Recently, I remarked to a conservative friend that I thought
Paul Krugman’s writing was among the best I’d ever read. He replied that I should
read the Wall Street Journal to get a
more balanced perspective.
I let that pass, but if I’d been more assertive I’d have
stated that I don’t want to pay a chunk of dollars every month to read people advocating
antediluvian economic theories.
A key conservative argument, and one omnipresent on the
editorial pages of the WSJ, is that
the government‘s budget should operate in the same as a family budget--you
can’t spend more than you earn.
To anyone who has studied economics (and paid attention),
this kind of thinking is absurd.
If living within your means was a universal economic principle,
banks wouldn’t loan more than the sum of their deposits. Anything more and the business is going
beyond its means!
Of course, if banks did choose to act like families, the
economy would be in real trouble.
I don’t agree that “deficits don’t matter” (the author of
that quote was the conservative Dick Cheney). Clearly, it’s best to keep
deficits and debts low. But there are times when deficits can be helpful, and
the situation after the Great Recession was one of them.
Another assertion of the WSJ,
that government should primarily adhere to business views on how to manage the
economy, is equally problematic.
Of course we should listen to business; the voices of business
leaders are important and markets are at the core not just of our economy but
of our way of life. I’m not a political conservative, at least not in the
extremist context of the current U.S. Republican party, but I’m very much a
believer in markets. Without markets, we’d lose both efficiency and innovation.
Certainly, we’ve had important failures of government that
stemmed from not paying enough attention to business. For example, the stimulus
that began in 2008 failed to have the expected impact because economists
thought at the macro scale and didn’t appreciate what banks would do with the
money (they did the banking equivalent of putting it under the mattress).
But should business be the primary advisor to our government?
No.
Businesses don’t have incentives to improve the overall
economy; their incentives are to raise profits. If the two align, that’s good,
If not, my business comes first and the economy can take care of itself.
To illustrate, consider the case of the cable TV companies.
Most experts in technology and economics agree that higher internet speeds and
lower costs would sharply improve the economy, both in the short and especially
in the long term. The barrier to this promised land, we’re told, is that the
cable companies have a stranglehold on bandwidth and won’t lower their huge
profits to improve access and lower prices.
But it’s ridiculous to think that cable executives will trade
lower profits for a better overall economy. They’d be fired, after which the shareholders
would sue to claw back their bonuses. “We didn’t hire you to help the
shareholders of other companies,”
they’d say.
Not only is it the case that corporate executives don’t
always pay much attention to the overall economy, it’s also true we can’t
always count on businesses knowing their own business.
I’ll eschew the cheap shot and not go into companies like
Enron, Blackberry, and the countless other clowns of the marketplace.
Instead, let’s take three companies that had eminently
capable leadership but still had major missteps:
·
IBM failed to appreciate the importance of small
systems right up to the point of its near bankruptcy;
·
Microsoft, despite having a leader who very much
appreciated the issue of disruptive change, still nearly missed the Internet;
and
·
Intel, a brilliant long term performer in
microprocessors, failed to understand the market shift to low-power mobile
systems until it was almost too late.
The problem in all three cases was that corporate boards
would have had to agree to forgo short-term profit to switch to a clearly
identified emergent area. They were dangerously reluctant to do that.
Do we want that short term thinking to dominate government?
US conservatives are not alone in simplistic economic strategies.
The “country budget like a family budget,” school of
thinking currently dominates Germany and as a result also the EU.
But it’s pretty much understood in Europe that Germany’s
policies aren’t the result of the nation’s best thinking about overall economic
growth, nor do people in the EU think Agnela Merkel and her crew are dumb
enough to get their inspiration from the editorial pages of the Wall Street Journal.
Instead, Germany’s policies stem from domestic politics,
where Merkel has to deal with the equivalent of the American conservative “base.”
The famed, miserly “Swabian housewife” is running Europe.
And now to a fundamental economic problem. Radicals of the right
and left have always pitched simplistic solutions. It’s a feature of elections,
and even common in non-democratic systems.
Advocating simple solutions to complex problems is the
essence of populism as well as the shield of many ideologies.
The problem for politicians is, if you get elected on the
basis of simplistic solutions, your policy when you’re in power has to align
with that.
If you pitch your economic arguments to get Joe Sixpack’s
vote (or Heinrich Halbe’s), then Joe becomes your chief economic advisor.
Not for me. I despise ideological approaches. On the
contrary, I believe that, because the world is inherently complicated, simple
solutions are almost never possible. To do better in every sphere—government,
business, private organizations—we will have to continually study the available
evidence and constantly make challenging decisions that are rarely going to be of
the “bright line” variety. There will be very few situations where actions are
obvious and have no serious downsides.
I’ll continue to read the dwindling number of responsible conservatives,
but Paul Krugman will remain my personal chief economic advisor.
