Keeping America’s Edge, ctd.
Several intelligent critics of my piece on Keeping America’s Edge have emerged in the past couple of days, generally focused on two sentences in it. I’ll try to deal with the lines of criticism in one place.
1. Correct facts are presented misleadingly. This was central to Jonathan Chait’s criticism, in two parts: (i) I presented an apples-to-oranges comparison of Europe and the U.S. in terms of both timeframe and geographical extent, such that the conclusion that Europe has ceded enormous share of global GDP and the U.S. has not over the past several decades is not supported by a fair reading of the facts, and (ii) I focused on absolute GDP rather than GDP per capita. As I said in response, lack of clarity is always the fault of the author. As I have also shown, I believe convincingly, the conclusion is supported by any interpretation of the data. While exact magnitudes will vary slightly, I defy any critic to display any analysis using any reasonable definition of Europe or any relevant time periods or any reputable data source that does not support this conclusion. As I believe that I have also shown, I never claimed that absolute GDP was the proper measure of “how good is an economic system”, but was clear that I believe it is, rather, a measurement of long-run geopolitical power potential.
2. I asserted, rather than proved, that entrepreneurial markets can generally be expected to lead to greater growth over decades in contemporary societies than more centrally-directed economies. This is exactly correct, and you don’t have to parse the two sentences in contention to show this. In the third paragraph of the article, I state flatly:
After all, we must have continuous, rapid technological and business-model innovation to grow our economy fast enough to avoid losing power to those who do not share America’s values — and this innovation requires increasingly deregulated markets and fewer restrictions on behavior.
The purpose of the article as a whole, never mind a single phrase, was not to provide an empirical demonstration that less regulated markets tend to provide faster economic growth under many conditions than more regulated markets (that debate has been going on for some time). Nor did it ever claim to provide this. The purpose of the article was to describe, given that I accept the advantages that less regulated markets can provide (or if you do not accept this premise, even if one were to accept this), this does not lead to the conclusion that we can or should continue on the deregulation-oriented path on which we find ourselves without considering the balancing consideration of social cohesion. In effect, I am accepting that in the long-run, we must find some way to address the dysfunctions that free markets always engender (or at least leave unaddressed). I don’t, on the other hand, accept that there is a free lunch available to us – if you restrict creative destruction, you will restrict growth versus what it would otherwise be, at least at the scale of decades. (Again, for clarity, I assert that I believe this to be true, rather than assert that I have proven it empirically in this post.)
Before you call this smoke and mirrors, and label me as a partisan shill for unregulated markets, you ought to confront the fact that 2 of the 4 recommendations I make are for certain kinds of regulation: (1) a modernized version of New Deal financial services regulation, and (2) pursuing competition and family / student empowerment in education within the regulated public school system, rather than (at least for a long time) across public and private schools.
3. It’s all population growth. In effect, this argument is GDP = GDP / Person X Population, and that GDP / Person has grown at about the same rate in the U.S. and Europe over this period, so the only real difference has been population growth. This is a factually (approximately) correct statement. There are two big problems with arguing that this shows that therefore policy differences didn’t matter. First, it is almost always harder to maintain a lead. Europe and the U.S. had previously been on a generally converging path of GDP / Person, and maintaining this lead in productivity (by this metric) was very far from preordained. Second, it is difficult for a society to maintain aggregate power indefinitely if its population share becomes small enough relative to other countries. Said differently, as much of the rest of the world applies some approximation of basic techniques of market capitalism and technological development, it will be very hard to maintain a huge enough productivity advantage for the West to retain aggregate power. DiA, in this vein, amusingly charges that
…if Mr Manzi thinks America needs to maintain its GDP share to counter the rising third-world menace, then he is arguing that Americans should allow more immigration and have more babies.
Of course, one of the four recommendations I made was precisely to “reconceptualize immigration as recruiting”, both as a mechanism for increasing the GDP / Person impact per immigrant, and maintaining population growth (among other reasons).
The key practical point of the article is that I believe there is a different efficient frontier of smarter political action available to us than is currently being provided by our two major parties if we can try to see both sides of the eternal argument more clearly – that is “the inherent conflict between the creative destruction involved in free-market capitalism and the innate human propensity to avoid risk and change”, that in our case is exacerbated by both “ever-increasing international competition” and “the growing disparity in behavioral norms and social conditions between the upper and lower income strata of American society”.
As I also said in the piece, I believe that this three-part problem “has actually undergirded most of the key political-economy debates of the past 30 years. But a dysfunctional political dynamic has prevented the nation from addressing it well”. It’s a shame to see that dynamic replicated in this instance.
