve problems.  A wide range of other indicators show that people think the government wastes a lot of the money it spends, is inefficient, not accountable for its actions, unresponsive and more a hindrance than a help to getting ahead in life. Not a pretty picture.  However, that doesn't mean the public necessarily wants the government to be smaller.  They would prefer instead that it worked better and solved problems.  Therefore, reforming the way government works could potentially contribute to building public support for government programs both old and new.  This is particularly true among members of the Millennial generation.  The other important factor is better macroeconomic performance, which would go a long way toward making people more receptive to an active role for government, especially a government that seemed to be performing more efficiently and effectively.

Ruy Teixeira Bio

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Rediscovering Government is an initiative of the Roosevelt Institute dedicated to exploring the purpose and value of government. Led by Roosevelt Institute Senior Fellow Jeff Madrick, the program aims to reinvigorate conversation surrounding government and what it can and should be doing for its citizens, through the website, blog, roadshows, and conferences.

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Myths About Government

Jun 20, 2012Jeff Madrick

The Rediscovering Government roundtable discussion in DC tomorrow sets out to debunk misconceptions about government spending and the economy and reinvigorate a dialogue about the importance and positive potential of government. 

The Rediscovering Government roundtable discussion in DC tomorrow sets out to debunk misconceptions about government spending and the economy and reinvigorate a dialogue about the importance and positive potential of government. 

Perhaps it isn’t odd that the American people are so skeptical of the uses and purposes of government. As a nation built on a revolution against a monarchy, such skepticism is likely built into our national character.

But it doesn’t accord with our history, and that is why it remains surprising. Government was inseparable from American economic and social development. It did not reduce freedom, but protected it.

I am always disturbed when economists in particular talk about the “role of government.” It is like talking about the role of parents in their children’s lives, or the role of the basketball in a basketball game. There is no economy without government, even in America. The government does not merely correct market failures; its purpose is far more profound. It is about true freedom, true opportunity, and necessary change.

We have organized an important panel discussion on June 21st in Washington, D.C., to put to rest some of the prevailing myths about government. Peter Lindert of the University of California at Davis will tell us about his empirical work on whether large government impedes growth; his extensive research shows it has not. Jon Bakija of Williams College will similarly tell us about how little hard evidence there is that high taxes impede growth. Lane Kenworthy of the University of Arizona will show how much of the income of the lower half of the distribution depends on social policies. Nancy Altman of Social Security Works will put straight the true finances of Social Security. And finally Ruy Teixeira of the Center for American Progress will tell us how extensive the American antagonism towards government is despite these facts, and whether these views can be changed.  

Our goal is to present a counter-narrative to the prevailing anti-government ideology. We will not argue that government is all good, requires no radical reforms, or cannot be made to work better. After all, why should we expect politicians to act in the interests of others, rather than their own sometimes contradictory interests?  

But there is reason to expect this, because it has happened time and again in American history. Moreover, acting in the interests of others is often acting in one’s self interest. Thomas Jefferson championed regulations of land sales in early America to make sure many people got a chance at ownership. The result was a strengthened democracy of secure and satisfied citizens.

His party built the canals through public financing in the states, led by New York. Many, and probably most, prospered when New York City became the giant hub of trade and commerce with the opening of the Erie Canal. American government created free and mandatory schools, subsidized the railroads, started technical colleges, and sanitized the cities, which in turn became sources of growth. In the 1800s, these activities were typically led by the state and local governments.

Markets don’t work when monopolies gather power, and the federal government in the next century set out to limit that from happening. It protected workers in all kinds of ways. In the 1930s, it recognized that financial markets were different from others and required special regulations. It built highways, invested in medical and technical research, subsidized college, and established necessary product, safety, and environmental regulations.   

As Lane Kenworthy points out in his fine summary piece on our site, if big government were a problem, why did the U.S. economy keep growing fast even as government got bigger?  

And let me point out one other factor that is neglected. As I emphasized in my book, The Case for Big Government, government is the key agent of change. No one anticipated we’d need high schools and colleges when the Constitution was written, but government was the instrument to create these critical institutions. No one knew of germ theory, but government led the way in sanitizing water and making large cities habitable. Who knew about the computer chip?

Perhaps I am biased because I live in New York. The New York City government eventually took over and aggressively expanded the subways. It built the dramatic walls of Riverside Drive, so often neglected. Miracle of miracles, it collects the garbage in this densest of cities.

