Great story in the Washington Post (in the sense of very good news) about the successful trial in India of a cheap vinegar test for cervical cancer. According to the article this cheap and easy to administer test can substantially increase the early detection of this cancer. This test can save the lives of tens of thousands of women in India and elsewhere in the developing world who do not have access to more expensive tests.
An interesting and important sidebar is that it seems that this test was developed with support from the National Institutes of Health and an Indian non-profit. This perhaps should not be surprising, but many advocates of patent supported research insist that people become stupid when they get public funding. The success of this test, which holds the promise of enormous gains in public health, shows again that it is possible to have innovations that do not depend on patent support.
Great story in the Washington Post (in the sense of very good news) about the successful trial in India of a cheap vinegar test for cervical cancer. According to the article this cheap and easy to administer test can substantially increase the early detection of this cancer. This test can save the lives of tens of thousands of women in India and elsewhere in the developing world who do not have access to more expensive tests.
An interesting and important sidebar is that it seems that this test was developed with support from the National Institutes of Health and an Indian non-profit. This perhaps should not be surprising, but many advocates of patent supported research insist that people become stupid when they get public funding. The success of this test, which holds the promise of enormous gains in public health, shows again that it is possible to have innovations that do not depend on patent support.
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Actually he made the claim about the government, telling readers:
“Since World War II, American government has assumed more responsibilities than can reasonably be met. Some are unattainable; others are in conflict. Government is, among other things, supposed to: control the business cycle, combat poverty, cleanse the environment, provide health care, protect the elderly, subsidize college students, aid states and localities. There are more. Most are essentially postwar commitments. As I’ve written before, government becomes almost “suicidal” by pervasively generating unrealistic expectations. The more people depend on it, the more they may be disappointed by it.”
It’s not clear which items on this list are unattainable — cleanse the environment, protect the elderly, aid state and local governments — we’ve done all of these things with a fair amount of success over the last five decades. Other countries provide health care and have done a much better job of combating poverty and supporting colleges students. Samuelson doesn’t present any evidence that people in the United States are less competent than people in Germany, Netherlands, or the Nordic countries. Why should we think we can’t follow their examples?
As far as controlling the business cycle, some of us have been (following Keynes) calling the shots pretty well in terms of the severity of the downturn from the collapse of the bubble, the difficulty of the recovery, and the impact of cuts in government spending. If Samuelson’t point is that Keynesians have been kept from controlling policy, he’s right, but that’s just saying that people who share his view of the economy may not be able to control the business cycle, but they have enough control of the political situation to keep Keynesians from setting policy.
In short, there is not much here. Samuelson has zero evidence that the government can’t carry through the responsibilities people have come to expect from it. Other governments do quite successfully. In fact, Samuelson’s whole framing of the issue is deceptive since we don’t have much choice about government involvement in many areas. What would health insurance look like without the government regulation? Would insurers pick up six figure annual bills for cancer victims if they need not fear the heavy hand of the state?
Just as Apple has been able to expand from being a computer manufacturer to being a cell phone company, and a provider of on-line music and books, there is no obvious reason that the government can’t take on additional responsibilities through time. The serious question is how best to set the role of government in various sectors, not to repeat a line, like something your parents told you, that “government is too big.”
One other point, Samuelson again expresses his admiration for Volcker’s use of a recession to attack inflation. He tells readers:
“The subduing of double-digit inflation triggered a 25-year economic boom. As important, it demonstrated that government could govern. Seemingly intractable problems (in 1980 runaway inflation was the country’s No. 1 problem) could be mastered. Optimism revived.”
There are two data points that make Volcker’s accomplishment look less impressive. Inflation fell everywhere in the world in the early 1980s, including in countries that did not have as severe a downturn as the United States. A major factor was the collapse of world oil prices, which presumably would have happened with or without Volcker’s recession, although the reduction in demand certainly hastened the fall.
