Tag Archives: Economics and Other Stuff I Don’t Understand

They used to make televisions there, no?

I’m afraid I don’t understand John Judis’s latest foray into economic nationalism:

Can’t Japanese, South Korean, and German firms (with the Chinese also readying an industry) supply cars to American consumers? First, of course, it’s a matter of several million jobs ranging from auto workers to suppliers to the myriad of small businesses that cater to these workers and businesses disappearing in the midst of global recession that is verging on a depression. Secondly–and little remarked–it’s the loss not merely of assembly line jobs, but also the ability to conceive, design and engineer large durable goods.

With them, it is not going to be possible to abandon manufacturing while retaining the ability to engineer and administer. The industry will disappear the way the American television industry disappeared. American workers and engineers will lose their ability to compete in a major durable goods industry–and that’s not a good thing.

Conservative jingos, at least, have a concrete argument for industrial favoritism. Preserving domestic heavy manufacturing is worth doing because it’s supposed to keep us strategically independent.

Other than protecting domestic jobs, however, I’m not sure what the liberal argument for industrial protectionism is. Apparently, losing heavy manufacturing capability is bad because . . . otherwise we won’t have any heavy manufacturing capability. Which sounds like a bit of a tautology, though I’m sure our lack of TV-producing infrastructure has had a devastating effect on American society.

The best argument that Judis can muster in favor of the bailout is the plight of American autoworkers, who certainly deserve our sympathy and support. So instead of propping up a moribund industry, let’s examine job retraining programs and beefed-up unemployment benefits. That, at least, would prevent auto industry execs from holding workers’ job prospects hostage every time bankruptcy looms.

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Filed under Economics, Liberalism (Left)

Latvia Free Speech Blogging

I’ve belatedly realized that discussing the Latvian free speech crisis in the context of a post on democracy promotion misses the forest for the trees. And while I don’t want to inflate the severity of the issue, throwing an economic pessimist in jail for speaking truth to power fundamentally undermines the principle of free, unfettered discourse. Even if you think certain communal restrictions on individual speech are warranted, economic forecasting is one issue that demands vigorous public debate.

As I wrote earlier, I was lucky enough to visit Riga several times as an undergraduate. It was a lovely experience, and the country’s recent history – from de facto Soviet colony to a vibrant, independent nation – is absolutely inspiring, which makes this recent turn of events all the more disheartening. Here’s the original WSJ article on the crisis, as well as Clay Risen’s commentary for TNR. Apparently, a Latvian pop star was also detained for making disparaging remarks about the country’s financial woes.

For more English-language commentary, here’s an excellent blog on the Latvian economy whose author also posts at a Fistful of Euros. Juris Kaža, a Latvian journalist, recently started an indispensable blog that follows the government’s free speech crackdown. Pēteris Cedriņš’ excellent site also features a good round-up of English-language commentary. These two posts from All About Latvia were particularly informative.

In most cases, drawing attention to free speech restrictions in a foreign country is a futile effort, but my own experience suggests that Latvians value their nascent democratic institutions and aspire to full acceptance within the Western community of nations. Given these sensitivities, an uproar among American and European media outlets might actually deter the Latvian Government from pursuing its absurd restrictions on freedom of speech. If you’re so inclined, I heartily encourage you to make some noise.

barons

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Filed under Free Speech, The Media, Worthy Links

Leverage

Progressives spend a lot of time talking about the need to use our newfound corporate leverage (courtesy of the various bailout rescue packages we’re handing out) to jump-start broader reform. The auto industry, for example, is now a prime target for mandatory “greening.” Well, maybe. I say we use the Citi bailout to stop corporations from choosing awful names for newly-built stadiums (I mean, Citi Field? Really? I don’t even watch baseball and I’m appalled). Come to think of it, doesn’t FedEx need a quick infusion of government cash?

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Filed under Economics, Sports

Department of Bad Analogies

The government is really good at running the military-industrial complex, so there’s no reason not to enter into a similar arrangement with the auto industry, right? Here’s Steven Coll:

Another fallacy of the current debate, often a theme of op-ed essays from the right, but an argument not limited to conservatives, is the notion that the American system is, and should be, fundamentally biased against industrial policy—that is, the use of the commanding heights of the federal government to pick winners and losers in the economy, whether these are whole industries or companies within industries. In fact, we already have a massive industrial policy, funded by the federal budget—it’s referred to as defense contracting.

Why does the United States have one of the most robust aircraft-manufacturing industries in the world? The answer is not that pure free markets have, through the workings of a natural law, granted us such a bounty. Yes, Boeing has been disciplined and strengthened by global-market competition, particularly with Airbus, but large-scale federal spending on defense contracts has crucially strengthened Boeing’s position as a locus of human capital, design experience, and innovation. In 2006, the federal government spent more than sixty billion dollars on aircraft manufacturers. Boeing received $20.8 billion, according to Government Executive magazine. (Lockheed-Martin received $27.3 billion, and Northrup-Grumman $16.7 billion.)

