Get Excited Again

by publius

Everyone should read David Leonhardt’s piece in the NYT Magazine on Obama’s economic philosophy. It’s fascinating — and reflects just how difficult it is to squeeze Obama into any sort of conceptual box on any issue. The article also reaffirmed some of my original reasons for supporting Obama — i.e., it reminded me why Obama could be a transformational president after all.

Like many others, I initially supported Obama over Clinton because I thought there was a higher potential ceiling. Clinton would win, but she would grind out a 51/49 victory that changed nothing. Obama, by contrast, at least presented the opportunity of breaking through the Red/Blue paradigm.

Well, not many people think that anymore. They just hope Obama will be fortunate enough to grind out a 51/49 win, but have little hope of breaking the current stalemate. Part of people’s frustration is a recognition that the divide may be structural, and thus has little to do with any one candidate. But others are frustrated because Obama doesn’t seem to be trying anymore to make that reality happen. And frankly, that’s where I’ve been lately too.

But maybe we’re wrong. Don’t look now, but Obama is taking concrete, non-dreamy steps to make a real progressive majority a reality. A big part of that is Obama’s enormous emphasis on building party infrastructure and registering voters — go read Goldstein and Klein on that. At the end of the day, this sort of grass-roots grunt work is where elections are won and lasting majorities constructed. In a sense, his speeches are a distraction — drawing the Great Eye away from the real danger, if you will. Let the GOP complain about “celebrities” and focus all their efforts on the daily news cycles of July. I’d rather have someone pounding on doors registering Democrats. And that’s what the campaign has been doing all summer.

Leonhardt’s article gives an additional audacious reason for hope — this time, though, it’s on the tax front, that vale of Democratic sorrow. Obama’s unique fusion of Chicago School marketism and progressive instincts is the most ambitious challenge to the Reagan political paradigm in modern presidential history. And if it works, it could have enormous consequences.

To back up, we are living within the Reagan “no new taxes” paradigm — sort of. People aren’t necessarily opposed to higher taxes on rich people, it’s just that the GOP has been enormously successful at convincing everyone in America that they share the same financial interests with the super-rich. It’s genius. The GOP enacts, say, a dollar of tax cuts. Of that dollar, 95 cents may go to one person, and the remaining nickel is chopped into 100 million little parts. Yet, everyone thinks they got a “tax cut.”

This misunderstanding, then, is the foundation of the Reagan paradigm — correct it, and the GOP would suffer a political bodyblow as the non-rich suddenly disassociate themselves with fiscal policies intended solely for the super-rich. The trick is to make middle class people break the conceptual link in their head.

Enter Obamanomics. Obama’s seemingly mundane tax policy is actually surprisingly combative and innovative on this front. Leonhardt writes:

Dating back to Reagan, Republicans have packaged tax cuts on high earners with more modest middle-class tax cuts and then maneuvered the Democrats into an unwinnable choice: are you for tax cuts or against them? Obama, however, argues that this is the moment when the politics of taxes can be changed.

To do this, he is proposing tax cuts for most families that are significantly larger than those McCain is offering, along with major tax increases for families making more than $250,000 a year. “That’s essentially a major part of our economic plan,” Obama said. “But it’s also a political message.” Economically, he is trying to use the tax code to spread the bounty from the market-based American economy to a far wider group of families. Politically, he is trying to drive a wedge through the great Reagan tax gambit.

McCain and pals will scream bloody murder that Obama will raise taxes. But if Obama can break through and succeed in this ambitious effort, it will forever change the “politics of tax” that have seemed so hopeless for so long.

To conclude, I don’t think that people are necessarily asking too much from Obama. Everyone wants a transformational presidency, and it’s easy to get frustrated when Obama looks like he’s given up on that goal.

But here’s the thing — he hasn’t given up. We’re all looking in the wrong direction (and at the wrong types of evidence) to determine whether he’s trying to create a permanent progressive majority. It won’t come in dominating poll numbers or huge bounces or even demonizing Republicans. It will come in both the gritty work of organizing and the far-sighted goal of undermining conservative ideological hegemony through clever and ambitious policies that break up coalitions.

In short, maybe it’s time to start getting excited again. And with that, I’ll see you in Denver.

Comments

[Paul Moment]

Yes, yes, and hell yes! Thank gawd that someone *finally* has caught Obama's slow, patient genius here. Obama's political goal throughout his career has been to take progressive ground by playing the long game. He's about strategy, not about being all in. That's why he's so exciting. He has said a number of times that his goal is to fundamentally change the playing field the way Reagan did. And the way he's run his campaign, including his choice of a skilled political veteran like Biden, shows that he's a realist who understands that it's a game of slow build, slow pressure, and unstoppable leverage from a thousand points created by mass involvement, mass demand and pragmatic, possibly under-the-radar political steps. I've felt for a while that progressives demanding that we muscle in an agenda over the top of the minority don't really get the amount of resistance and stalemate that kind of politics produces. Force produces resistance. Look at the progressive energy after 8 years of that kind of muscle maneuvering from the GOP. It's better to create long-term progressive change by building the kinds of rhetorical and political boxes/pressures that hedge your opposition into really only having one choice in the end -- yours.