The other data point is that the “25-year economic boom” was not quite as impressive as Samuelson might have us believe. Economies generally grow, the issue is the rate of growth. In the years from 1981 to 2007 growth averaged 3.1 percent a year. In the prior 25 years it averaged 3.5 percent. (I took 1981, the prior business cycle peak because it doesn’t make sense to measure growth from a trough which measures the severity of the downturn. That approach would make Volcker’s boom look better if he had engineered a more severe downturn.)
Actually he made the claim about the government, telling readers:
“Since World War II, American government has assumed more responsibilities than can reasonably be met. Some are unattainable; others are in conflict. Government is, among other things, supposed to: control the business cycle, combat poverty, cleanse the environment, provide health care, protect the elderly, subsidize college students, aid states and localities. There are more. Most are essentially postwar commitments. As I’ve written before, government becomes almost “suicidal” by pervasively generating unrealistic expectations. The more people depend on it, the more they may be disappointed by it.”
It’s not clear which items on this list are unattainable — cleanse the environment, protect the elderly, aid state and local governments — we’ve done all of these things with a fair amount of success over the last five decades. Other countries provide health care and have done a much better job of combating poverty and supporting colleges students. Samuelson doesn’t present any evidence that people in the United States are less competent than people in Germany, Netherlands, or the Nordic countries. Why should we think we can’t follow their examples?
As far as controlling the business cycle, some of us have been (following Keynes) calling the shots pretty well in terms of the severity of the downturn from the collapse of the bubble, the difficulty of the recovery, and the impact of cuts in government spending. If Samuelson’t point is that Keynesians have been kept from controlling policy, he’s right, but that’s just saying that people who share his view of the economy may not be able to control the business cycle, but they have enough control of the political situation to keep Keynesians from setting policy.
In short, there is not much here. Samuelson has zero evidence that the government can’t carry through the responsibilities people have come to expect from it. Other governments do quite successfully. In fact, Samuelson’s whole framing of the issue is deceptive since we don’t have much choice about government involvement in many areas. What would health insurance look like without the government regulation? Would insurers pick up six figure annual bills for cancer victims if they need not fear the heavy hand of the state?
Just as Apple has been able to expand from being a computer manufacturer to being a cell phone company, and a provider of on-line music and books, there is no obvious reason that the government can’t take on additional responsibilities through time. The serious question is how best to set the role of government in various sectors, not to repeat a line, like something your parents told you, that “government is too big.”
One other point, Samuelson again expresses his admiration for Volcker’s use of a recession to attack inflation. He tells readers:
“The subduing of double-digit inflation triggered a 25-year economic boom. As important, it demonstrated that government could govern. Seemingly intractable problems (in 1980 runaway inflation was the country’s No. 1 problem) could be mastered. Optimism revived.”
There are two data points that make Volcker’s accomplishment look less impressive. Inflation fell everywhere in the world in the early 1980s, including in countries that did not have as severe a downturn as the United States. A major factor was the collapse of world oil prices, which presumably would have happened with or without Volcker’s recession, although the reduction in demand certainly hastened the fall.
The other data point is that the “25-year economic boom” was not quite as impressive as Samuelson might have us believe. Economies generally grow, the issue is the rate of growth. In the years from 1981 to 2007 growth averaged 3.1 percent a year. In the prior 25 years it averaged 3.5 percent. (I took 1981, the prior business cycle peak because it doesn’t make sense to measure growth from a trough which measures the severity of the downturn. That approach would make Volcker’s boom look better if he had engineered a more severe downturn.)
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It looks like more trouble with Harvard economists (e.g. Reinhart-Rogoff). It seems Larry Summers, who was Treasury Secretary in the last two years of the Clinton administration, is still unaware of the stock bubble that propelled growth in those years.
In a Post column today he tells readers:
“As a consequence of policy steps in 1990, 1993 and 1997 [deficit reduction measures], it was possible by 2000 for the Treasury to retire federal debt. Deficit reduction and the associated reduction in capital costs and increase in investment were important contributors to the nation’s strong economic performance during the 1990s, when productivity growth soared and unemployment fell below 4 percent. We enjoyed a virtuous circle in which reduced deficits led to lower capital costs and increased confidence, which led to more rapid growth, which further reduced deficits.”