Update: As I re-read that last sentence, it sounds like I am blaming my interlocutors for misinterpreting me. I believe what I said about the responsibility for lack of clarity resting on the shoulders of the author. I stand by every word in the article, but I should have exerted greater powers of imagination to understand the reaction of somebody who does not share some of my premises, and should have reflected this in the article. The rough-and-tumble of direct exchange always improves thought and expression, so I thank all of my critics linked to in this post for their focused attention.
I’m not always persuaded by your arguments, but I genuinely respect and appreciate the integrity, decency, and intellectual honesty you bring to discussions like this. I understand that this type of approach is more effortful and risky to any writer, which is why I appreciate it so much. It earns you my trust and a second, more careful, reading of what you’ve written. Thank you.
— RobF · Jan 7, 09:34 PM · #
All of this is well and good, but you still haven’t addressed the point that the specific numbers you cited appear to be unsupported by the sources you claim to have used. It’s a real trend, but it seems to be greatly exaggerated.
— LaFollette Progressive · Jan 7, 09:34 PM · #
RobF:
Thanks very much.
— Jim Manzi · Jan 7, 10:06 PM · #
I’d like to emphasize this, because Yglesias writes:
Market share matters to the corporation no matter how much the stockholders earn in dividends. You’re evaluating the corporation, Yglesias is talking about the dividends. Two different levels of analysis there.
— Kristoffer V. Sargent · Jan 7, 11:10 PM · #
I really dislike your treatment of privatizing schools.
It is my understanding that the correlation between school performance and student success has been established as the SES of the surrounding community, and parental involvement.
Do you have any data that supports your hypothesis that vouchers will increase performance?
— matoko_chan · Jan 8, 12:19 AM · #
Thank you for your clarifications. I assume you are writing this with the idea of modifying current practices. If asked to enact changes in the Eu what would you then suggest? Would increasing population allow the EU to regain its position? Which is more important in geopolitical power, absolute strength or relative strength? What are the opportunity costs involved with our maintaining the Pax Americana?
Steve
— steve · Jan 8, 12:54 AM · #
I’m not sure I understand this. The argument looks like: the world is hostile, so any given civilization needs power to protect itself, and power is available only from maintaining dominance; the way to maintain dominance is more or less to intensify inequality.
The empirical stuff looks all wrong: none of China, India, Russia, Brazil or South Africa are economically dominant; none of them are even in serious danger of attack just now; dominance is unnecessary for security. But even if it were true that dominance was necessary for security, what reason is there to think that the only way to maintain economic dominance is to intensify in-country inequality? Why wouldn’t forming a common market — an economic alliance with Europe, perhaps — do just as well for dominance, without dooming quite a lot of your compatriots to miserable lives?
— daniel.waweru · Jan 8, 03:08 AM · #
JM—
I appreciate your article. You are talking about the right stuff. I I just think you are basing your premisis on two big assumptions that you provide no evicence for and which could easily—in my opinion—be completely 180 degrees wrong. These assumptions are: 1. More welfare state means less productivity. 2. America is at risk of military what…. invaison and occupation? I’m not totally sure what you envision here.
Re 1. I think there is plenty of evidence out there that supports the idea that wellfare stateism means better productivity. Health insurance is a good example. Our system cost employers/employees—in all kinds of ways—way more than any other modern welfare state. The money spent there takes away from productivity. THe current recession is another example. The current recession is the result of past deregularization. It has definitely suppressed productivity.
re 2. If you are are invisioning military invasion, that makes very little sense. We have the two huge oceans invaders would have to cross, plus an enormous land mass to control plus a worlds greatest military (which will remain the worlds greatest for a long time now, plus a huge stockpile of nukes plus a resourceful and beligerant citianery. Think about the history of large powerful countries. HAs anyone ever successfully invaded russia? China? And if you are invisioning some sort of diminishing of economic power tied to diminishing military power, than I say, maybe, but that might not be the end of the world? I would point out to the example of Canada or Sweden. I think people there are every bit as happy as we are and they get by just fine as 6th rate military powers.
So I wonder what kind of article you ( or someone else) would write without these two huge assumptions. I also wonder what the right answer is about social wellfare/productivity and what life in the US would be like as a non-dominant power. I don’t think your project can continue without trying to answer these questions.
— cw · Jan 8, 03:47 AM · #
“It is my understanding that the correlation between school performance and student success has been established as the SES of the surrounding community, and parental involvement.”
The Coleman Report concluded forty years ago that parents were the key factor and the everything else was trivial. I don’t think anything has changed despite a lot of experiments. This is why the methods of how legal immigrants are selected is important.
One reason I am not concerned about the US and Europe maintaining their share of the world economy is that one of the two rising powers is a former British colony that should be a natural ally to the US.
— Mercer · Jan 8, 04:06 AM · #
Steve / cw:
You are raising huge questions that would be hard to answer at all, never mind in a combox.
