The Washington Post had two columns last week that told us much more than their authors likely intended. The first was a piece by E.J. Dionne, that told readers about the need to “tame” capitalism, because of the damage caused in recent decades by the untamed version.
The second piece was by Catherine Rampell. From France, she told us of the difficulties of imposing taxes on carbon, even in a country that is ostensibly fully committed to the Paris Agreement and reducing greenhouse gas emissions. Both pieces were fascinating for what they left out of the picture.
While Dionne’s piece is focused on the need to address the growing inequality of the last four decades (its theme is the pseudo-mea culpa of the Wall Street funded group, Third Way), the gist of it is that it was a mistake to let the market run amuck. In other words, the upward redistribution of the last four decades was something that happened, not something that folks like the Third Wayers did.
This is an important distinction from a logical, moral, and most importantly, political standpoint. It matters hugely whether most of the country was left behind due to the natural development of the market, as opposed to being left behind because the folks with political power structured the market to redistribute income upward.
People familiar with my writing know that I have long argued that the upward redistribution was by design. Just to take the most obvious example, we are routinely told that manufacturing workers in the United States and other wealthy countries were destined to get whacked for the simple reason that there are hundreds of millions of people in the developing world who are willing to do the same work for a fraction of the pay.
In that story, the downward pressure on the wages of manufacturing workers was an inevitable outcome of globalization. Unless we want to block globalization, we can’t have manufacturing workers in the U.S. and Europe getting $40 and $50 an hour in pay and benefits when workers in China, Vietnam, and elsewhere will do the same work for less than one tenth of this amount.
The loss of these high-paying jobs for workers with less education is just an unfortunate side effect of globalization. The downward pressure on the wages of less-educated workers more generally that results from the loss of manufacturing jobs is also just another bad side-effect. But hey, these people are all better off than the under-employed workers in the developing world, so it would be greedy and wrongheaded to try to stop globalization to protect less-educated workers in rich countries.
The fact that there are hundreds of millions of workers in the developing world who are prepared to work for much lower pay than our manufacturing workers is true, but there are also millions of bright and ambitious people in the developing world who would be happy to train to U.S. standards and work as doctors, dentists, lawyers and other elite professions at a small fraction of the pay of the people who currently hold these jobs.
For some reason, this obviously true fact about the world never appears in the New York Times, Washington Post, or other major news outlets. (The Planet Money folks have done a couple of segments on this point on NPR in reference to doctors’ pay.)
When I raise this point in discussions with other economists or policy types, almost invariably people think I am joking. If I can convince them I am serious, they usually get angry and ridicule the idea that we could get competent doctors and other professionals from the developing world at much lower pay.
The arguments sometimes border on racism – that people in India or China couldn’t train to our standards – or the absurd, that there are no barriers to foreign professionals working in the United States. Sometimes we do get to a situation where they make the valid point, that creating agreed upon standards that ensure quality is difficult.
While negotiating standards that are not protectionist in design is difficult, that is what trade deals are for. We spent almost a decade negotiating the Trans-Pacific Partnership because many of the issues on the table were difficult ones. If our trade negotiators sat down to write standards that would allow medical students in China, India, and elsewhere to meet certain standards and then practice in the United States with the same freedom as a graduate of Harvard medical school, surely they could do it.
That has not happened because the people who determine the agenda of our trade negotiators don’t want it to happen. In addition to the A.M.A. being a very powerful lobby, people in policy positions all have friends and relatives who are doctors. They don’t want to see doctors subject to the same sort of international competition as autoworkers.
I am on a list-serve with very progressive people, all of whom want to see taxes raised on the rich, more money spent on health care and aid to the poor, and other good liberal causes. Almost none of these people would consider it a good thing to expose doctors to international competition. (Most would consider themselves supporters of free trade to varying degrees.)
This blindness is typical among well-educated people. They want to believe that they have skills that are simply worth a lot in the modern global economy, whereas autoworkers and other people with less education unfortunately don’t.
The story goes well beyond trade. I always yap about patents and copyright monopolies, both because I think they are awful policy, but also because they are quite obviously government interventions in the market. Anyone who recognizes the enormous amount of money redistributed upward because of these monopolies can’t possibly say that it was just “untamed” capitalism that hurt ordinary workers. This was Congress passing laws to make these monopolies longer and stronger and to apply to more areas (e.g. life forms, business methods, and software).
To take another example, the explosion of the financial sector, which has been the source of many great fortunes in recent decades, was by design. It was not the natural working of the market. To give an obvious example, we changed bankruptcy laws to facilitate trade in mortgages and mortgage backed securities, as well as futures, options, and other derivative instruments. There was nothing about untamed capitalism here, this was capitalism that was carefully structured to allow a small number of people to get very rich.
We also have decided to exempt trades of stock and other financial assets from the same sort of sales taxes that we pay on shoes, furniture, and other items that we buy over the course of our life. Even a very small tax would hugely reduce the amount of money made in the financial sector.
And, when the major banks put themselves into bankruptcy in 2008 through their greed and incompetence, the politicians could not run fast enough to save their hides. There was nothing untamed here either. (Yes, this is the topic of Rigged [it’s free].)
Anyhow, it is very convenient for the people who deliberately structured the economy to give more money to people like themselves, at the expense of the rest of the population, to act as though the upward redistribution was something that just happened. But this is not true and we need to have politicians who are willing to say that.
This brings us to France and the resistance to President Macron’s green agenda. Macron wanted to have higher taxes on gas and other fossil fuels. This prompted a massive revolt, which took the name of the “yellow vest movement” in reference to the yellow vests that French drivers are required to have in their car.
Part of the story is that the French people rebelled against a tax that would disproportionately hit the middle class and poor. (Macron did include some offsets, although I don’t know how the picture fully netted out.) But a big part of the story is that Macron is seen as rich (he is) and that he is identified as an agent of the rich.
Macron had been a high level civil servant who then left to become an investment banker. While he only worked in finance for a short period time, he managed to make several million euros. This did not make him hugely wealthy, but certainly was sufficient to put in the top one percent of French households.
One of Macron’s first moves as president was the elimination of the country’s tax on wealth. There were serious problems with the tax (evasion and avoidance was widespread), but the beneficiaries of this policy were exclusively the wealthy. At the same time, Macron had an ambitious agenda for weakening labor market regulations. Here too, there was an argument for modernizing many of these regulations, but the net effect was to weaken the bargaining power of workers.
In this context, it is not surprising, that taxes designed to reduce greenhouse gas emissions, whose direct impact was regressive, were strongly resisted by the French public. We could follow Rampell here, and say that even in a country where people are very concerned about climate change, strong measures are politically impossible.
Alternatively, we can conclude that measures designed by rich politicians, who the public does not trust, are likely to face serious political opposition. This doesn’t mean that green policies that are designed with the explicit goal of reversing the inequality deliberately created over the last four decades will necessarily succeed – people will never like paying more taxes – but they sure seem worth a try.
We know that the rich will never like giving up much of their money, and the relatively well-to-do policy types will never want to acknowledge that their material comfort has more to do with rigging the system, than their intellect and hard work, but it seems better to challenge this crew than the vast majority of the population that has been losers over the last four decades. Honesty may not always work in politics, but it is better than lying and losing.
This column first appeared on Dean Baker’s Patreon site.