the unintended consequences of economic populism

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Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the contributor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

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  1. Avatar Jaybird
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    says:

    There’s a cute little editorial cartoon/blog here at the Detroit Free Press:

    http://freep.com/article/20090820/BLOG24/90820002/1319/BUSINESS06/The-argument-against-clunkers-goes-clunk-

    Hrm… the original point to my posting that link was to point to the comments it was getting from (I presume they were) Michiganders. Those comments (indeed, all of the comments) have disappeared.

    So I will instead make this minor point:

    Those UAW jobs that have been saved, recalled, or had overtime extended? That is what is seen.Report

  2. Avatar Mark Thompson
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    says:

    I’ve got nothing to add.Report

  3. Avatar Kirk
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    says:

    “G.M. and other auto-makers did not have to actually do anything to experience this sudden recovery. They didn’t need to lower the prices on existing vehicles or renegotiate wages with the autoworkers unions or fire management and bring in new blood.”

    What are you talking about? GM and the unions did renegotiate the contracts. LoG columns are generally good, but this one is just self-indulgent blather full of mistakes and broad, unevidenced claims.

    What’s the difference between an “entitlement” and a “social safety net”? Maybe it’s like porn, but I get the feeling that dealing with concrete matters rather than floating abstractions would defeat the point of Mr Kain’s silly little rant.Report

    • Avatar E.D. Kain in reply to Kirk
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      says:

      Here’s a question – did the negotiations spur this new demand for 60,000 extra vehicles? Did the new contracts lead to these surprising sales? Or was it the massive subsidy provided by the government to all automakers, with really no strings attached?

      And there is perhaps no philosophical difference between and entitlement and a safety net, but I tend to view the latter as a very temporary function and the former as something rather more permanent.

      I’ve said it before, but it’s all about the implementation.Report

  4. Avatar Kirk
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    says:

    So Mr Kain is against Social Security and Medicare? I guess he would think it cheap populism to object to letting our nation’s elderly languish in poverty. There’s a reason these programs are popular: they are extremely successful at their intended goals of providing basic income and health insurance to the elderly.

    Mr Kain is beginning to sound like the typical libertarian wingnut, which is disappointing.Report

    • Avatar E.D. Kain in reply to Kirk
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      says:

      You are more than welcome to refer to me as “you” when you’re talking to me. Third person is…disorienting.

      No I don’t oppose social security and medicare, but I think they do need to be reformed or they will become insolvent. Especially Medicare. I think a lot of people agree with me on this on either side of whichever aisle you want to talk about.

      And actually you bring up a good point – obviously Medicare and Social Security can’t be “temporary” by nature; but they can be means-tested. Better, more efficient redistribution of wealth would take place and they would remain more fiscally sound as programs in the future.Report

    • Avatar Jaybird in reply to Kirk
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      says:

      Oooh. Comparing Social Security and Medicare to buying used cars from middle-class people and then destroying the engines…

      Hrm.

      I suppose I could make this work.

      Social Security and Medicare actively provide an incentive for knowledge workers above a certain age to leave productive jobs behind. These jobs would not only add to intangibles as “GDP” but would keep years of experience in knowledge positions and add to productivity, quality, and society.

      Paying these people to leave work is the equivalent of paying people to give up a recent-model used car in exchange for a check to pay for a new one that is only marginally better and then destroying the used car rather than allowing it to enter the market where the less politically connected might make use of it.

      Okay, it was a stretch but I don’t think it’s all bad.Report

  5. Avatar Kirk
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    says:

    Also, it’s disappointing that Mr Kain can’t admit his basic factual mistake concerning union contracts. I expect such arrogance from the MSM, but blogs are generally better. If he keeps up like this, maybe one day Mr Kain will get a spot on the MTP roundtable. 🙂Report

    • Avatar E.D. Kain in reply to Kirk
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      says:

      See my question responding to your first comment. The point I’m trying to make is that any union contract negotiations or other restructuring efforts on the part of GM did not directly lead to this resurgence in sales. Cash for Clunkers did.Report

    • Avatar Jaybird in reply to Kirk
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      says:

      Union contracts will be worth the paper they’re printed on, but little more, once the companies realize that they did little more than hasten purchases that would have happened anyway with the government program… and now they have to sell the exact same cars to people who no longer have an extra four grand to drop on a new car rather than, say, a used Civic.Report

  6. Avatar Lev
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    says:

    I agree with a lot of this. Obviously, populism is frequently used by people championing their own self-interest, and government intervention can have distorting and negative effects on the marketplace. That our sodas are sweetened by a corn derivative instead of sugar is a real example of this.