Of course the reason that the country was repaying debt was that a $10 trillion stock bubble led to an investment boom (much of it in junk dot.com investment) and a much larger consumption boom through the stock wealth effect. This bubble fueled the strong growth at the end of the 1990s.
While the growth and resulting low unemployment rate were great news, bubbles are inherently unsustainable. This bubble burst beginning in 2000 and led to the recession of 2001. It is difficult to recover from a recession caused by a bursting bubble. The economy did not begin to create jobs following the 2001 recession until September of 2003. It did not make up the jobs lost in the downturn until January of 2005. Until the current downturn this was the longest period without job growth since the Great Depression.
The demand from the stock bubble was necessary to support the economy as a result of large trade deficit the country was running at the time. Robert Rubin, Larry Summers’ predecessor as Treasury Secretary, pushed a strong dollar policy. He put force behind this policy with his control of the IMF’s bailout from the East Asian financial crisis. The sharp run-up in the value of the dollar over these years made U.S. goods uncompetitive in the world economy leading to a sharp rise in the trade deficit. The deficit eventually peaked at 6.0 percent of GDP in 2005. The demand from the stock bubble and later the housing bubble were needed to offset the demand lost due to the trade deficit.
It is remarkable that Summers does not seem to be aware of this history, but I guess economics at Harvard is different from economics elsewhere in the world.
It looks like more trouble with Harvard economists (e.g. Reinhart-Rogoff). It seems Larry Summers, who was Treasury Secretary in the last two years of the Clinton administration, is still unaware of the stock bubble that propelled growth in those years.
In a Post column today he tells readers:
“As a consequence of policy steps in 1990, 1993 and 1997 [deficit reduction measures], it was possible by 2000 for the Treasury to retire federal debt. Deficit reduction and the associated reduction in capital costs and increase in investment were important contributors to the nation’s strong economic performance during the 1990s, when productivity growth soared and unemployment fell below 4 percent. We enjoyed a virtuous circle in which reduced deficits led to lower capital costs and increased confidence, which led to more rapid growth, which further reduced deficits.”
Of course the reason that the country was repaying debt was that a $10 trillion stock bubble led to an investment boom (much of it in junk dot.com investment) and a much larger consumption boom through the stock wealth effect. This bubble fueled the strong growth at the end of the 1990s.
While the growth and resulting low unemployment rate were great news, bubbles are inherently unsustainable. This bubble burst beginning in 2000 and led to the recession of 2001. It is difficult to recover from a recession caused by a bursting bubble. The economy did not begin to create jobs following the 2001 recession until September of 2003. It did not make up the jobs lost in the downturn until January of 2005. Until the current downturn this was the longest period without job growth since the Great Depression.
The demand from the stock bubble was necessary to support the economy as a result of large trade deficit the country was running at the time. Robert Rubin, Larry Summers’ predecessor as Treasury Secretary, pushed a strong dollar policy. He put force behind this policy with his control of the IMF’s bailout from the East Asian financial crisis. The sharp run-up in the value of the dollar over these years made U.S. goods uncompetitive in the world economy leading to a sharp rise in the trade deficit. The deficit eventually peaked at 6.0 percent of GDP in 2005. The demand from the stock bubble and later the housing bubble were needed to offset the demand lost due to the trade deficit.
It is remarkable that Summers does not seem to be aware of this history, but I guess economics at Harvard is different from economics elsewhere in the world.
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Last year the Washington Post was anxious to highlight claims from the military industry that the military side of the sequester would have severe economic consequences especially in the DC area (e.g. here and here). Thus far it doesn’t seem to have worked out that way. Industry groups tend to exaggerate the general impact of policies that will hurt them directly. Unfortunately the Post apparently is not aware of this fact, at least when it comes to defense related industries.
Addendum:
The Post did run its own piece making this point last week.
Last year the Washington Post was anxious to highlight claims from the military industry that the military side of the sequester would have severe economic consequences especially in the DC area (e.g. here and here). Thus far it doesn’t seem to have worked out that way. Industry groups tend to exaggerate the general impact of policies that will hurt them directly. Unfortunately the Post apparently is not aware of this fact, at least when it comes to defense related industries.