But consider the great water works of the west. This was the work of state and federal government. And the highways, of course.  And the university system of California, among others.

If one needs further historical examples, consider the first great European city, Rome. Its aqueducts and enormous road network were the work of the government. Its devotion to law is a model to this day. It was highly productive and conducive to commerce because of these advances.  

American attitudes towards government have always shifted; sometimes pro-government and public investment and social programs, sometimes against them. We were usually at our best when we favored government, but government was far from always efficient. America was not immune to substantial corruption. Government always needed a good wringing out. But when it was widely vilified and weakened, America often failed. Political instability, widespread sacrifice, and jeopardized democracy were results.  

As for contemporary times, the Great Depression was an important catalyst. It turned an already partly progressive nation (since Teddy Roosevelt and Woodrow Wilson) far more so. It gave us a minimum wage, unemployment insurance, Social Security, labor organizing protections, securities regulations, and great public works to create jobs. The New Deal was followed by Johnson’s remarkable Great Society in the 1960s -- Medicare, Medicaid, historic civil rights legislation, and on. The American social sphere was brought into modern time along with its economy, which required those social investments.

But these attitudes shifted strongly beginning in the 1970s. Attitudes towards government had already become somewhat more skeptical in the 1960s, with new poverty programs and racial demands. The Vietnam War was a further blow to confidence in government, as was the Watergate scandal.  

In my view, however, the economic devastation of the 1970s was the major blow. Inflation of 12 percent, unemployment soaring, mortgage rates at 18 percent. In 1972, Governor Ronald Reagan of California supported a referendum to demand a sharp and permanent cut in state income taxes. Californians voted against it; they said they would pay their state taxes. By 1978, only six years later, Proposition 13 passed overwhelmingly, sharply cutting property taxes and with it undermining the state’s great education system.  Nationally, the Kemp-Roth tax proposal to cut federal income taxes up to 30 percent was rapidly gaining support in Congress. Economic pain caused Americans to seek quick and sometimes vindictive solutions, even personally self-destructive ones.  

In my view, the lost faith in and mismanagement of government is the key cause of the crisis of the future the nation now faces. This lost faith resulted in deregulation, unaffordable tax cuts, and the failure of government to develop new programs and act as the agent of change it should be.  

We can argue about these issues philosophically. But Rediscovering Government will stay as close to the demonstrable facts as possible. We will present the evidence about government, the economy, and growth. Then we can discuss how to restore a true sense of our own history, rebalance our sense of the purpose of government, and move on constructively.  

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

 

Capitol image via Shutterstock.com.

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A Note on Free Market Fairness: Is "Economic Liberty" Incoherent?

Jun 20, 2012Mike Konczal

There's a fantastic symposium on the book Free Market Fairness going on over at the Bleeding Heart Libertarian website. Make sure to check out Sam Freeman and Elizabeth Anderson, as well as Tomasi's replies to both.

There's a fantastic symposium on the book Free Market Fairness going on over at the Bleeding Heart Libertarian website. Make sure to check out Sam Freeman and Elizabeth Anderson, as well as Tomasi's replies to both. I'm going to add my thoughts on reading the book; note that I'm an amateur when it comes to many of these political theory debates but something strikes me as missing.

One of the core parts of Free Market Fairness' theory of "market democracy" is enshrining economic liberty at the level of basic liberties protected by the constitution, like free speech, the right to a trial or political participation.

In Rawls' formulation, it means that economic liberties would be protected by the first principle of justice. This is the principle that each "person has an equal claim to a fully adequate scheme of equal basic rights and liberties, which scheme is compatible with the same scheme for all." These basic liberties are “inalienable,” and “any undertakings to waive or to infringe them are void ab initio [to be treated as invalid from the outset].” Citizens cannot bargain or trade their basic liberties away.

Many on the left point out how economic liberty isn't true liberty unless it is a fair value liberty, or a liberty that isn't just formally equal but also is substantively equal. To see examples using Rawls' framework, political equality is of the substantive variety, as it matters whether you can actually vote and participate, but religion is only formally equal, as you don't have a right to an expensive church for your personal, elaborate religious ceremonies. The left says economic liberty isn't really liberty unless there's substantive equal ability to participate in the economy.

I'm all for that critique as far as it goes, but I think it is important to go a step further and argue that formulating economic liberty as a basic liberty is, practically speaking, incoherent.