[Gary Farber]

"We’re all looking in the wrong direction (and at the wrong types of evidence) to determine whether he’s trying to create a permanent progressive majority."

Who are the other people you're speaking for, and why?

I think it's been extremely clear all along what he's trying to do via organizing, and enlisting new voters, and creating grass-roots organizations, and using the internet as an organizing tool, and so and so forth, etc., myself.

The clues go back to the chapters in Dreams on his organizing days, but it should be obvious to anyone paying attention to local grass-roots Obama organizations around the country, and how they've been working, and then coordinating with the national Obama organizations, and the state Democratic organizations, and to anyone watching the followup on internet organizing, and so forth and so on.

I don't actually put myself forward to speak for what "we" do and don't see, though.

[janinsanfran]

Afraid I'm a little too unreconstructed to get excited about Leonhardt’s picture of Obama's economics. A free market affirmation without UNIONIZATION means most individuals simply get screwed. There is nothing in this description that suggests any room for collective worker empowerment. Instead we get academics who know best making the rules in company with those who profit from them.

I know labor can be stagnant and obstructionist, but without it, most workers simply are disposable flotsam on the capitalist sea.

[Warren Terra]

jan, I realize none of this vision explicitly mentions organized labor, but Obama is for card-check, and there's also no indication he's against organized labor.

Also, organized labor is, by definition, separate from and sometimes in opposition to the government; the government role is to prevent intimidation and repression of union organization. We can hope that any Democratic Labor department, and especially one acting in reaction to the Dubya administration, might give us at the very least an improvement on these issues.

[liberal japonicus]

from the Leonhardt article
James Heckman, a Nobel laureate who critiqued the campaign's education plan at Goolsbee's request, said, "I've never worked with a campaign that was more interested in what the research shows."

Revealing my inner wonk, I swoon.

[femdem]

I spent Saturday at the Ohio organizing convention and came back to my little corner of Appalachia psyched up and ready to go. I spent Sunday going through my call list of undecided women over 60 and got brought back down hard. I'm so glad to see your post here. I needed to be reminded this is worthwhile.

[Xeynon]

This misunderstanding, then, is the foundation of the Reagan paradigm — correct it, and the GOP would suffer a political bodyblow as the non-rich suddenly disassociate themselves with fiscal policies intended solely for the super-rich.

The problem is, Obama's tax policies won't primarily affect the super-rich, who have the means to structure their income so as to shelter it from higher marginal tax rates. Rather, his policies will primarily affect those near the top end of the middle class - e.g., white collar professionals, and especially married ones with dual incomes. These people, unlike the "super rich", are a significant voting bloc, and thanks to Bush's screw-ups, one that's more in play than it's been of late. Soaking them with higher taxes is probably not the way to woo them.

You're also assuming that American voters on the whole want to see other peoples' taxes raised while their own are cut. I don't see any empirical evidence that leads me to believe that. And we haven't even really gotten into how Obama plans to finance all his new spending.

[AmIDreaming]

If the NYT article is accurate, Obama's views are basically the same as those of the Canadian Conservative party. Not that there's anything wrong with that...

[russell]

Thanks for the link, that was a great article.

I generally agree with the idea that the best thing about Obama is his basic pragmatism. He's not my favorite guy overall on policy, but IMO he's the most likely guy to get useful, constructive things actually accomplished. That's invaluable.

I have a question about this bit from the linked-to article:

When Reagan was elected, in 1980, tax rates on top incomes were so high that even liberal economists now say the economy was suffering. There simply wasn’t enough of an incentive for rich people to start new companies or expand existing ones, because so much of their profits would have gone to the federal government.

From 1946 to 1963 the top marginal rate ranged from 86% to 92%.

The Kennedy and Johnson administrations brought it down into the 70's, where it stayed until 1980.

Reagan knocked it down to 50%, then down to 28%.

Clinton bumped it back up to around 40% for folks making more than $250K.

Cite.

So, from 1946 until 1986, did the economy not grow? Did noone get rich? Were no inventions created, no new businesses created, no entrepreneurial risk taken?

I agree that theoretically a high marginal tax rate could be a disincentive to economic growth.

But, in real life, is it?

How much did the economy grow during the post war period? During the 50's and 60's?

Can someone actually show me a meaningful overall correlation between top non-corporate marginal tax rates and the overall health and growth of the economy?

