By Dean Baker
The Washington Posteditorial page (11/14/16) decided to lecture readers on the meaning of progressivism. OK, that is nowhere near as bad as a Trump presidency, but really, did we need this?
The editorial gives us a potpourri of neo-liberal (yes, the term is appropriate here) platitudes, all of which we have heard many times before and are best half-true. For framing, the villains are senators Bernie Sanders and Elizabeth Warren, who, it tells us, “are embracing principles that are not genuinely progressive.”
I’ll start with my favorite, the complaint that the trade policy advocated by Warren and Sanders would hurt the poor in the developing world. Or, to use the Post‘s words:
And their ostensible protection of American workers leaves no room to consider the welfare of poor people elsewhere in the world.
I like this one, because it turns standard economic theory on its head to advance the interests of the rich and powerful. In the economic textbooks, rich countries like the United States are supposed to be exporting capital to the developing world. This provides them the means to build up their capital stock and infrastructure, while maintaining the living standards of their populations. This is the standard economic story where the problem is scarcity.
But to justify trade policies that have harmed tens of millions of US workers, either by costing them jobs or depressing their wages, the Post discards standard economics, and tells us that the problem facing people in the developing world is that there is too much stuff. If we didn’t buy the goods produced in the developing world, there would just be a massive glut of unsold products.
In standard theory, the people in the developing world buy their own stuff, with rich countries like the US providing the financing. It actually did work this way in the 1990s, up until the East Asian financial crisis in 1997. In that period, countries like Malaysia, Vietnam and Indonesia were growing very rapidly while running large trade deficits. This pattern of growth was ended by the terms of the bailout imposed on these countries by the US Treasury Department through the International Monetary Fund.
The harsh terms of the bailout forced these and other developing countries to reverse the standard textbook path and start running large trade surpluses. This post-bailout period was associated with slower growth for these countries. In other words, the poor of the developing world suffered from the pattern of trade the Post advocates. If they had continued on the pre-bailout path, they would be much richer today. In fact, South Korea and Malaysia would be richer than the United States if they had maintained their pre-bailout growth rate over the last two decades. (This is the topic of the introduction to my new book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer; it’s free.)
It is also important to note that the Post is only bothered by forms of protection that might help working-class people. The United States prohibits foreign doctors from practicing in the United States unless they complete a US residency program. (The total number of slots is tightly restricted, with only a small fraction open to foreign-trained doctors.) This is a classic protectionist measure. No serious person can believe that the only way for a person to be a competent doctor is to complete a US residency program. It costs the United States around $100 billion a year ($700 per family) in higher medical expenses. Yet we never hear a word about this or other barriers that protect the most highly paid professionals from the same sort of international competition faced by steelworkers and textile workers.
Moving on, we get yet another Post tirade on Social Security:
You can expand benefits for everyone, as Ms. Warren favors. Prosperous retirees who live mostly off their well-padded 401(k)s will appreciate what to them will feel like a small bonus, if they notice it. But spreading wealth that way will make it harder to find the resources for the vulnerable elderly who truly depend on Social Security.
But demographics — the aging of the population — cannot be wished away. In the 1960s, about five taxpayers were helping to support each Social Security recipient, and the economy was growing about 6 percent annually. Today there are fewer than three workers for each pensioner, and the growth rate even following the 2008 recession has averaged about 2 percent. On current trends, 10 years from now the federal government will be spending almost all its money on Medicare, Social Security and other entitlements and on interest payments on the debt, leaving less and less for schools, housing and job training. There is nothing progressive about that.
There are all sorts of misleading or wrong claims here. First, the economy did not grow “about 6 percent annually” in the 1960s. There were three years in which growth did exceed 6 percent, and it was a very prosperous decade, but growth only averaged 4.6 percent from 1960 to 1970.
I suppose we should be happy that the Post is at least getting closer to the mark. A 2007 editorial praising NAFTA told readers that Mexico’s GDP “has more than quadrupled since 1987.” The IMF data put the gain at 83 percent. So by comparison, they are doing pretty good with the 6 percent growth number for the ’60s.