The Department of Stabilization

Rawls described a stabilization branch of the state in Theory of Justice, tasked with bringing about full employment. In practice a lot of our economic debates are focused on what to do about mass unemployment in this crisis.  Let's do a quick map of economic agents in our current Great Recession and how the downturn has impacted them:

There are workers, many of whom are unemployment, and they have sluggish wage growth and low quit rates. Incumbent managers and owners are experiencing big profits and large bargaining power over their workforce. Capital owners have benefitted from disinflationary trends. Entrepreneurs find it difficult to start new businesses amidst mass unemployment. The government could lean against all these trends by doing stimulus, but taxpayers would be on the line if it didn't work out.

Now here's what I mean by incoherent: treating economic issues as a basic liberty tells us nothing about how to address stabilization one way or the other and substantially confuses our intuitions about how to approach the problem - which is one of tradeoffs. The first principle would only allows certain breaches of inalienable economic liberty in order to make the most extensive set of liberties, compatible with similar liberty for others. Now I understand that the regulation of basic liberties (like free speech) is problematic for Rawls, but it dissolves into nothingness here under market democracy.

Basic liberties can't guide us, because liberty for one comes at the expense of liberty for others. Which economic liberties are we to preserve? The one of the unemployed to work, the entrepreneur to have customers, bosses to their profits or rentiers to their capital income? All of these liberties are part of the economic realities of each agent, and these are fundamentally in tension with each other. There's no way to view them as "compatible" with each other as a sufficient condition to animate decision-making.

The only way to address them as a matter of policy is to balance them against each other according to some principle. Full employment? Price stability? Deflation and the Gold Standard? Bringing in the concept of liberty prevents the ability to discuss these in terms of tradeoffs, as the whole point of basic liberties is that groups of citizens can't have their basic liberties traded off each other.

One could say that the only system is thus one of no stabilization. But this is a policy choice, no different than emphasizing full employment at all costs. There's nothing about mass unemployment that must contain more inalienable liberty than full employment - it is just a different set of actors who benefit. And this would look suspiciously like bringing in one set of arguments for how the economy should work and whom it should work for through the courts, rather than democratically through argument in the public sphere.

This incoherence exists more broadly. For instance, uses of basic liberties aren't up for being traded. I can't sell you my vote, and I can't ask the government to enforce a contract where you've sold me your right to a fair trial. Yet economic transactions are all about trading off economic rights. When I sell you my labor I'm accepting serious limitations on what I can do with my labor - it now belongs to you.

Thus economic liberty is often, at any moment, zero-sum: a more extensive liberty for the boss comes at limiting the liberty of the worker. The same for the creditor and the debtor. One of the first big "liberty of contract" cases was Pennsylvania's state court's 1886 Godcharles v. Wigeman, which struck down a state act prohibiting payment of wages in scrip. Here the benefit of the boss (and the company) came at the expense of the worker in the form of the means of payment. This may be a pareto-optimal trade when it happens - market democracy would presume that it must be by definition of it happening - but assuming I'm giving away a liberty for my ultimate long-term benefit, as well as the benefit of the economy as a whole, is way off the reservation of how we consider the other basic liberties.

The best way to conceptualizing it is within a framework of justifying inequalities, which is what Rawls' second principle tries to do. The second principle's difference principle could be the wrong approach - we might want to maximize growth regardless of its impact on the poor - but it is the right spot on the lexical framework to approach such a question. Pushing these questions into the highest lexical position leaves us with nothing coherent to say on the matters, it disrupts our normal thinking about liberty and stops our ability to see these issues as what they fundamentally are, which is balancing private forms of power and providing rules that bend them towards the greater good of the economy. Rules that are, I'd argue, best constructed through democratic argument; but rules that are in no way clarified by referring to more abstract notions of liberty.

 

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50 Years Later, What JFK Can Teach Us About Expertise in Government

Jun 14, 2012Mark Schmitt

Kennedy Democrats put too much faith in the "liberal consensus," but today's policymakers place far too little in the value of experts.

Kennedy Democrats put too much faith in the "liberal consensus," but today's policymakers place far too little in the value of experts.

This is a year of big 50th anniversaries: 1962 was a big year for jazz albums and children's books, but also for several of the great documents of the tortured history of modern liberalism. Michael Harrington's The Other America: Poverty in the United States was published 50 years ago, and the Port Huron Statement appeared the same year.