I don't see it in the numbers.

I will leave the question of whether it is predominantly rich people who take big risks and start new companies for another time.

Thanks -

[Slartibartfast]

I'm guessing, russell, that to some degree the higher tax rates were gradually effectively circumvented by loopholes.

I hear that a lot, but I've never seen it discussed in detail. Our tax code, though, is vast and weighty, so there just might be something to it.

[Slartibartfast]

Reagan knocked it down to 50%, then down to 28%.

Clinton bumped it back up to around 40% for folks making more than $250K.

Minor quibble: neither Reagan nor Clinton changed the upper-bracket rate. I'm fairly confident that you know that, but this is a linguistic imprecision that leads to occasional bad thinking, IMO.

[russell]

neither Reagan nor Clinton changed the upper-bracket rate

Is it more correct to say the changes in the upper bracket rates happened during their administrations?

I'm guessing your point is that the rates are not set by the President, but by Congress. If so, you are right, I stand corrected.

Thanks for pointing that out!

[yoyo]

ah, that old chestnut that the oligarch-rich can just shelter from taxes, so there isn't any point to taxing them anyway. glad that one got brought up.

[ThatLeftTurnInABQ]

How much did the economy grow during the post war period? During the 50's and 60's?

It is very hard to compare the US economy of the 1980’s till present to the immediate post-WW2 decades, because so many structural changes have occurred since then. IIRC the manufacturing sector was responsible for something like 25-30% of our GDP back then, and financial services were roughly half as much – today those figures have swapped places (see Kevin Phillips for details). In the 1950’s the US did not face anything remotely resembling the array of globalized competition for business that it does today, as that was before the rise of the Pacific Rim economies, much less the emergence of China as a major manufacturing center and the consolidation of the Eurozone into the world’s largest economic block.

After the oil price shocks of the mid 1970’s the economies of both the US and many of our major trading partners and allies went through a period of stagnation which was very worrisome at the time. No one knew at the time how long this would last and that up ahead lay a period of rapidly expanding trade driven by globalization, and the transition to a post-industrial information age for some sectors of the economy. Those things lay ahead in the future. The political impetus for major changes to tax policy came out of that era of stagnation in the 1970’s and early 1980’s, a period which with benefit of hindsight stands out as a hinge point or dividing line between the economy of the 1950’s and 1960’s and what came later.

IMHO we are in another such period of transition right now. I think globalization and deregulation have run their course, culminating in the credit market meltdown occurring today. We are still in the early stages of adjusting to a new economic regime, which will probably be heavily influence by Peak Oil and resurgence in transportation costs so far as manufacturing of bulk goods and food are concerned.

People in the 2020’s will look back at this period and say that this period (roughly 2006-2012 or so) was the time when the economy of the late 20th Cen. came to an end and theirs began.

IMHO, etc.

[russell]

left turn --

Thanks for a thoughtful reply.

Just for the record, I went and did some more homework, using this helpful site as a source for historical growth numbers.

The period from 1946-64 saw a top bracket between 82-92%, and annualized real GDP growth of 3.59%.

For 64-82, top bracket is in the 70's and annualized real GDP growth is 3.09%.

1980-87, top bracket is 38-50% and real GDP grew at 3.29%.

88-92, it's 28-31% and 2.13%.

93-2000, 39.6% and 3.86%.

I'd say the driver in the post war years was the repurposing of manufacturing from military to domestic industry, and a huge surge in demand from folks who had lived through, at that point, 20 years of privation.

Top individual tax rate of 90%, which would cause riots on Wall St today, did not prevent lots of folks from getting plenty rich during those years.

Likewise, the stagnation of the economy from the late 60's through the early 80's seems to me to be most likely due to our transition from net exporter to net importer of oil, and the emergence of manufacturing rivals, than to the marginal tax rates.

I realize I'm being a nerdy PITA here, but the assumption that high marginal tax rates inescapably leads to economic funk has become a common assumption, something taken as an axiomatic truth.

I don't see that it is true. It's one factor among many, at best.

I don't know what the top marginal individual tax rate should be. Maybe it's just plain unfair to tax different folks at widely different rates, just because they make more money. Then again, given the wide range and number of taxes that we all pay that are either flat or regressive, maybe it's perfectly fair.

But I don't see the connection between higher marginal rates and the overall health of the economy. Not in the ranges of rates that are on the table these days.

Thanks -

[ThatLeftTurnInABQ]

russell,

Good points all. One of the things that I'd like to look at in more detail (but lack time now) is to break down those overall GDP growth rates into growth rates for different economic sectors. I think the real significance of the decline in top marginal rates is that the people who benefited the most from those cuts are the same folks whose money was being invested in the rapidly growing financial services sector during the late 1980’s to present, while manufacturing was declining (as a share of GDP).