    But if I’m reading you correctly, you seem to be arguing that government intervention into the marketplace is always a bad thing. I couldn’t disagree with you more. Probably the most dramatic example of this is the Federal Reserve, which was a key progressive idea that was opposed by most of the conservatives of the day (and evidently many of them now, e.g. Ron Paul). In fact, the whole idea of implementing measures to try to achieve economic growth is an idea that largely came from the left–before F.D.R., that was not government policy, and so we had decades before that where there was no real wage growth, prices went up and down, all for the sake of letting the market self-optimize and avoid that messy “socialism”. In addition, while not every aspect of the New Deal was successful, quite a bit of it actually improved free enterprise by creating new markets for goods and services. Before the 1930s, the South and the Southwest were basically third-world countries. Thanks to the New Deal, and in particular the agricultural and electrification programs, things got an awful lot better in those areas. Now we didn’t eliminate poverty back then, but people saw things get much better for them during those days, which is why they re-elected Roosevelt three times. And that was the basis for the strong, middle class based post-war economy up through the 1970s.

    I don’t believe in propping up failing industries for the sake of it, but I’m not appalled at the very notion of government interference in the marketplace because it can work. In a broader sense, I’m more comfortable with government power than with corporate power right now because government is supposed to answer to us, while business is not under that particular obligation. There are many, many problems with our government (and our attitudes toward it, which are also part of the problem), but I don’t think that just letting globalization continue apace without addressing the devastating impacts it can have on peoples’ lives is an acceptable answer to the question.

    I suppose the reason why I’m not a conservative is because I feel that conservatism doesn’t really answer the questions of modern life satisfactorily. I’m no Marxist, but I do think that Marx’s critique of capitalism is fundamentally correct, and it has largely gone unanswered by free-marketeers because it accurately points out many weaknesses inherent in the system. Not all businessmen are greedy, but they are all possessed of self-interest. Power can be wielded without corruption, of course, and sometimes it is, but the power of self-interest is usually in that it can disguise itself as altruism, or as the only available option, and by our nature we are inclined to think of ourselves first. Giving people more latitude with great power will only lead to corruption occurring more often. Self-interest is one of the most recognizable qualities in human history, and it recurs again and again and again. Marx thought it could be overcome, and that is where we part ways, but the center-left, social democratic perspective takes that into account on economics and puts mechanisms in place to mitigate the damage that self-interest can do to people. It’s never easy to put this into practice, owing mainly to the intense nature of self-interest in man, but it is an answer. The libertarian types tend to just assume “enlightened self-interest” as the motivator for human behavior, but between the Depression, the S&L scandals of the 80s, Enron and now the financial crisis, there’s often very little enlightened about how self-interest manifests itself in human affairs. (I’ll just avoid commenting on mainstream conservatism directly, as it’s less a philosophy than an odd and outmoded constellation of issue positions constructed as a counterpoint to Communism.)

    I appreciate that there need to be limits on what government controls, and I’m hardly a full-on socialist, so for example I’m not really interested in nationalizing the clothing industry, or having a U.S. Video Game Authority, for example. But it’s still unclear to me how the libertarian position is to protect us from some of the worst effects of self-interest. And that’s why we need a government that paves roads and polices the borders.Report

    • Avatar E.D. Kain in reply to Lev
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      says:

      Lev – I’m not nearly up to snuff enough on the Federal Reserve and monetary policy to comment now, though that is on the agenda.

      However, no, I don’t think there is no time for government intervention into the economy, I just believe it should be limited. The tendency to probe further and further into the economy is a strong one, and it’s hard to resist attempting to solve every problem with more and more government. Eventually more harm than good comes of it, but certainly not in every case. Absolutism is a dangerous thing in and of itself, and I think the government has its place alongside everything else in society.Report

    • Avatar Mark Thompson in reply to Lev
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      says:

      Keeping in mind that I’m fully aware that libertarianism has its share of blind spots, I want to point out what I think is a major blind spot in this criticism. Specifically:
      “Not all businessmen are greedy, but they are all possessed of self-interest. Power can be wielded without corruption, of course, and sometimes it is, but the power of self-interest is usually in that it can disguise itself as altruism, or as the only available option, and by our nature we are inclined to think of ourselves first. Giving people more latitude with great power will only lead to corruption occurring more often. Self-interest is one of the most recognizable qualities in human history, and it recurs again and again and again. Marx thought it could be overcome, and that is where we part ways, but the center-left, social democratic perspective takes that into account on economics and puts mechanisms in place to mitigate the damage that self-interest can do to people. It’s never easy to put this into practice, owing mainly to the intense nature of self-interest in man, but it is an answer.”