But getting to the demographics, we did go from more than five workers for every retiree to less than three today, and this number is projected to fall further to around two workers per retiree in the next 15 years. This raises the obvious question, so what? The economy did not collapse even as we saw the fall from five workers per retiree to less than three, so something really really bad happens when it falls further?
We did raise taxes to cover the additional cost, and we will probably have to raise taxes in the future. We get that the Post doesn’t like tax increases (no one does), but this hardly seems like the end of the world. The Social Security trustees project that real wages will rise on average by more than 34 percent over the next two decades. Suppose we took back 5–10 percent of these projected wage gains through tax increases (still leaving workers with wages that are more than 30 percent higher than they are today); what is the big problem?
Of course, most workers have not seen their wages rise in step with the economy’s growth over the last four decades. This is a huge issue, which is the sort of thing that progressives should be and are focusing on. But the Postwould rather distract us with the possibility that at some point in the future we may be paying a somewhat higher Social Security tax.
The Post’s route for savings is also classic misdirection. It tells about high-living seniors who get so much money from their 401(k)s they don’t even notice their Social Security checks. Only a bit more than 4 percent of the over-65 population has non–Social Security income of more than $80,000 a year. If the point is to have substantial savings from means-testing, it would be necessary to hit people with incomes around $40,000 a year, or even lower. That is not what most people consider wealthy.
We could have substantial savings on Medicare by pushing down the pay of doctors, and reducing the prices of drugs and medical equipment. The latter could be done by substituting public financing for research and development for government-granted patent monopolies (also discussed in Rigged). These items would almost invariably be cheap in a free market. But the Post seems uninterested in ways to save money that could affect the incomes of the rich.
One can quibble with whether the current benefits for middle-income people are right or should be somewhat higher or lower, but it is ridiculous to argue that raising them $50 a month, as proposed by Senator Warren, will break the bank.
Then we have the issue of free college. The Post raises the issue, pushed by Senator Sanders in his presidential campaign, and then tells readers:
Our answer — we would argue, the progressive answer — is that there are people in society with far greater needs than that upper-middle-class family in Fairfax County that would be relieved of its tuition burden at the College of William & Mary if Mr. Sanders got his wish.
There are two points to be made here. First, there is extensive research showing that many children from low- and moderate-income families hugely overestimate the cost of college, failing to realize that they would be eligible for financial aid that would make it free or nearly free. This means that the current structure is preventing many relatively disadvantaged children from attending college. Arguably, better education on the opportunities to get aid would solve this problem, but the problem has existed for a long time, and better education has not done much to change the picture thus far.
The second point is that the process of determining eligibility for aid is itself costly. Many children have divorced parents, with a non-custodial parent often not anxious to pay for their children’s college. Perhaps it is appropriate that they should pay, but forcing payment is not an easy task, and it doesn’t make sense to make the children in such situations suffer.
In many ways, the free-college solution is likely to be the easiest, with the tax coming out of the income of higher earners, the vast majority of whom will be the beneficiaries of this policy. There are ways to save on paying for college. My favorite is limiting the pay of anyone at a public school to the salary of the president of the United States ($400,000 a year). We can also deny the privilege of tax-exempt status to private universities or other nonprofits that don’t accept a similar salary cap. These folks can pay their top executives whatever they want, but they shouldn’t ask the taxpayers to subsidize their exorbitant pay packages.
There is one final issue in the column worth noting. At one point it makes a pitch for the virtues of economic growth, then tells readers, “It’s not in conflict with the goal of redistribution.”
At least some of us progressive types are not particularly focused on “redistribution.” The focus of my book and much of my other writing is on the way that the market has been structured to redistribute income upward, compared with the structures in place in the quarter century after World War II. It is understandable that people who are basically very satisfied with this upward redistribution of market income would not want this rigging of the market even to be discussed, but serious progressives do.
Economist Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. A version of this post originally appeared on CEPR’s blog Beat the Press (11/15/16).