The net effect was to shrink the sector of the economy which was most broadly beneficial to the lower-middle class, and to rapidly grow the sector of the economy most beneficial to the investor class. I think pace Thatcher and Reagan that there was some downward expansion of the latter group as more people became investors (“the ownership society”), but it seems a dubious proposition to me that this was adequate compensation for the loss of unionized high wage manufacturing jobs, and for a great many less sophisticated investors the popping of the Greenspan-Bernanke credit bubble has trashed whatever gains they might have enjoyed on paper prior to 2007 (not that the more sophisticated have been immune either).

I’m not convinced that there was a simplistic cause-and-effect relationship (this transition might have been forced upon us even if we had not so willingly embraced it), but it does seem to me that our changing trade and tax policies have played a key role in helping converting the US from a manufacturing dominated economy to a financial services dominated economy. I’m persuaded that Phillips is correct in his hypothesis that the US has gone through the same sort of transition as did late 19th Cen. Great Britain.

The parallels with Edwardian Britain are somewhat scary, actually. We appear to me to be in the closing phase of a period of globalized trade and comparative peace underwritten by the military and political power of a hegemon which is in relative economic decline and unlikely to continue playing that role indefinitely (“The weary titan staggers under the too vast orb of its fate”) as the balance of global military power shifts to reflect the new fiscal and economic realities.

The last such period ended abruptly as a result of a geopolitical shock (WW I), whereas our period seems to be deflating">http://www.nakedcapitalism.com/2008/08/summers-global-consensus-on-trade-is.html">deflating and falling apart as a result of systemic instabilities, but in either case I think a period of comparative autarky is likely to be the result. Hopefully we won’t have a repeat of August 1914, but I think the next decade is going to be a very dangerous time as both the US and the rest of the world make adjustments and try to find a new balance. Note that in the Yves Smith article I linked to above (which contains pointers to, and a very compact summary of, a whole host of issues), one quotation stands out as particularly salient (or so I think):

Development economist and Harvard professor Dani Rodrik pointed out that deep economic integration, democracy, and national sovereignty cannot be pursued at the same time

Sometimes simple and bold ideas help us see more clearly a complex reality that requires nuanced approaches. I have an "impossibility theorem" for the global economy that is like that. It says that democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full....

To see why this makes sense, note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs.....

So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man's land.

I’m guessing that when push comes to shove, globalization will be what gets thrown overboard in the end. That won’t happen without significant strife and possible violence, because globalization greatly benefits our economic and political elites and they won’t give it up without a fight.

[Slartibartfast]

that old chestnut that the oligarch-rich can just shelter from taxes, so there isn't any point to taxing them anyway.

Who brought that up?

[Slartibartfast]

I don't think you can simply correlate upper-bracket rate and economic growth, russell. Upper-bracket rate by itself does not determine the tax burden for a given income. You have to consider the income level where that rate kicks in, and the various opportunities for minimizing taxable income.

[(The original) Francis]

I tend to agree with TLTAbq, on the grounds that any carbon tax, whether direct or thru a cap-and-trade program, is going to make importing low cost goods a lot more expensive.

Also, while regional-scale models aren't sufficiently accurate yet to be precise, early evidence suggests that costs of global climate change are going to be much higher than originally modelled. That suggests a need for higher taxes to pay for more local infrastructure, which may also point away from greater globalization.

[Tony P.]

Russell: I agree that theoretically a high marginal tax rate could be a disincentive to economic growth. But, in real life, is it?

It depends on something nobody ever talks about enough: the INCOME BRACKET associated with the 'top marginal rate'. Nobody can seriously believe that a marginal rate of 95% would make a damn bit of difference to 'the economy' -- if it only kicked in for income above, say, a billion dollars a year.

I can understand why the GOPers resolutely avoid talking about income brackets when they rail against rates. But what is the Dems' excuse?

-- TP

[Slartibartfast]

Hmph.

[flyerhawk]

That is a really great article. It really exemplifies what I find so appealing about Obama.

[Tony P.]

Slarti, I was not calling you a 'nobody', except to the extent I call myself one :-)
And I really had not seen your comment when I wrote mine. It's hard to keep up around here.

-- TP

[mckinneytexas]

Obama is going to tax only the wealthiest and spread it among the not-so-wealthy--this IS uniquely brilliant. Now suppose, just hypothetically, that the not-so-wealthy decide they like this redistributionist approach and demand even more from the wealthiest--will Obama give it to them? Just askin'.

[cleek]

will Obama give it to them?

of course he will. he'll have to: Obama has no brain, just a set of dumb reflexes.

[Adam]

I spent Sunday going through my call list of undecided women over 60 and got brought back down hard.

