The Baseline Scenario

By James Kwak

Matthew Klein of Alphaville called out the “Council of Economic Education” for a supposed “economic literacy” quiz that wrapped up free market ideology in the trappings of universal economic truth. The quiz is full of questions like this one:

If you know a little bit of economics, and you know how to answer multiple-choice tests, it’s clear that you’re supposed to choose “C”—the point being that trade helps consumers, and limits on trade help domestic competitors. But, as Klein shows, these types of simple, first-order answers may or may not apply to the real world. For question 7, for example, you would have to know why the United States stopped importing automobiles from Country X.

What the Council of Economic Education really came up with here is a push poll: a set of questions intended to convey a certain message. The message is that complicated policy issues can be reduced to multiple choice questions which, in turn, can be answered using a handful of simple models from an Economics 101 class. But you can only answer the questions “correctly” if you assume that those models accurately depict the behavior of individuals and firms in the real world. Then everything becomes easy: trade is always good for all parties, taxes and regulations (like rent ceilings) are always bad, and competition is always good for consumers.

This idea that all questions can be answered using a few diagrams from introductory economics has been pushed by business organizations since World War II. That was the principle behind the Foundation for Economic Education, which helped sponsor Ludwig von Mises and Friedrich Hayek; behind 1950s’ economic education programs in the sponsored by the National Association of Manufacturers and large corporations (often to captive audiences of employees); and behind business-sponsored teaching kits distributed to thousands of schools. (For the full story, see Selling Free Enterprise, by Elizabeth Fones-Wolf.) In each case, the motivation was the same: teach people a streamlined, fact-free version of the competitive market model, and they will understand why free markets are always good and government intervention is always bad.

The problem, of course, is that the real world is rarely so simple. But if you can get lots of people to learn a little bit of economics, you can convince them that trade agreements are always good (comparative advantage!) and that the minimum wage is always bad (price floor!). I’m all in favor of education—I’m in the business, after all. A lot of what the Council for Economic Education does may be valuable. But multiple choice is not the right answer to real problems.

By James Kwak

I’ve written various generally supportive things about Bernie Sanders, but I hadn’t actually decided whether I preferred him or Hillary Clinton as the Democratic nominee. I’ve been concerned about the electability thing, as well as the effectiveness thing. (I haven’t given money to either candidate because of a promise I made when neither lifted a finger to help Larry Lessig get into the debates.) But I’m voting for Sanders.

Obviously, I prefer Sanders’s positions on the big issues. Government-funded health care for everyone, universal pre-K education, affordable higher education for everyone, mandatory family and medical leave, a higher minimum wage, higher taxes on people like me—what’s not to like? I have concerns about some things around the edges, like ripping up existing trade agreements (I won’t call them free trade agreements, because they are often far from it), but there has not been a serious candidate in my lifetime with such a bold and progressive vision for America.

Clinton, by contrast, stands for . . . what again? She is running as the pragmatic defender of the Clinton-Obama status quo—which is to say, slightly to the right of the Nelson Rockefeller wing of the Republican Party. Her message is basically this: I’m the only serious person in this race; it’s me, or the sack of Rome by the barbarians and one thousand years of darkness. And so, the Clinton side’s case boils down to saying, sure, we want the same things Sanders wants (lower inequality, higher wages for working people, affordable health care for everyone), but Sanders’s ideas are naïve, or impractical, or arithmetically challenged, or, worst of all, not acceptable to Paul Ryan.

So let me say a few words about that.

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By James Kwak

David Brooks has competition for the title of most inane New York Times columnist. I generally never read anything by Thomas Friedman—I gave up less than one hundred pages of The World Is Flat because of his blissfully uninformed discussion of workflow software—but I made an exception today because of this brilliant tweet by Benjamin Kunkel:

Only the genius of Thomas Friedman could capture the mystification at the heart of capitalism so perfectly. pic.twitter.com/YlZnicUayP

— Benjamin Kunkel (@das_kunk) February 18, 2016

I mean, I co-founded a company, and it’s not as if we had a secret laboratory churning out clones to work for us. One reason we founded the company when we did—2001, after the collapse of the technology bubble—was that we knew there were many talented people out there looking for a satisfying and challenging place to work. (One of the things I’m most proud of is that that, fourteen years later, my old company is still one of the best places to work in the economy.) In other words, skilled and motivated people (most of whom already have jobs) are a precondition for entrepreneurialism.