Addendum:
The Post did run its own piece making this point last week.
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The NYT has a very interesting piece documenting how much more people in the United States pay for a wide variety of medical procedures and drugs. While the article provides much useful information, it badly errs in telling readers (in a quote from David Blumenthal, the President of the Commonwealth Fund) that the cost problems stem from a free market.
In fact, one of the main reasons that the United States pays so much for health care, including the items listed in this article, is precisely because it does not have a free market in large sectors of the health care industry. Of course it severely restricts the admission of immigrant doctors into the country, driving up the pay of physicians to two or three times what they would receive in other wealthy countries.
Perhaps more importantly, it grants patent monopolies to drugs and medical devices. These monopolies allow pharmaceutical companies and manufacturers of medical devices to charge prices that are many thousand percent above their free market price. Not only does this raise the cost for these items it also perversely is likely to lead to unnecessary procedures, like the proliferation of colonoscopies that are a main theme of the piece.
Because the equipment used in colonoscopies is subject to patent protection, hospitals and other medical facilities are able to charge exorbitant prices. Since colonoscopies provide large profits (which would not be the case in a free market), there is a strong incentive to push their use on patients in circumstances where they may not be needed.
This is a more general problem in U.S. medicine. Because drug companies can sell drugs for hundreds or even thousands of dollars per prescription, when they can be profitably sold for $5-$10, they have an enormous incentive to mislead the public about the safety and effectiveness of their drugs.
This is why we regularly see stories about drug companies concealing evidence that their drugs are ineffective or even harmful. That is a direct result of the enormous mark-ups that are provided by patent monopolies. If drugs were sold in a free market these incentives would not exist.
Patent monopolies are one mechanism to provide an incentive for innovation, however they are a tremendously inefficient mechanism. There are other possible routes for financing innovation (the government already spends $30 billion a year on biomedical research through the National Institutes of Health).
Of course the industry will fiercely contest any changes that threaten their profits, but no alternatives can even be considered until the public understands the nature of the problem. This piece missed a great opportunity to inform readers.
The NYT has a very interesting piece documenting how much more people in the United States pay for a wide variety of medical procedures and drugs. While the article provides much useful information, it badly errs in telling readers (in a quote from David Blumenthal, the President of the Commonwealth Fund) that the cost problems stem from a free market.
In fact, one of the main reasons that the United States pays so much for health care, including the items listed in this article, is precisely because it does not have a free market in large sectors of the health care industry. Of course it severely restricts the admission of immigrant doctors into the country, driving up the pay of physicians to two or three times what they would receive in other wealthy countries.
Perhaps more importantly, it grants patent monopolies to drugs and medical devices. These monopolies allow pharmaceutical companies and manufacturers of medical devices to charge prices that are many thousand percent above their free market price. Not only does this raise the cost for these items it also perversely is likely to lead to unnecessary procedures, like the proliferation of colonoscopies that are a main theme of the piece.
Because the equipment used in colonoscopies is subject to patent protection, hospitals and other medical facilities are able to charge exorbitant prices. Since colonoscopies provide large profits (which would not be the case in a free market), there is a strong incentive to push their use on patients in circumstances where they may not be needed.
This is a more general problem in U.S. medicine. Because drug companies can sell drugs for hundreds or even thousands of dollars per prescription, when they can be profitably sold for $5-$10, they have an enormous incentive to mislead the public about the safety and effectiveness of their drugs.
This is why we regularly see stories about drug companies concealing evidence that their drugs are ineffective or even harmful. That is a direct result of the enormous mark-ups that are provided by patent monopolies. If drugs were sold in a free market these incentives would not exist.
Patent monopolies are one mechanism to provide an incentive for innovation, however they are a tremendously inefficient mechanism. There are other possible routes for financing innovation (the government already spends $30 billion a year on biomedical research through the National Institutes of Health).