Sure that was tough. But think of it as an opportunity.

First, if we're in a structural deadlock right now, you don't need to convince many people to create an advantage. Every one counts. The GOP needs to hold those voters, and hold all of them. Flipping voters is supposed to be tough.

Second, older voters are not where our opportunity is at the moment. It's a necessary backstop, but it's still just defense. Building enthusiasm and long-term commitment among younger voters is a game-changer. The influence of the boomers (and anyone older) has already peaked.

[Nell]

Adam: The influence of the boomers (and anyone older) has already peaked.

You're smooshing together incoherently the influence of two very different groups of voters.

People now 52-62 are those formed politically by growing up in the 1950s and the 1960s.

For the most part, people 63 and over are a completely different generation, culturally and politically. They are not part of the baby boom.

The influence of the 'boom' generation may have peaked, but it is not going to decline very fast. There are simply too many of us, voting at too high a rate, for that to happen.

[russell]

The influence of the 'boom' generation may have peaked, but it is not going to decline very fast.

That's right!

We're not loosening our iron grip on the levers of society until those social security checks are signed, sealed, delivered, and cashed. Then it's margaritas on the beach, for us, baby!

Now get off of the lawn!

Thanks -

[ThatLeftTurnInABQ]

Adam,

It can be hazardous to your health to call Baby Boomers "old". If our hearing aids are turned on we might get mad enough to take off our reading glasses and shuffle over there to whack you in the shins with our walkers.

[Gary Farber]

"Now get off of the lawn!"

And their music: it's just noise, I tell you!

(At age 49, born in 1958, although the Boom is generally considered to run through 1964-5, the real Sixties generation were my older cousins; I was only ten years old in 1969, after all.)

And apropos of nothing but self-centeredness: waaah, I've had a horrifically painful toothache since last night! Waaah! Poor poor pitiful me!

[Sebastian]

I think the real significance of the decline in top marginal rates is that the people who benefited the most from those cuts are the same folks whose money was being invested in the rapidly growing financial services sector during the late 1980’s to present, while manufacturing was declining (as a share of GDP).

Is that really the case? There are bunch of assumptions in there that I'm not sure are right.

First, I would want to talk about who precisely is in the top marginal rates. Throughout the 1990s very few people in the top marginal rates tended to be there for very long. They would tend to earn lots of money for a few years and then earn much less. That was very typical for high-producing tech wealth, and not indicative of anything very bad in the economy (because saying that the growth in the top 1% was the highest isn't nearly as bad if most of the top 10% of people cycle through it over 15 years as it would be if it were just the same 1% all the time).

Second, your mention of manufacturing worries me. Manufacturing is up in the United States (so not even counting the outsourcing) and has been every decade for decades. Manufacturing JOBS are down because of mechanization. As such manufacturing is less important for GDP because fewer people have to spend their time on it. That is a good thing. If we could create robots to make everything all the time, that would be great. Trying to return to a time where manufacturing JOBS are the key to our functioning GDP isn't a good idea. It is like noting that farming jobs have been down every year for almost 75 years. The statistic is true, but meaningless to the economy. Farming OUTPUT is up every year for almost 75 years. It is just that farming and manufacturing JOBS are much less important as a big portion of the economy.

[ThatLeftTurnInABQ]

Manufacturing is up in the United States (so not even counting the outsourcing) and has been every decade for decades.

I was referring to the percentage of GDP represented by manufacturing, not the inflation adjusted dollar output. Manufacturing may have grown but not as fast as the economy as a whole has grown, since about 1970 or so (IIRC).

The net effect is similar to farming as you noted: more output + fewer jobs = better productivity per person. But the net result has been to shift jobs into services, and as a share of GDP financial services have replaced manufacturing in that 25-30% slot.

This matters because compensation in the financial services sector is less broadly distributed than it was for manufacturing during its heydey in the 1950's and 1960's. Wall St. today does not employ as many people as Detroit used to do. The economy has grown but the shape of the income curve has shifted upwards.

Also, financial services as a sector is being hit hard by the liquidity trap we are in now, and is uniquely vulnerable if the US dollar ceases to be the global reserve currency, as seems likely to happen within the next decade. Look at what happened to the British when the pound sterling was replaced by the dollar in that role.

I suspect that there is a Suez 1956 crisis lurking in our future, if we do not take care to avoid it, when we will find out that the finest military in the world is no substitute for paying our bills on time.

[russell]

Trying to return to a time where manufacturing JOBS are the key to our functioning GDP isn't a good idea. It is like noting that farming jobs have been down every year for almost 75 years. The statistic is true, but meaningless to the economy

All of this is true unless you work in manufacturing or farming.

I doubt we can or would even want to turn the clock back, but manufacturing and farming gave a lot of people very useful work to do, and decent livings, for a long time.