Now I’m no expert, but I believe this is the sort of thing economists refer to as the “fallacy of not paying attention” (Wikipedia entry forthcoming). A few days ago, Megan McArdle helpfully explained why implementing a massive clean energy “Manhattan Project” was pretty unrealistic. One critical distinction: there was no market for building a massive atomic bomb; renewable technology, on the other hand, is hugely profitable. Similarly, there’s no demand for infantry fighting vehicles, massive tanks, fighter jets, and aircraft carriers outside of the public sector. It’s not that the government is particularly good at industrial policy – it’s just that we don’t have much of a choice when it comes to the defense industry. National security demands we publicly finance at least a few products that would otherwise go unfunded.

So yes, under certain carefully prescribed circumstances, industrial policy is probably necessary. As far as the Big Three are concerned, however, there’s a clear market incentive for automotive manufacturing. So why is government a better steward than private investors? Coll’s argument seems to be that Boeing is flush with cash, ergo government-run industries are successful. While undoubtedly great news for Boeing’s shareholders, I’m not sure that this proves his point. The failure of several high-profile military projects in recent years – the much-vaunted Future Combat Systems, the F-22, the Zumwalt-class destroyer – strongly suggests that the defense industry’s products are frequently subpar (not to mention incredibly expensive). The government, of course, can afford a string of expensive failures, but I’m not sure the auto-industry has that luxury.

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Filed under Economics

Slippery Slopes

I understand the distinction Megan McArdle is trying to draw here, and I think her larger point is basically sound – the financial services sector is more important to our economy than the auto industry. That said, I also think this argument exposes another unintended consequence of the bailout. Politically speaking, it’s extremely difficult to persuade voters that certain sectors of the economy are more deserving of federal largess than others. In fact, I imagine the economic impact of GM going under is a lot more tangible to most people than the prospect of Bear Sterns’ bankruptcy. The decision to bailout the financial sector has created something of a lose-lose situation: if Congress bows to mounting pressure and legislates more bailouts, the risk of a moral hazard increases exponentially. But if we hold the line and let GM die a natural death, many will undoubtedly assume that the financial services sector simply had better lobbyists. I’d probably choose cynicism over another bailout package, but neither option is particularly appealing.

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Filed under Economics, Politics

Honorable Intentions

Having witnessed several noble debacles, I’ve come to believe that principled ideologues have some obligation to outline how their preferred policy choices would function in a real-world setting. It would have been nice, for example, to have had a robust national debate on the merits of occupying Iraq before we started lobbing smart bombs through the desert.

So while I enjoyed reading Roderick Long and John Schwenkler on corporatism and libertarianism, I’m left wondering how exactly one would go about liberalizing a broad range of economic activities in our current political environment. I’ve always thought that the idea of regulatory capture was one of the more persuasive rebuttals to various progressive policies, but I’m not sure why corporations would suddenly cease to influence the political process in the midst of a thorough-going effort to liberalize the economy. Long actually discusses this problem in the context of conflating libertarianism with the interests of big corporations:

Similar concerns apply to that other conservative virtue-term, “deregulation.” From a libertarian standpoint, deregulating should mean the removal of governmental directives and interventions from the sphere of voluntary exchange. But when a private entity is granted special governmental privileges, “deregulating” it amounts instead to an increase, not a decrease, in governmental intrusion into the economy. To take an example not exactly at random, if assurances of a tax-funded bailout lead banks to make riskier loans than they otherwise would, then the banks are being made freer to take risks with the money of unconsenting taxpayers. When conservatives advocate this kind of deregulation they are wrapping redistribution and privilege in the language of economic freedom. When conservatives market their plutocratic schemes as free-market policies, can we really blame liberals and leftists for conflating the two?

This is a real PR hurdle, but corporatism also poses an immense challenge to the good-faith implementation of libertarian policies. Despite our best intentions, the deregulatory process would remain extremely vulnerable to all sorts of political pressures. Given these structural constraints, I sometimes envision deregulation as a sort of libertarian dystopia – think Bush’s Prescription Drug Benefit on steroids – where corporate priviliges remain largely untouched while welfare programs are systematically dismantled in the name of “curbing government waste.” If we’re going to be stuck with a massive regulatory apparatus, I’m a lot more sympathetic to saving programs aimed at addressing real social needs, and I worry that libertarians and other small-government advocates risk providing intellectual cover for a political process that isn’t very liberal at all.

UPDATE: Edited for clarity.

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Filed under Economics, Libertarianism

Back

Posting will be light while I recover from an extremely long weekend. In the interim, check out this extremely depressing article on Indian call centers and the financial crisis:

GURGAON, India – With her flowing, hot-pink Indian suit, jangly silver bangles and perky voice, Bhumika Chaturvedi, 24, doesn’t fit the stereotype of a thuggish, heard-it-all-before debt collector. But lately, she has had no problem making American debtors cry.

For the past three years, Chaturvedi has been a top collection agent at her call center, phoning hundreds of Americans a day and politely asking them to pay up. As the U.S. financial crisis plunges Americans into debt, her business is one of the fastest-growing sectors in Indian outsourcing. It is also one of the few sectors of outsourcing in India that is still aggressively hiring.

Sitting in a narrow cubicle, her head-set switched on, Chaturvedi listens every night to increasingly disturbing tales of woe from the other side of the globe.

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Filed under Culture, Uncategorized