There's a third document that surely won't receive the same level of Boomer-nostalgia attention, but is far more relevant to the political history that followed. That's John F. Kennedy's Yale Commencement speech of June 11, 1962. In that speech, which was drafted and edited by all the famous brains of Camelot – Arthur Schlesinger Jr., McGeorge Bundy, Theodore Sorenson, John Kenneth Galbraith – Kennedy declared, “What is at stake in our economic decisions today is not some grand warfare of rival ideologies... but the practical management of a modern economy." The economic problems of the 1960s, Kennedy said, are "subtle challenges for which technical answers, not political answers, must be provided."

This was surely the most profound error of the era of “liberal consensus.” Kennedy and the men around him had persuaded themselves that “ideology” (by which they meant the great 20th Century clashes among fascism, Marxian socialism, democratic socialism, and democratic capitalism that had defined their own lives) was just a matter of “myths” and that all the real challenges that remained were just technical choices to be resolved by experts. Meanwhile, just beyond the shadows of the campus, an ideological showdown was building that was hardly mythical. It would pit the radically individualistic conservatism of Barry Goldwater, Ronald Reagan, and their far more radical heirs against the moderate Democratic safety net capitalism that the men of the New Frontier took so much for granted that they couldn't even call it an ideology. Indeed, even today it's hard to define the viewpoint that stands in opposition to the dominant ideology of the right.

Liberalism was discredited in part because of the Kennedy men's faith in experts and their conviction that the choices were technical, not political. In the most narrow reading of the 1962 speech, JFK was embracing the view, held briefly by the American followers of John Maynard Keynes, though not Keynes himself, that “the practical management of a modern economy” involved “fine-tuning” fiscal and monetary policy, which would keep it on a steady path of growth. Keynesian fine-tuning failed dramatically, especially in the 1970s, leaving liberals essentially without economic tools and vulnerable to the alternative of supply-side economics. Excess faith in expertise is also held responsible for the Vietnam War (“The Best and the Brightest” were technocrats who could ask every question except whether the basic idea made sense) and failures of the community-based anti-poverty programs of the Johnson era. Above all, as critics of liberalism both sympathetic and hostile have argued ever since the late 1960s (most recently, Jonathan Haidt), the ideology of expertise-not-ideology put liberals far out of touch with the real stuff of life – morality, ethnicity, family, fear, tribal instincts. And to some extent it's true – a classic example is the idea of overcoming residential segregation through more aggressive desegregation of schools, that is, busing – which surely created more conflict and racial antagonism than it resolved, and not solely because of racism.

But 50 years is a long, long time (check this video clip of Kennedy's speech if you want a sense of how far away that era seems), and liberals have been apologizing for and backing off of their faith in dispassionate expertise for most of it while the contempt for expertise developed by the populist right has continued to build. When populist politicians like Sarah Palin denounce “elites,” we act mystified that she doesn't seem to mean the very rich. But the idea that the real elites are technocratic experts empowered by government is now very old – so old that it's not true. One of the first things conservatives have done consistently when they gain power is to cut the legs out from under any kind of independent source of evaluation – eliminating the Office of Technology Assessment in 1995, ending any independent analysis of the distributional effects of tax cuts in the Bush administration, challenging scientific consensus on climate change, and most recently, attempting to eliminate funding for the American Community Survey and the National Science Foundation's social science research program.

At the same time, we're actually a lot smarter than we were in 1962. Experts understand the limits of their own rational models (that's part of the breakthrough of behavioral economics), and our methods for evaluating government programs have evolved more than a little bit. David Bornstein, writing on the New York Times Opinionator blog, recently called in some detail for an age of “evidence-based policy making,” hailing, for example, an experiment that showed that simply making the standard application for student financial aid easier could increase the likelihood that a student would attend college for two or more years by 29 percent. As Bornstein notes, the Obama administration is attempting to quietly restore a role for evidence and evaluation, but it's hardly the stuff of presidential speeches.

That we don't base policy on such evidence isn't just because government is lazy or ignorant – although sometimes neither the believers in a policy nor its opponents really want to know whether it works. It's about politics and power, and it has been for 50 years. When everything, from climate change to whether economic austerity might lead to economic growth, is treated as an ideological question rather than a matter of evidence, then it's a battle of power, and the side with more power is likely to prevail. Restoring a place for dispassionate expertise, evaluation, and evidence is central to the promise of a just society – but we have to do it without the Kennedy men's clumsy blindness to how radical that idea is, how much it threatens powerful interests, and the fact that there is much of life where expertise is of no value.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

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