Sunday, March 02, 2008

# Posted 3:23 PM by Ariel David Adesnik  

CAN A REPUBLICAN BE OPEN-MINDED? One of my colleagues at TPM Cafe issued a sort of challenge. Would I seriously consider the liberal proposition that the US economy has reverted to a dangerous sort of casino capitalism that benefits the rich while subverting the economic security of the middle class? Or would I blindly insists that free markets are the answer to everything?

I would like to think that I surprised my colleague a bit by saying that I am glad to consider any proposition seriously in regard to the state of our economy. When it comes to economics, as opposed to national security, I am a pretty much a novice. My only saving grace is my willingness to admit it.

In order to give the liberal case a fair hearing, I asked my colleague to recommend a book on the subject. I even committed to ignoring any rhetorical flourishes in which the author might indulge, focusing instead on facts logic. So on Friday, I started reading The Squandering of America by Robert Kuttner.

It is a very good thing that I committed to ignoring the author's provocations, since it isn't hard at all to come up with a reason to dismiss him as a wingnut. For example, Kuttner tells us on p.6 that
Serious people have good reason to believe that one or both of the last two presidential elections were stolen.
I guess the timid and docile press corps was too afraid to let anyone know that John Kerry is our rightful president. In a similar vein, Kuttner observes in the second paragraph of the entire book that:
The ultimate test of a democracy is whether it is possible for the people to throw out the governing party. In politics, we have come very close to losing our democracy, not just in rigged rules and stolen elections, but in the domination of politics by big money... (p.3)
Yes, dammit. Barack Obama should give back the $50 million he raised last month. Actually, that's unfair. Kuttner turns out to be pretty harsh on Democrats for taking too much money from corporate America. I just remember the good old days when the "domination of politics by big money" was just a liberal complaint about their candidates' anemic fundraising abilities.

But as I was saying, I'm going to read Kuttner's book as sympathetically as possible. And after sixty pages, I am glad to say that the political nonsense of the early going fades away and the author's focus turns to the economy. Are his arguments on that front persuasive?

I don't know. I freely admit that I don't have the evidence at my fingertips which might enable me to respond to the numerous statistics and citations that Kuttner marshals on behalf of his argument. I'm just trying to absorb as much as I can so I can evaluate it more thoroughly once I've heard the opposing argument as well.

Speaking of which, if any of you know any good books that broadly address the US economy and the state of the middle class, please make a recommendation in the comments section below. Books of any stripe are welcome, although after Kuttner's I'll be looking for centrist and conservative views as an alternative.

And don't forget to enjoy your stimulus checks.

Labels: ,

(33) opinions -- Add your opinion

Any basic introductory economics textbook, micro or macro. Mankiw sells one; so does Samuelson; so does McConnel and Brue. On the other hand, "Economics for Dummies" is probably the same thing, for at least $100 cheaper...

Either way, the best thing to figure out whether the economy has "reverted to a dangerous sort of casino capitalism" that kills little kittens, I suppose, is actually read an unbiased, scientific text.
If you'd like I have a PDF that I could send that shows the metro DC area average wages for federal govt employees. It shows the average weekly wage doubled to almost $1,200 from 1990.

That is a signifiacnt statement about a good number of the middle class.

Its an ironic challenge - an "open-minded" liberal wouldn't ask it. He would instead assume a Republican would treat different pov's fairly, and only be surprised if you failed to do so.

When you're done discussing his economics, ask him to reevaluate his ignorant stereotypes of Republicans.
One of the best (and most enjoyable) reads on the subject of economics is PJ O'Rourke's "Eat The Rich." IMHO, this book is more useful than many economics texts.

Two other invaluable references are Tom Stanley's "The Millionaire Next Door" and its companion volume, "The Millionaire Mind."

And Fen is spot-on; my answer back to your questioner would be to hand him these three books and say "of course I'm open-minded -- the question is, are *you?*"
Follow-on comment. As a wise former president once said, "it's not that liberals don't know anything -- it's that so much of what they do know just ain't so.
I'll believe the economy is as bad as the MSM and Democrats would have me believe it is when I can buy a frikking Wii.
One last comment, then I'll shut up.

To to the liberal proposition that the economy is reverting to "casino capitalism" that benefits the rich at the expense of the middle class, I argue that this is an untenable position based on taxes. If the rich is truly benefitting at the expense of the middle class, how can it be that the top 1% of wage-earners pay 40% of all taxes, and the top 25% of wage-earners pay 86% of all taxes?

Some benefit.....
Yowza. Why do I feel like you have been set up by the question? Let's see - "reverted", or reversed - which implies that there was some point earlier that was better. Exactly when was that point, and why was it better?

I don't think you can have an effective debate until you get an answer to that question.