What do you do now if you aren't interested in working a white collar job?

I'm not sure what it means to say it's "meaningless to the economy" if large sectors of the workforce don't have anything useful, productive, or satisfying to do.

What the hell is "the economy" for?

Thanks -

[Tony P.]

If we could create robots to make everything all the time, that would be great. Trying to return to a time where manufacturing JOBS are the key to our functioning GDP isn't a good idea.

On the flip side, robots don't make very good customers.

People need 'positions', not jobs. A job is a unit of work that needs doing; a position is a source of income. To be a customer, you need income, not work per se. To hold a position, you need to do one job after another -- or the same job over and over, if you work on an assembly line. A big exception is the position of retiree, which hardly existed before about a century ago. Note that by and large, the proliferation of retirees exists largely due to NON-market forces, e.g. the political decision to create Social Security.

Robots (broadly defined) will surely produce more of the goods (and services) we humans will consume in the future. But we humans will have to work out new ways to divvy up those goods and services amongst ourselves -- ways that will seem like communism to the kind of people who predicted that SS would destroy capitalism, way back when.

-- TP

[Sebastian]

All of this is true unless you work in manufacturing or farming.

I doubt we can or would even want to turn the clock back, but manufacturing and farming gave a lot of people very useful work to do, and decent livings, for a long time.

What do you do now if you aren't interested in working a white collar job?

I'm not sure what it means to say it's "meaningless to the economy" if large sectors of the workforce don't have anything useful, productive, or satisfying to do.

I don't understand what you are trying to say with that. Hunting animals used to be the way a lot of people worked, but not so much any more.

Farming used to provide lots of people work, but I think it is a stretch to assume that all/most/many of them thought it was 'satisfying'.

Manufacturing used to be the thing that was taking away from farming as the thing that most people did. The shrink from farming to manufacturing hit a lot more people that the shrink away from manufacturing did. Farming used to involve more than 80% of the people. Now it hits at around 1% depending on how you measure it.

This is an unalloyed good thing.

You seem to be suggesting that the people who were manufacturing can't be doing *anything*, and that almost certainly is not true.

"What do you do now if you aren't interested in working a white collar job?"

You work as a park ranger, or a mechanic, or a plumber, or an electrician, or a gardner, or you install kitchens, or you create art, or you become a musician, or you work at a zoo, or you do all sorts of things. But you don't do it in Detroit.

"What the hell is "the economy" for?"

It is for trading USEFUL or WANTED goods and services between willing parties. Buggy whip manufacturers had to branch into adult novelties to keep working.

[Sebastian]

On the flip side, robots don't make very good customers.

People need 'positions', not jobs. A job is a unit of work that needs doing; a position is a source of income. To be a customer, you need income, not work per se. To hold a position, you need to do one job after another -- or the same job over and over, if you work on an assembly line. A big exception is the position of retiree, which hardly existed before about a century ago. Note that by and large, the proliferation of retirees exists largely due to NON-market forces, e.g. the political decision to create Social Security.

If we get to the point where all of our material needs can be manufactured by robots, I'm sure that there will be all sorts of ramifications that will be difficult to understand. But that would be a great problem to have. My point is that 'the economy' and 'manufacturing' aren't particularly related even now, and we should expect it to be less and less so in the future. Whatever positions we use to decide who gets more 'money' and thus who gets more of the fruit of farming and manufacturing done by machines, it won't be decided largely on manufacturing or farming ever again. So designing an economic policy with worries like 'manufacturing jobs' being a large focus, is definitely not a good idea.

My point is that if you want to be productively concerned with the future of the poor or middle class in the future, manufacturing jobs have almost nothing to do with it. The fact that middle class people used to work in manufacturing jobs in the 1950s has almost as much relevance to the discussion as the fact that middle class people used to work in farming in the 1850s. Which is to say, almost nothing useful to the discussion is learned by noting that fact.

The question is, what can middle class people or poor people *do now* that is both good for the economy and with in a reasonable reach of their skills. The answer is probably lots of things if we approach it that way. But manufacturing isn't likely to be a big part of that at any time in the future. What now is the thing that 100 years from now people will call what we call manufacturing or farming (which is to say the thing that most middle class people did in the 2010-2100 time period that was productive and paid ok)? I'm not sure. But I do strongly suspect that trying to figure that out is a lot more important than worrying about manufacturing, or for heavens sakes farming.

[ThatLeftTurnInABQ]

On the flip side, robots don't make very good customers.

This is a prisoner’s dilemma problem, in which US based businesses are pitted against one another.

It would be really nice if over there at Tony P. Enterprises, Inc. you would pay really good wages to your workforce (so they can afford to spend money in my stores), but over here at LeftTurnMart, I have a fiduciary responsibility to shareholders which needs to be taken care of right now, which means that wages will have to be cut back and offshoring is looking good.