I assume Friedman’s point is that to have new jobs, you have to have people willing to take risks and start businesses. Of course, this isn’t completely accurate, since big companies often keep getting bigger and hiring new people. But I agree with the general point that entrepreneurial activity is a good thing. However, Friedman presents as undisputed fact this quotation from a report:

With enough hard work anyone can use entrepreneurship to pave their own way to prosperity and strengthen their communities by creating jobs and growing their local economy.

Does Thomas Friedman really think that literally anyone can become rich just by working hard and “using entrepreneurship”? Anyone?

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By James Kwak

From the Times (order of quotations reversed):

Mr. Sanders was the choice, nearly unanimously, among voters who said it was most important to have a candidate who is “honest and trustworthy.”

[Clinton] has gone so far as to promise to rethink and adjust her campaign strategy in hopes of connecting better with Democrats.

Part of the problem is that the Clintons have spent more than twenty years trying to say what their pollsters tell them people want to hear. When people no longer believe in the political class, feel (rightly or wrongly) like the government is controlled by distant socio-economic elites, and want someone “honest and trustworthy,” another round of message calibration is not going to fill the gap. If Clinton emerges from New Hampshire as the champion of the working man, it will be about as convincing as Al Gore’s desperate rebranding as a populist in late 2000.

By James Kwak

This guest post was written by Lawrence Glickman, Professor of History at Cornell University (and a friend from long ago when we were both graduate students at Berkeley).

As the summer of Trump turned into a phenomenon for all seasons, the Donald’s typical stump speech has grown into a bloated piece of performance art, lasting about one hour. A lot of that time is filled with bluster about how well he is doing in the polls, about how The Art of the Deal is his favorite, I mean second favorite book, after the Bible. And usually there are several more comments along the lines of, “by the way did I mention I’m doing well on the polls.”

In his speech in Des Moines on February 1, the evening of the Iowa caucus, Trump had to radically distill his campaign pitch into a two minute appeal. Presumably the pithiness forced him to highlight the most important parts of his campaign message. So what did he say? What can his candidacy be boiled down to? It turns out that for all the talk about Trump’s “populism” and his embrace of unorthodox positions, he offered talking points would have been familiar at a Rubio, Cruz, or for that matter, Jeb! rally.

Trump began by saying that “Obamacare is going to be repealed and replaced.” Then, he observed about the government that “everything that we’re doing has been wrong.” After condemning our unsustainable debt (“we owe 19 trillion dollars”) he discussed misplaced and wasteful priorities: “the budget that we just approved…funds everything that all of us in this room don’t want to see it fund.” He complained about the Iran deal and discussed the need to “build a wall” along the Mexican border.

Other than Trump’s signature claim that “Mexico is going to pay for the wall,” there was nothing outside the Republican mainstream in his litany. Compared to the other Republican candidates, who regularly spout apocalyptic rhetoric about ISIS or about dangerous trends in government overreach, his view that “we’re in trouble” seems completely in tune with the GOP chorus. Trump, being Trump, did toot his own horn, although, he assured the audience, not in a “braggadocious way” by talking about his “great, great company.” But that was only to highlight his credentials to run the country “the way it’s supposed to be run,” presumably in a business-like manner.

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What liberals can learn from conservatives

The future of the Democratic Party is the theme of the lead article in yesterday’s New York Times. The story more or less writes itself: you have Hillary Clinton, the face of the moderate Democratic establishment (and the spouse of the man who created it), versus Bernie Sanders, a socialist, in a battle most people thought she would have wrapped up months ago.

A lot of liberals like me spend our time wondering what the conservatives have done right—and why we can’t do it ourselves. The financial crisis and Great Recession should have debunked the ideology of deregulation, reinforced growing feelings of economic insecurity, and made people recognize the importance of the social safety net. Instead, we got the Tea Party and the most conservative Congress in living memory.

Seen in the broader sweep of history, conservatives have been relentlessly pushing the nation’s political agenda to the right on most issues (gay rights being almost the only exception), even as public opinion on most social and economic issues remains largely unchanged. Marco Rubio—just four years ago a darling of the Tea Party—is now the last hope of the Republican “moderate” establishment: what other proof is needed of the success of conservative ideology? Sure, extremism makes it hard for Republicans to win presidential elections. But although Democrats have won four and a half out of the past six contests, the result has been lower taxes on the wealthy, smaller government, no progress on climate change or gun control, and a solidly conservative federal judiciary.

So why can’t we do the same?

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