Of course the industry will fiercely contest any changes that threaten their profits, but no alternatives can even be considered until the public understands the nature of the problem. This piece missed a great opportunity to inform readers.
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The Washington Post long ago eliminated any distinction between news and opinion in its reporting on Social Security and Medicare. Keeping with this pattern, it ran a front page editorial that gave us the bad news from the Medicare and Social Security trustees reports released yesterday.
“And on Friday, analysts worried that the sunnier projections, together with an improving economy and a rapidly shrinking federal budget deficit, could serve to further dampen enthusiasm in Washington for tackling the nation’s toughest fiscal problems.”
Of course not all “analysts” were worried about the modest improvement shown in the Medicare trustees report and the modest improvement in the economy delaying action on “the nation’s toughest fiscal problems.” That was only the view of analysts whose views the Post chose to present to readers. Other analysts would have pointed out that Medicare costs are more a problem of the broken U.S. health care system (we pay more than twice as much per person for our health care than people in other wealthy countries) than a fiscal problem.
Other analysts would have also pointed out that the impact of the tax increases potentially needed to fund these programs on the living standards of most workers are swamped by the impact of the upward redistribution of income that we have been seeing over the last three decades. To obscure this fact the Post included a comment from the two public trustees, Robert Reischauer and Charles Blahous that could only have the effect of misleading the overwhelming majority of readers:
“‘Even if a Social Security solution were enacted today and effective immediately, it would require financial corrections that are substantially more severe than those enacted’ in the last major reforms to Social Security in 1983, they wrote in a message included in the report.”
It is highly unlikely that even one percent of the Post’s readers know the extent of the reforms implemented in 1983. It is possible that they do remember the tax increases and benefits cuts that were put in place in the 1980s. Most of these had already been in law, although they were moved forward by the 1983 reforms. The payroll tax for Social Security was increased by 2.24 percentage points over the course of the decade. In addition, the self-employed were required to pay the employer side of the tax as well. Since roughly 9 percent of the workforce is self-employed, this amounts to the equivalent of a 2.8 percentage point increase in the tax.
In addition, the Medicare tax was also increased by 1.9 percentage points over the course of the decade. This brings the total tax increase to 4.7 percentage points. Also, the age for collecting full benefits for Social Security was increased from 65 to 67. This increase is being phased in for people reaching age 62 in the years 2002 to 2022.
If Congress were to implement changes to the programs comparable to the ones that were actually put in place in the decade of the 1980s, it would be more than sufficient to keep them fully funded for the rest of the century according to the most recent trustees reports. If the Post had written a news story intended to inform readers it would have pointed this fact out as a clarification of the comments by Reischauer and Blahous, if it included their comments at all.
However, since this piece was written to promote the Post’s agenda of pushing cuts in these programs, it opted not to put the Reischauer-Blahous statement in a context that would have made it understandable to most readers.
The Washington Post long ago eliminated any distinction between news and opinion in its reporting on Social Security and Medicare. Keeping with this pattern, it ran a front page editorial that gave us the bad news from the Medicare and Social Security trustees reports released yesterday.
“And on Friday, analysts worried that the sunnier projections, together with an improving economy and a rapidly shrinking federal budget deficit, could serve to further dampen enthusiasm in Washington for tackling the nation’s toughest fiscal problems.”
Of course not all “analysts” were worried about the modest improvement shown in the Medicare trustees report and the modest improvement in the economy delaying action on “the nation’s toughest fiscal problems.” That was only the view of analysts whose views the Post chose to present to readers. Other analysts would have pointed out that Medicare costs are more a problem of the broken U.S. health care system (we pay more than twice as much per person for our health care than people in other wealthy countries) than a fiscal problem.
Other analysts would have also pointed out that the impact of the tax increases potentially needed to fund these programs on the living standards of most workers are swamped by the impact of the upward redistribution of income that we have been seeing over the last three decades. To obscure this fact the Post included a comment from the two public trustees, Robert Reischauer and Charles Blahous that could only have the effect of misleading the overwhelming majority of readers:
“‘Even if a Social Security solution were enacted today and effective immediately, it would require financial corrections that are substantially more severe than those enacted’ in the last major reforms to Social Security in 1983, they wrote in a message included in the report.”