"casino capitalism" Casino implies luck, not effort. Does your challenger want to assume that all things "capitalis[tic]" are the result of luck and nothing else? No effort, no work, no imagination, just a spin of the roulette wheel of life? It's a cutesy alliteration, but what is the meaning?

"subverting" - ruining, destroying

But the crux of the set up is the phrase "economic security of the middle class." When has the middle class - which also needs a definition, please - ever been economically secure? For that matter, when has anyone but the poorest been secure in his or her own economic state? Even kings have been forced to incur debts - which frequently resulted in a later repudiation of both the debt and the lender. Isn't communism based on the ideal of "economic security" - from those according to ability, to those according to need? We know how that worked out.

I had a prof who quoted Martin Feldstein as saying that if you get someone to agree with your assumptions, you have already won the debate. If you agree with the assumptions implied in this question - that there was a golden time, that capitalism is all luck and no work, and that there has ever been "economic security," for anyone but the poorest - it doesn't matter what books you read, you have already lost.

I still think the best defense of capitalism is similar to the defense of democracy - the worst form of government/ economy except for every other that has been tried. Not perfect, but the best option for economic organization.
The necessary first step into 2008 must be reading On the Wealth of Nations, by P.J. O'Rourke, because it covers Adam Smith's two books accessibly and without reading any of the 900+ pages.

Adam Smith was mutilated in the history, economics, political science, and philosophy I took.

The book informs you not about economic theory, but about economic practice. It explains what has not worked but that politicians, ignorant of history, insist on promoting yet again, just to get in power.
Missing link to On the Wealth of Nations.
BTW, a liberal, by definition, is open-minded. Are you sure you were talking to a liberal and not someone hoodwinked by American Populism? They hear the siren-song of conspiracy and class warfare, take it at face value, and are too lazy to check the data. Visit M. J. Perry's Carpe Diem to review data that suggests great class mobility between generations.
In addition to PJ O'Rourke's "Eat the Rich" any novice should read Henry Hazlitt's classic "Economics in One Lesson."

The one lesson? That the most important economic analytical skill is seeking and understanding derivative effects of economic policies. If I do "X" then what are the second-, third- and fourth-order effects of "X?"

That which is unseen or at least not immediately apparent is crucial in understanding the effects of economic policies.

I also highly recommend Steven Landsberg's "The Armchair Economist." Published in '95 this is the father of recent popularized economics books such as "Freakonomics" and Tim Harford's "The Undercover Economist" and his splendid new book "The Logic of Life."

Toss in any of Paul Krugman's quick-read books from the late '80s through the late '90s ("The Age of Diminished Expectations;" "Peddling Prosperity;" "Pop Internationalism;" "The Accidental Theorist") and you'll be on top of things as a layman.

Also, of course, you must read Friedman's classic slim volume "Capitalism and Freedom." Follow that up with Thomas Sowell's "A Conflict of Visions," which explains the fundamental and irreconcilable difference between worldviews of socialists and classical liberals.

Read as many of these as you can. You will understand economics at a qualitative level and appreciate the inextricable link between economics and freedom.
One tip:

When you look at income, ignore household income and focus on per capita income. Households have been shrinking throughout the second half of the 20th century.
The difference between Dems and Repubs is the way they look at things. If everyone gets better off the Republicans don't care if the gap between rich and poor gets larger. The Dems do care because to them it points out the injustice in the system. So poor that have a house, cars, and a motorboat have the right to feel shafted because the Rich have become insanely wealthy.

If we can't agree on the basic premise than open minded or not all the facts in the world will not convince.
You could try Learning Economics by Arnold Kling, or even better, Basic Economics, A Citizen's Guide to the Economy, by Thomas Sowell.
"Casino Capitalism" - that sounds so sexy! Like, "Casino Royale Capitalism! Grrr! Rowr! *snip!-snap!* Casino-Capitalism-Conniption!
How do they keep coming up with such devastating slogans?!? It must be that to the Liberal mindset rhetoric, magical thinking, and lyrical imagination are more important means of conveying impressions and feelings - than are the dismal sciences of deeary facts.
Your liberal friend should be praying that the economy will revert to "casino capitalism." (Do liberals pray?)

Give a million dollars to one person and they will owe almost $400,000 to the feds in income tax. Spread it around at ten thousand each to a hundred worker bees making minimum wage and they will owe no income tax.

Without "casino capitalism", the government would have to go back to taxing the middle and lower classes. Tax policy 101!
I always wonder at liberal economics, when, at the last election cycle, I think it was, a supposedly middle class guy in Iowa was presented as having been reduced to collecting cans along the highway. This was supposed to demonstrate the straites that middle class people had been reduced to. I then wondered who were all of these mega-rich people who could afford to throw these precious cans out the window of their cars?

There is no reconciliation of worldviews where one believes that if we all live in stick and muc huts, but are equal, that would be better than our poor haveing to drive 10 year old cars in heated or air-conditioned homes, with the main dietary problem being obesity, while the rich, well, you know the rest. One thinks that relative economic success is everything, and the other thinks in terms of absolute success, as in almost everybody has enough. Conservatives also know "the perfect is the enemy of the good."