I agree that I would have a very different view of the world if I disbelieved either of cw’ big premises. I’m writing a book on why I think the Hayekian knowledge problem remains so central to how to think about politicial economy, and therefore freedom and deregulation are central to growth in an economy not in catch-up mode. As per many of recommendation which argue for specific kinds of restrictions on freedom, I think there is not an algorithmic answer to how much / what kind of restrictions on freedom will work out best in the long run. I’ll just have to ask you to wait for the book. As far as challenge from a foreign power, just ask yourself what the Cold War was like, or WWII or WWI. The form it will take is unpredictable, but if the US is, say, 5% of the world economy, it will likely be very difficult to maintain our independence in the absence of a benign power.
— Jim Manzi · Jan 8, 05:20 AM · #
Mercer….but doesn’t that mean that vouchers are useless?
— matoko_chan · Jan 8, 05:34 AM · #
“but doesn’t that mean that vouchers are useless?”
It means they will not improve academic scores much.
I have nothing against vouchers but I think right wingers are over estimating their value to improve students. To put it in Manzi’s terms: There is not evidence that injecting free market dynamism in education can overcome the breakdown in social cohesion in many student’s families.
— Mercer · Jan 8, 06:07 AM · #
So it is all about Mr. Manzi not being sufficiently clear. Nice work that. So if I claim that the Holocaust was a lie because, well, I meet Jews all the time, and then am taken to task for my sloppy dealing with facts, I just have to apologize for not being clear and then change the subject. I wasn’t saying the Holocaust never happened, only that lots of Jews got away, you see, and how being Jewish promotes high birth rates, which is important because blah, blah. Am I being clear yet?
Earlier I gave Mr. Manzi the benefit of the doubt and suggested that he was being disengenuous. The sad fact seems to be that he is sincere in what he writes but is of the class of clever, feel-good wordsmiths who find facts and numbers to be tedious things because they so often get in the way of the point they are trying to make.
-If the above contains any howlingly false or misleading statements my apologies for not being clear.
— tvd · Jan 8, 08:13 AM · #
well then…possibly Dr. Manzi is right that “creative destruction” privleges economic growth over social democracy. But to me it is obvious that social cohesion fail is the root cause of our current dilemma vis a vis education, immigration, inequality, etc.
You can argue measurement all you want, but it seems to me that social democracy is the only way to address the root cause of social cohesion fail….because making education and immigration into competitive merit based systems won’t address the root cause. SES Inequality is already survival of the fittest. ;)
The social cohesion model that must be replaced is white patriarchy, or white christian conservatism, which is no longer viable in the current population because of demographic and cultural evolution.
So I think the cost/benefit matrix trade-off is that America can keep her “edge” in GDP, but only at the cost of continued erosion in social cohesion and a widening rich/poor gap.
The alternative is to come up with a social cohesion model to replace white patriarchy.
I don’t know what that would be.
Perhaps social democracy is the only viable model.
— matoko_chan · Jan 8, 02:28 PM · #
Now I am really interested in the weak(er) US economy = “very difficult to maintain our independence in the absence of a benign power.” THis is like the “a democratic Iraq will transform the middle east (in a way that is good for the US” idea used to sell the invasion of Iraq. It is a speculative statement that has not been speculated enough on. If you make these kind of statements you have to ramp up your speculum and put forth the mechanism by which your premise will come true. What was the mechanism by which a democratic Iraq would transform the middle east? If you can’t come up with a clear plausible scenario, then your sweeping statment is probably wrong.
So you need to mentally war game for ua your weak(er) US economy = “very difficult to maintain our independence in the absence of a benign power premis. That will force you to define “independance” for one thing.
Maybe it’s in your article.
— cw · Jan 8, 05:20 PM · #
“Europe and the U.S. had previously been on a generally converging path of GDP / Person, and maintaining this lead in productivity (by this metric) was very far from preordained.”
I don’t believe that is true. If we look at per capita GDP among the EU15 (which omits the Eastern European countries who were behind the Soviet Union’s iron curtain) vs. USA in constant dollars (http://www.ers.usda.gov/Data/macroeconomics/), we see that per capita GDP among the EU15 has trended steadily at about 80.5% of the US per capita GDP. This has stayed within 1.5 percentage points of 80.5% every year since 1970 except for 1982 where it spiked to 84%. But it then renormalized.
— Ron · Jan 8, 06:43 PM · #
re: centrally-directed economies, with central banking pretty much all economies are now! even the US with its economy administered by the ‘federal reserve system’ :P
— glory · Jan 9, 06:49 AM · #
Most of what you say in your original article is insightful and correct, but there is at least a fourth problem in addition to the three you mention, and that is the huge growth in the US federal debt and the way the existence of this debt affects America, both internally and externally, especially with China now owning a large part of that debt.
— LE · Jan 10, 06:48 AM · #