It is highly unlikely that even one percent of the Post’s readers know the extent of the reforms implemented in 1983. It is possible that they do remember the tax increases and benefits cuts that were put in place in the 1980s. Most of these had already been in law, although they were moved forward by the 1983 reforms. The payroll tax for Social Security was increased by 2.24 percentage points over the course of the decade. In addition, the self-employed were required to pay the employer side of the tax as well. Since roughly 9 percent of the workforce is self-employed, this amounts to the equivalent of a 2.8 percentage point increase in the tax.
In addition, the Medicare tax was also increased by 1.9 percentage points over the course of the decade. This brings the total tax increase to 4.7 percentage points. Also, the age for collecting full benefits for Social Security was increased from 65 to 67. This increase is being phased in for people reaching age 62 in the years 2002 to 2022.
If Congress were to implement changes to the programs comparable to the ones that were actually put in place in the decade of the 1980s, it would be more than sufficient to keep them fully funded for the rest of the century according to the most recent trustees reports. If the Post had written a news story intended to inform readers it would have pointed this fact out as a clarification of the comments by Reischauer and Blahous, if it included their comments at all.
However, since this piece was written to promote the Post’s agenda of pushing cuts in these programs, it opted not to put the Reischauer-Blahous statement in a context that would have made it understandable to most readers.
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At least he does on many key economic issues. In his blogpost today he comes out explicitly for breaking up the big banks, for an immigration policy that is focused on bringing down the wages of high-end wage earners (I’m going to put words in his mouth and assume that he means doctors and lawyers and not lower paid STEM workers), and for reducing protections like copyright (I’ll read in patents also) that benefit special interests.
He also commits himself to a monetary policy that is considerably more expansionary that what the Fed has been pursuing. Whether it would have done the trick in bringing the economy back to full employment is an open question, but for those of us who care about poor people, the difference between an economy with 4-5 percent unemployment and the current economy will swamp anything we can hope to accomplish with food stamps, TANF, or any other politically plausible government programs.
Anyhow, I don’t know how many troops Douthat has, but if there are many conservatives who actually want to beat up big banks, drug companies, doctors and other professionals who get rich through protectionism, and to seriously push for full employment policies (maybe Douthat would go for a lower-valued dollar), then on economic issues progressives might have more allies among conservatives than in the Obama administration.
At least he does on many key economic issues. In his blogpost today he comes out explicitly for breaking up the big banks, for an immigration policy that is focused on bringing down the wages of high-end wage earners (I’m going to put words in his mouth and assume that he means doctors and lawyers and not lower paid STEM workers), and for reducing protections like copyright (I’ll read in patents also) that benefit special interests.
He also commits himself to a monetary policy that is considerably more expansionary that what the Fed has been pursuing. Whether it would have done the trick in bringing the economy back to full employment is an open question, but for those of us who care about poor people, the difference between an economy with 4-5 percent unemployment and the current economy will swamp anything we can hope to accomplish with food stamps, TANF, or any other politically plausible government programs.
Anyhow, I don’t know how many troops Douthat has, but if there are many conservatives who actually want to beat up big banks, drug companies, doctors and other professionals who get rich through protectionism, and to seriously push for full employment policies (maybe Douthat would go for a lower-valued dollar), then on economic issues progressives might have more allies among conservatives than in the Obama administration.
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NPR had a useful piece on the limited retreat from austerity in the euro zone now that the policy has been shown to be a failure. However the piece likely left readers with the impression that there were/are no alternatives to austerity.
This is of course not true. The European Central Bank could have supported an aggressive policy of fiscal stimulus led by Germany and other countries with trade surpluses. This would have boosted the economies of the euro zone as a whole.
It is arguably true that such a policy was not possible for political reasons. Germans have an aversion to inflation which they regard as the root of all evil. They refuse to consider the possibility of a higher inflation rate as a way to boost growth and re-balance the euro zone in the same way that creationists in the United States will refuse to allow evidence for evolution to change their views on human origins.