      The blind spot here is that it ignores that government officials are also possessed of their own self-interest. There’s also the Hayekian calculation problem, but that’s less relevant. The libertarian argument is not that “enlightened self-interest” is the motivation for human behavior, but rather that markets diffuse self-interest whereas government intervention centralizes it and gives it more power. There are, to be sure, flaws with this argument, but I think it’s important to recognize that government officials are no more immune to self-interest than business leaders, but the government official has far more power.Report

    • Avatar Jaybird in reply to Lev
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      says:

      My take is that intervention is something that, in theory, might work.

      Let’s look at Cash-4-Clunkers. Is there a potential bill that would have helped a whole lot of people? Well… I can think of one thing. Let’s say that the used cars that people traded in entered the market.

      We’ve got a whole bunch of middle-class folks who go out and trade in their relatively recent-model car for a brand-spankin’-new Chevy with better gas mileage.

      Fair enough.

      The dealer now has a relatively recent-model car that he can sell to someone who isn’t quite as middle-class as that last family who came in here. He can’t exactly charge what he used to charge for the same vehicle because, in the last month, the market was *FLOODED* with vehicles. Not only did he get that vehicle but Dealin’ Doug and Wheelin’ Wally and Crazy Charlie down the road got some too. Well, he got it for a song, why not undercut those guys a bit.

      And a family comes in to get a great deal on a fairly-recent model car. They trade their car in. It’s not a bad car, mind, but… lord it’s not a good one. It’s “eh”, as these things go.

      Well, the dealer got it for a song. When the poor family comes in and says “wow, I can’t believe they’re selling an ‘eh’ car for so little!” and trade in their “holy crap, I can’t believe that POS is still running” car for an eh, car. They’re better off. The other families are better off. The dealer is better off… as is Dealin’ Doug, Wheelin’ Wally, and Crazy Larry. They’re all moving iron!

      As it stands, however, the first family to come in and traded away their recent-model car had that car destroyed. Glass was poured in the engine and a sledge was taken to the tranny. The next group of families are all in the exact same situation they were in the day before.

      Now my question is not whether there is some mythical government intervention that might not make everybody better off.

      It’s, if given the choice, do I choose between nothing at all and the cash-4-clunkers we got.

      I choose nothing at all.

      I use a similar reasoning in the health care debate. And the TSA. All of Patriot, for that matter. Any given war the government feels is necessary. And so on.

      It’s not that I’m unmoved by arguments that “something ought to be done”. Sure. It’s that what we end up getting will be so much worse than the hypothetical something imagined when something is called for that nothing would be preferable to the actual something that shows up.Report

      • Avatar Lev in reply to Jaybird
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        says:

        I get what you’re saying, Mark. But I think that there is a certain naivety in your rebuttal. I think that if markets worked like the Econ 101 textbook said they do, then there would be a much stronger case for libertarianism. But they don’t. In some fields is there true competition. Some parts of the computer industry feature lots of competition, and there’s been decades of rapid advancement as a result. I think this has something to do with the cost of entry–buying some computers and hiring some code monkeys is relatively cheap, as opposed to building a factory to create jumbo jets.

        But in many industries, there tend to be a few companies that dominate the marketplace. Gas and oil, obviously, is one. Healthcare is predominantly another. In most states, there isn’t much competition amongst insurers because the marketplace is highly concentrated. I tend to think that government should get more involved in these areas to act as a counterpoint to accumulated corporate power, be it either in an antitrust capacity or in a more significant role.