Shariah Muslims are the ultimate liberals because they even try to control for and equalize sexual attractiveness by covering their women head to toe in Burkhas.
WEALTH OF NATIONS, by Adam Smith. This is an amazing book, especially considering that it was written about four hundred years ago and is still right on the money. The book is packed with little tidbits of information that you didn't ever think of, such as the fact that under the guild system it took seven years to become a master, primarily to limit competition. It didn't for example, take seven years to become a good stone cutter or weaver, and it's interesting to reflect that it takes about how long to get a law degree or a PhD? Or that one of the things he attributed the poverty of eastern European countries to was the number of taxing jurisdictions their rivers pass through to get to a seaport.

People, and nations, ignore him at their peril.
Can a liberal drop his attitude?
"...it isn't hard at all to come up with a reason to dismiss him as a wingnut."

Wingnut is the the left-o-sphere uses to dismiss "right-wing" nuts. The term we in the center-right prefer for Kuttner's ilk is "moonbat". Or statist.
...how can it be that the top 1% of wage-earners pay 40% of all taxes, and the top 25% of wage-earners pay 86% of all taxes?

By the time you've gotten to the top 1%, or even the top 25% of incomes, you're a long way to being an hourly "wage-earner".

However, it's arguable that your worth to a business organization is in the ballpark of your salary, bonuses, benefits and perks - or the next company would hire you away.

The envious populism of excessive "progressive" income taxes leads to the payment of 86% of all income taxes by 25% of the payers. Count your blessings, proletariat, and don't cry when an Obama protectionism repeats the Smoot-Hawley debacle and takes down the economy for a decade.
Try Thomas Sowell, who has a wealth of great readable books that don't offer bias commentary
Would I seriously consider the liberal proposition that the US economy has reverted to a dangerous sort of casino capitalism that benefits the rich while subverting the economic security of the middle class? Or would I blindly insists that free markets are the answer to everything?

That's a false dichotomy. The US economy isn't "free"; it is heavily regulated, and the US government is the single largest economic entity within it. Our economy is closer to being a free market than many others, but it isn't there yet, or even moving in that direction.

It is entirely possible that, for example, the current economy benefits the rich at the expense of the middle class and that that is because the government is too involved in the economy. Government regulation almost always benefits entrenched, established businesses over upstarts -- i.e., it benefits the currently rich over the upwardly mobile.
Just seconding the motion for Sowell's "Basic Economics".

It should be required reading in every college Economics program, although it's not hard to understand why it isn't.
Our Tax System Explained: Bar Stool Economics

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free.

But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33% savings).

The seventh now pay $5 instead of $7 (28% savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20,"declared the sixth man. He pointed to the tenth man," but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I got"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks so the nine sat down and had beers without him. But when it came time to pay the bill, they
discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.
Are commodities exchanges actually free markets - or simply a form of gambling for MBA's?

It would be interesting to see what the price of gasoline would be in a true supply/demand situation, without the the warping effect of the commodities exchanges...

"Free To Choose" Milton Friedman

"The Road To Serfdom" Friedrich Hayek"


"Living Large" Drew Carey (short video)


Not too many books since the fall of Communism pretty well proved the point. Here's a general list, though.

Seconding (or thirding) the recommendation for Hazlitt's Economics in One Lesson, along with all the reccomendations of Thomas Sowell's works.

I would add Frederic Bastiat's That Which Is Seen and That Which Is Not Seen, which Hazlitt (admittedly) was rewriting, and (if you're brave), George Reisman's massive tome Capitalism.

And just for the heck of it, Burton Folsom's Empire Builders is a lot of fun to read.
P.S. -- The meat of Reisman's Capitalism may be downloaded in PDF form.
US economy has reverted to a dangerous sort of casino capitalism that benefits the rich while subverting the economic security of the middle class?

It does not necessarily follow that if our system benefits the rich that it will subvert the security of the poor. I would contend that the system supports the rich and rewards them (otherwise what's the point of working and saving), but it also provides for a lot of economic security for the middle class. If you want something for your friend to read give him the jobs report that comes out Friday. Also someone else mentioned the Millionaire Next Door, and it is a great book that proves Milton Friedman right when he said that the greatest invention of man was compound interest.
For the opposing point of view (opposite Kuttner, I mean), I recommend Thomas Sowell's "Basic Economics" and also his columns, as well as those of Walter E. Williams.

Also, "Applied Economics", also by Sowell and a follow up to Basic Economics.

IMO they're much better than O'Rourke's book from a substantive/depth PoV.
Many thanks to all of you for the long list of recommendations. My extended assignment broad finishes up in a few weeks, and I look forward to good reading when I get home.
Post a Comment