Who knows, if you keep those wages up and I keep making handsome profits, TPE might even make for a tempting takeover target at some point. Let me call my guys in Mergers & Acquisitions and tell them to keep an eye on your stock price.

I’m not sure what policy implications to draw from this little fable. We need a better set of incentives to work together for mutual benefit rather than just having each person or company looking to get as much as they can and the devil take the hindmost.

[Adam]

The influence of the 'boom' generation may have peaked, but it is not going to decline very fast. There are simply too many of us, voting at too high a rate, for that to happen.

That was my point. If the electorate is in a structural deadlock right now, as it appears to be, and the demographics trend clearly in one direction, which they appear to be, then the rate of change is largely irrelevant, because (1) small changes have magnified effects in a first-past-the-post system; and (2) changes are irreversible.

Unless the prevalent demographic trends are somehow reversed, then the bottom line is that the GOP is losing more voters than they're gaining. To the extent that Democrats can even maintain parity, they could potentially make decisive gains.

[Adam]

Buggy whip manufacturers had to branch into adult novelties to keep working.

And in just one line, Sebastian sums up the inevitable fate of the entire economy of the United States.

[russell]

I don't understand what you are trying to say with that

Sorry, it was quite possibly an overreaction to your comment.

First, a quibble:

This is an unalloyed good thing.

I think that, net/net, the fact that most folks no longer have to do hard physical labor to feed themselves is great.

That's many miles from saying that the reduction of the farming sector to 1% of the population is an unalloyed good.

For one thing, it creates a lot of crappy food.

Beyond the quibble:

It gets up my nose when people talk about how difficulty for one sector of the population or another is necessary, because it's good for the economy. I don't think that was actually what you were saying, so my apologies for the antagonistic tone of my reply.

My basic point of view is that the economy exists for the good of people, not the other way around.

This is, of course, too cute by half, because the economy doesn't exist *for* anything, in an intentional sense. It's our way of describing something that people just do.

But as a simple characterization of a point of view, I think it gets the point across.

The increase in productivity through technology is a fact, although I wonder how much of it we will be able to maintain if the cost of energy continues to grow. But let's assume we will be able to do so.

It's not enough to say that the loss of important labor sectors is simply the price we need to pay in order for the GDP to grow. And it's not just because robots don't buy stuff. It's because people require useful work, or their lives will lack purpose and meaning.

I don't know what the basis of the US economy should, or will, be over the next generation or two. I doubt the choice is completely up to us, we live and operate in a global economy.

But pretty much everything that people mean when they talk about an American way of life requires the existence of a robust middle class. If that goes away, a lot of other things will go away as well.

Thanks -

[russell]

But I do strongly suspect that trying to figure that out is a lot more important than worrying about manufacturing, or for heavens sakes farming.

The "heavens sakes" aside, I agree with this completely.

Thanks -

[ThatLeftTurnInABQ]

And in just one line, Sebastian sums up the inevitable fate of the entire economy of the United States.

Well, the title is: "Get Excited Again".

I'd say Sebastian wins the thread.

[Adam]

That's many miles from saying that the reduction of the farming sector to 1% of the population is an unalloyed good.

For one thing, it creates a lot of crappy food.

I realize that comment may have been intended as tongue-and-cheek, but it's still a non sequitur. Even to the extent that you could make an argument for that claim, for my money the reasons for crappy food (which, granted, does exist) don't have much to do with the number of people employed in the farming sector.

[russell]

for my money the reasons for crappy food (which, granted, does exist) don't have much to do with the number of people employed in the farming sector.

Not to initiate a total threadjack, but I'd say you were wrong.

Very briefly, the way we produce a lot of food with few people is by applying industrial methods to food production. In addition, the actual food products grown are often selected for how amenable they are to being treated as industrial products, rather than food.

As a result, we have a lot of crappy food.

I'd be happy to pursue this, but it probably doesn't belong on this thread.

Thanks -

[(The original) Francis]

Obama has expressed real interest in developing solutions to Peak Oil. That's a great idea not only to stop funding terrorist states and not only to slow down global climate change, but also to have oil left over to prevent us from hitting Peak Food.

I heard the CEO of Monsanto interviewed on Marketplace. He said that, in essence, we're using all the farmland and all the water we're going to get. Higher yields will only come from more efficient plants. I think he's exaggerating a little, but he also didn't raise the issue of water mining.

At some level, we may be very close to Peak Food. That's a little scary.

[Equal Opportunity Cynic]

I feel so dirty. I'm still a Libertarian, but I'm not convinced that raising taxes on the rich to lower them for the rest of us wouldn't be a good thing.