This irrational approach to economics by Germany, by far the most important country in the euro, many in reality limit the political options. However this piece should have made that fact clear to listeners rather than leaving many with the impression that there is some economic reason that the people of the euro zone countries need to suffer through years of high unemployment.
NPR had a useful piece on the limited retreat from austerity in the euro zone now that the policy has been shown to be a failure. However the piece likely left readers with the impression that there were/are no alternatives to austerity.
This is of course not true. The European Central Bank could have supported an aggressive policy of fiscal stimulus led by Germany and other countries with trade surpluses. This would have boosted the economies of the euro zone as a whole.
It is arguably true that such a policy was not possible for political reasons. Germans have an aversion to inflation which they regard as the root of all evil. They refuse to consider the possibility of a higher inflation rate as a way to boost growth and re-balance the euro zone in the same way that creationists in the United States will refuse to allow evidence for evolution to change their views on human origins.
This irrational approach to economics by Germany, by far the most important country in the euro, many in reality limit the political options. However this piece should have made that fact clear to listeners rather than leaving many with the impression that there is some economic reason that the people of the euro zone countries need to suffer through years of high unemployment.
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Thomas Edsall devoted his blogpost yesterday to a paper by Daron Acemoglu claiming that the United States can’t follow a path like Sweden and have “cuddly capitalism.” By this Acemoglu is referring to a welfare state that protects most people from the risks in a market economy.
However what Edsall, following Acemoglu, overlooks in his discussion is that the United States already has cuddly capitalism. The difference between the United States and Sweden is who gets cuddled. While Sweden’s welfare state is designed to provide protections to ordinary people, in the United States it is those on the top who can count on the state’s help.
For example, if you are an incompetent bank executive at Goldman Sachs or Citigroup whose reckless lending threatens to sink your bank, you can count on the Treasury Department and the Federal Reserve Board to provide trillions of dollars in below market loans to support your bank through the rough times. If you are a drug or medical supply company you can count on the government to grant you patent monopolies so that no one can compete with you in the market for long periods of time. Highly paid professionals like doctors and lawyers can count on a trade policy that is designed to depress the wages of most people who provide you services, while protecting you from the effects of foreign competition.
There are a long list of ways in which the U.S. government gets very cuddly with those at the top as noted in my classic The End of Loser Liberalism: Making Markets Progressive. Of course those at the top would prefer that the only government interventions that are put up for debate are the ones that help more ordinary people, they would rather keep the interventions that benefit the wealthy out of the discussion. Unfortunately both Acemoglu and Edsall follow this path.
Thomas Edsall devoted his blogpost yesterday to a paper by Daron Acemoglu claiming that the United States can’t follow a path like Sweden and have “cuddly capitalism.” By this Acemoglu is referring to a welfare state that protects most people from the risks in a market economy.
However what Edsall, following Acemoglu, overlooks in his discussion is that the United States already has cuddly capitalism. The difference between the United States and Sweden is who gets cuddled. While Sweden’s welfare state is designed to provide protections to ordinary people, in the United States it is those on the top who can count on the state’s help.
For example, if you are an incompetent bank executive at Goldman Sachs or Citigroup whose reckless lending threatens to sink your bank, you can count on the Treasury Department and the Federal Reserve Board to provide trillions of dollars in below market loans to support your bank through the rough times. If you are a drug or medical supply company you can count on the government to grant you patent monopolies so that no one can compete with you in the market for long periods of time. Highly paid professionals like doctors and lawyers can count on a trade policy that is designed to depress the wages of most people who provide you services, while protecting you from the effects of foreign competition.
There are a long list of ways in which the U.S. government gets very cuddly with those at the top as noted in my classic The End of Loser Liberalism: Making Markets Progressive. Of course those at the top would prefer that the only government interventions that are put up for debate are the ones that help more ordinary people, they would rather keep the interventions that benefit the wealthy out of the discussion. Unfortunately both Acemoglu and Edsall follow this path.
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