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The dismal science - Economists cannot stop Trump, but perhaps they can

1970-01-01 02:00:00

rlp

Dec 7th 2016, 16:53 by R.A. | WASHINGTON

ECONOMISTS seem to be warming to the idea that regional inequality is a

problem, if only because it leads to political movements that threaten broader

prosperity. While that is a useful development, it brings economics to a very

difficult question, which is: what can usefully be done about that inequality?

In a post generating quite a lot of discussion, Tim Duy says that economists

need to get busy thinking about the problem:

The dry statistics on trade aren t working to counter Trump. They make for good

policy at one level and terrible policy (and politics) at another. The

aggregate gains are irrelevant to someone suffering a personal loss. Critics

need to find an effective response to Trump. I don t think we have it yet. And

here is the hardest part: My sense is that Democrats will respond by offering a

bigger safety net. But people don t want a welfare check. They want a job. And

this is what Trump, wrongly or rightly, offers.

If a bigger safety net isn't the right response, what is? Tyler Cowen, in a

piece which I'm not confident is meant to be taken seriously, suggests that to

stop Trumpism Democrats need to support moderate Republicans, or move their

party to the right. I'm not sure that's a step in the right direction. It

presupposes a magic policy wand; I don't see how getting Democrats to move

right, given the preferences of the base, is any easier than getting

Republicans to move left. But if one has a magic wand to wave, changing the

voting patterns of one party is as easy as changing the voting patterns of

another, or as establishing the social norm that electors vote for the winner

of the popular vote, or as convincing a large share of dissatisfied Trump

voters to be happy with their lot in life. It is fine to pretend you have a

magic wand when seeking to work out what the first-best policy ought to be;

when trying to identify practical solutions (to say nothing of meta-solutions

that are not themselves desirable but seem likely to lead to desirable

outcomes) assuming a can opener gets you nowhere.

Economists have to take the problems of institutional legitimacy seriously. In

doing so, however, they need to try to be somewhat systematic. So, the first

question is: can we start to work out what an ideal response would be, given

the tools we've got? Economists have been approaching the issue along the lines

of: liberalisation should generate gains large enough to make everyone better

off, so all we need to do is liberalise and then redistribute some of the gains

to the losers. That's clearly missed some important dynamics.

So perhaps let's assume that individual utility is a function of both income

and employment, that output is a function of institutional quality (as well as

technology, capital, labour and the rest of it), and further that when the

distribution of utility is sufficiently unequal there is a break in

institutional quality. If we assume that utility is at least in part a function

of the availability of secure employment, does that begin to change the way we

think about redistribution? Or trade agreements? Or spending on public

services? Papers which now conclude with something like "we find that policy x

does raise employment, but does not lead to an increase in welfare" suddenly

have a different interpretation than they did before.

Second, economists should not confuse this sort of analysis, regarding what

ought to be, with arguments about what politicians should do in order to keep

Trumpism at bay. The fact that economists previously missed factors which

really ought to have been in their analyses does not mean that they have

suddenly become experts in politics. What's more, it's not clear that

politicians are interested in what economists have to say at this moment (or

are less interested than they were before, which wasn't very, but was more than

now). Many political leaders are content to go out and find economists who

agree with them, rather than take chances with independent minded ones bearing

uncomfortable messages (truths might be going too far).

The answer to Trumpism will be found in politics, not in economics. It will

come in the form of political movements strong and coherent enough to resist

the appeal of nationalism. If economists want to be of use, they should work on

providing more compelling stories about how the world works. If there's to be a

silver lining to Trumpism, it has to be that we'll learn something as a result

of it.