[Gary Farber]

"On the flip side, robots don't make very good customers."

That's just because there isn't a robot advertising agency yet. These guys will buy lots.

[Gary Farber]

"And in just one line, Sebastian sums up the inevitable fate of the entire economy of the United States."

But we'll be bringing everyone pleasure.

[Gary Farber]

"I don't know what the basis of the US economy should, or will, be over the next generation or two."

Nanobots!

And the creative arts.

And marital aids.

[ThatLeftTurnInABQ]

Nanobots!

And the creative arts.

And marital aids.

Put all three of these together, and the opening ceremonies for the Chicago Olympics just got a whole lot more interesting...

[Tony P.]

Sebastian, I do not for a minute dispute either the inevitability or the desirability of 'fewer manufacturing jobs', although I would phrase it as 'devoting a smaller fraction of society's man-hours to manufacturing'. I would phrase it my way because the conventional phrasing imposes artificial constraints on the solution to the problem.

In English: we could reduce the retiremnt age. Or publicly fund sabbaticals for everybody. Or tax the profits of highly automated factories and offices, and hire people to work at handicrafts like woodworking or blogging -- or farming with draft animals and hand tools, for that matter. Note again that such options, to the extent that an ever-more-productive technology makes them available, are not options that arise from the 'free market'.

The question is, what can middle class people or poor people *do now* that is both good for the economy and with in a reasonable reach of their skills.

Well, skills are fungible to some extent. The skills required to build cars (with or without robots) can be applied to building wind turbines and solar panels on a large scale. But a former auto-industry technician, engineer, materials planner, or quality inspector cannot, all alone, choose to work in the wind or solar industry if that industry doesn't exist yet. S/he may have to settle for delivering pizzas to, or mowing the lawns of, the people who collect nice profits from owning robotic factories, or oil leases, or government bonds. I think it's safe to say that employing a machinist to deliver pizza is an economic inefficiency. Maybe not as big an inefficiency as taxing the oh-so-productive rich to support that machinist in unemployment, but bigger (I say) than a tax-subsidized renewable-energy industry would be. If they chose to, those "middle-class or poor people" can vote, in the short run, for policies that will make their skills more valuable to 'the economy'.

TLTIABQ, that's my first cut at addressing your call for "a better set of incentives" too. I don't think either of us subscribes to the Panglossian view of 'the free market'.

-- TP

[Nell]

@Adam: What I object to in your characterization are two assumptions you appear to have made: 1) "boomers and older" voters are all one group, and 2) they vote Republican.

In this election, the only demographic group maintaining a lead for McCain are voters 65 and older. Those are not boomers. And they don't necessarily favor the Republican candidate in all or even most elections.

Even less is that true for boomers.

My point about the durable political influence of boomers is not that we're going to dominate, but that it's unwise politics to dismiss us, or to organize a coalition as "everybody else against the boomers".

[Jim Parish]

"On the flip side, robots don't make very good customers."

I'm surprised Gary hasn't brought up Fred Pohl's The Midas Plague yet.

[Gary Farber]

"I'm surprised Gary hasn't brought up Fred Pohl's The Midas Plague yet."

I'm busy plotting ad campaigns to sell to robots.

And enjoying my toothache.

Fred Pohl's classic novella is kinda relevant to this discussion, though.

The answer to everything is robots!

(So long as we watch out for this.)

[Doh]

I am getting excited again, but not about Obama's tax policy. First, it seems odd to me to portray as revolutionary the idea of packaging tax cuts for people in the middle class (and below) with tax increases on the wealthy. If there were a "political methods patent" I'm pretty sure Bill Clinton would have applied for one on that idea.

Second, did you see that Obama's advisers are now saying (in a WSJ op-ed) that they would only partially repeal the Bush tax cuts-- they would preserve preferential rates for capital gains and -- even worse -- for dividends (as well as a 7 million dollar exemption for the estate tax).

He should be embarassed to say that he supports taxing dividends (and capital gains for that matter) at a lower rate than wages.

[Tony P.]

He should be embarassed to say that he supports taxing dividends (and capital gains for that matter) at a lower rate than wages.

I suspect he is. But he can't get elected without pandering to the Stupid Vote a bit.

-- TP

[cw]

And marital aids.

Or is that martial aids? We're already number one at that. It's been a good business, plus helps keep the population under control.

[Gary Farber]

Make love, not war.

[David Sucher]

To much "big thinking" here.

[Halteclere]

To much "big thinking" here.

Hell, that's why I come to this site.

[femdem]

Nell, Adam was responding to my comment about a very narrow band of female voters over 60 with no party identification in extreme southern Appalachian Ohio. I think you can pretty much lump all 90 of them together :-)

I just didn't realize some of them even *knew* those kinds of words.