        I still think my argument generally works. I spent some time in the past intrigued by libertarian thought, and if you could somehow suppress the accumulating instinct that pops up so often in markets, it would be something much closer to a workable system (if aided by some nontrivial safety nets). But I think it’s just a natural tendency of the institution and the actors to try to come together to dominate market share. In fact, that’s what the institution is based on and encourages. A competitive marketplace might bring about more diffused power, but a concentrated marketplace will not. So we’re back to square one.Report

        • Avatar Mark Thompson in reply to Lev
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          says:

          Oh, I’m not arguing for anarcho-capitalism or anything like that. I don’t even necessarily view the above as a particularly strong argument for libertarianism. I was just trying to: 1. Clarify what the usual libertarian argument on that point actually is; and 2. Point out an inconsistency in the argument against self-interest that I think liberals often miss.Report

          • Avatar Lev in reply to Mark Thompson
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            says:

            Fair enough, Mark. And I think there are certain situations in which you may well be right. And there are ways of addressing the problems I describe in more “small-government” ways–i.e. the government could resurrect the spirit of Teddy Roosevelt and go another round of trust-busting. But the accumulation factor in the marketplace seems to just be an historical fact.Report

      • Avatar Lev in reply to Jaybird
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        says:

        I don’t get your argument, Jaybird. Cash for clunkers offers a subsidy for trading in an old car for a new one. The car company makes money off of the increased sales, but why would that make them any more or less likely to pawn off deliberately terrible cars on people? Presumably market rules would hold, they want people to come back to buy more cars later, there are other competitive options, etc. Just because we subsidize corn out the wazoo doesn’t mean that farmers poison their crop as a way of screwing consumers. Indeed, I have never heard of such a thing happening.

        That sounds like some Randroid stuff, honestly. God knows that there have been some terrible government programs in our time–AFDC being a pretty good example, and one that most liberals now realize was a bad program that needed to be changed. But the larger point is that the Great Society more than halved the poverty rate in this country, which was its goal. The New Deal created the vibrant postwar economy, and I mean no embellishment whatsoever at saying that. And both of those, while today conceived of as super-duper-ultraleftist programs, were both fairly modest liberal programs in the grand scheme of things. If you want to see some actual leftism, look up the premiership of Clement Attlee in the United Kingdom. Here’s a teaser: nationalized coal, steel, and gas industries. Strict wage and employment controls. The National Health Insurance, which interestingly enough was one of the least controversial elements of their program (Churchill, then the Opposition Leader, supported the concept completely). And yet Britain didn’t exactly go under after they were implemented. I don’t support that level of government involvement for the United States (indeed, the UK’s negative experiences with inflation in the 60s and 70s suggest that they went too far), but it’s not like there aren’t examples of government intervention producing less than catastropic results.Report

        • Avatar E.D. Kain in reply to Lev
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          says:

          I think Jaybird was pointing out the fact that the program required that all the used cars traded in be destroyed rather than sold.Report

        • Avatar Jaybird in reply to Lev
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          says:

          I wasn’t saying that… I see E.D. covered this.

          I am sure that the people who bought the new cars received great value for the car they bought. Hell, they got a $4,500 subsidy!

          The problem is that the cars that we most want *OFF* the roads? The holy crap I can’t believe that POS is still running cars?

          They are still on the road. They weren’t eligible for the full $4500 and, let’s face it, it’s not like the people who were driving those could afford a new Chevy or Civic even with the additional cash.

          But they would have benefitted from upgrading their POS car for the car that the family would have traded for the car that the other family would have traded for the Chevy.

          Unfortunately, that wasn’t an option.Report

          • Avatar Jaybird in reply to Jaybird
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            says:

            And let me clarify:

            My choice wasn’t between a world in which we had
            A) the status quo
            B) a cash-4-clunkers that would inject a large amount of new cars into the economy and an equivalent amount of high-quality used cars into the used market (that would then cascade on down to the point where we might get some of the POS with black smoke and everything cars off the road).

            It was that I had a choice between
            A) the status quo
            B) mostly middle to upper-middle class people trading in high quality recent model used cars for new cars and then the high quality recent model used cars would be destroyed

            While, given both choices, I (being me) would still pick A for both of them, I don’t know of *ANY* entity that would see B in the second case as preferable to B in the first case.

            Hell, I could even see B in the first case as being preferable to A in the minds of people who had different premises about life, morality, etc than I do (though I disagree with them, I understand how they could reach the conclusion that they did).

            The *ONLY* group of people in the world who would see destroying high quality recent model used cars that have just been exchanged for new cars as preferable to the status quo is Congress.

            It honestly boggles my mind.Report

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