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29 of 49 people found the following review helpful
3.0 out of 5 stars His much slimmer Taking Economics Seriously Say it All More Succinctly, September 19, 2011
This review is from: The End of Loser Liberalism: Making Markets Progressive (Kindle Edition)
Dean Baker is a professional economist who works at the Economic Policy Institute in Washington DC. Baker's theme is the increasingly unequal distribution of income in the USA, and his goal is to reverse the tide towards an increasing share for the American middle class family. While many of his policy alternatives are very creative and interesting (more on this later), his basic policy stance is quite traditionally American liberal. "Conventional economic policy militates against the interests of working people," he asserts (p. 2),, and he argues for a return to the Keynesian policies of the post World War II era: "In the three decades following World War II," he states (p. 27), "the economy had strong growth driven by wage-led-consumption." He forgets to note that in this period the USA had a virtual monopoly in world manufacturing while Europe reconstructed from the war, and market-oriented third world countries did not yet exist. I cannot imagine who would like to go back to the era when all automobiles were made in Detroit and the bloated automobile industry leaders, business and union alike, spent most of their time fighting over who would get the monopoly profits.

Let me give some examples of Baker's preferences. He is skeptical of free trade (we find on p. 1 that "major trade deals hurt manufacturing workers by putting them in direct competition with low-paid workers in developing world." Trade deals? Economists generally believe (and I quite agree) that opening international markets are not "trade deals" but their absence. Moreover, we can attribute much of the growth in the past fifty years, especially in poor countries, to competing in international export markets. Politically, I don't think it is a winning strategy to advocate an alternative policy in which manufacturing workers are supported by taxpayers and consumers through trade restrictions and high consumer prices.

Baker is opposed to the anti-inflation policy of the Federal Reserve Board, which he says "relies on high interest rates" (p. 1) and to a strong dollar, which "makes US goods uncompetitive in world markets." (p. 1) Prior to the Clinton era, Democrats were known for the penchant for flooding the market with money and increasing the public debt to create jobs. According to conventional economic wisdom, this is a totally discredited macroeconomic policy, leading to weakening the dollar as the world's reserve currency, and when inflation becomes expected, it leads to stagflation (joint high inflation, high unemployment). And of course, in the present era, to accuse the Fed of promoting high interest rates is patently absurd.

Dean paints the broad differences between liberals and conservatives as follows: "The vast majority of the right does not give a damn about free markets; it just wants to redistribute income upward... For the last three decades the right has been busily restricting the economy in ways that ensure that income flows upward." (p.2) In short, liberals want regulation that benefits the relatively less well-off, while conservatives want regulation that benefits the rich and the powerful.

Conservative political theorists are likely to counter that they espouse a meritocratic vision in which individuals get what they deserve, not what they can wheedle out of the system through political influence. Conservatives will add that the liberal welfare state produces a pathological culture of poverty by ensuring that some individuals can live off of the hard work and sacrifice of others, and the abolition of anti-meritocratic interference in markets will empower the less well off to better their position. The idea that conservatives just want to help the rich and the powerful is simply not plausible. Of course, the rich and powerful almost always want to help the rich and power (pace George Soros, Warren Buffett, Bill Gates and others), and they have many resources to help get their way. But this is not the heart of American conservatism, and certainly not the reason the win elections. Moreover, the support of liberals for labor aristocracies (especially teachers' unions, but state workers' unions in general), and their lamentable penchant for ignoring the poor and dispossessed, are hardly indications of "caring about the less-well-off in our country."

As I have tried to stress in recent years, the beauty of American liberalism lies in its past struggles for occupational health and safety regulations, food and drug regulation, Social Security, Medicare and Medicaid, racial, ethnic, and gender anti-discrimination laws, birth control and family planning, sex education, and a culture of tolerance for alternative life-styles and personal choices. These struggles have been extremely successful. There of course remains more to do, but time is on the side of the liberal vision.

The greatest failure of American liberalism is to have eliminated or marginalized poverty, except for the elderly. Perhaps this is because you can't win votes by caring about poor children, although this is not obviously so. At any rate, the culture of modern American liberalism is to focus not on social problems and their solution, but rather on the income distribution and how to move it in favor of the "middle class." I have long argued that this is a mistake, simply because few voters care about the distribution of income, but rather care about justice and social values. For instance, as I write there is great animosity towards bankers not because they are rich, but rather because they enriched themselves through actions that gravely hurt the country's economic health, and while ordinary Americans saw their livelihoods threatened and destroyed.

Dean Baker perfectly reflects contemporary American liberal culture. He is fixated on the task of redistributing from rich to middle class, but his means is very creative and unusual: by using the market as an egalitarian instrument. His strongest argument is that the regulation of the financial sector is geared towards subsidizing the large banks, especially through government deposit insurance and the implicit "too big to fail" safety net that allows the big banks to maintain a high risk exposure and consequent higher rate of return that is available to smaller banks. There is little doubt but that increasing competition in the finance sector would have a strongly beneficial effect on the economy, especially by reducing financial fragility (see the paper "The Dynamics of Pure Market Exchange" on my web site). There is also little doubt but that the oligarchial structure of the financial sector is maintained by its political clout, especially via campaign contributions.

There are two problems with Baker's strategy here. First, it is not clear that a streamlined financial sector would have any particular effect on the distribution of income. Second, it is unclear that many voters would be moved by a campaign centering on a reorienting of financial sector regulation, partially because voters care little about either technical issues in economic regulation or about the distribution of income. A campaign to jail the perpetrators of financial fraud might do much better at the polls, but this would be economically costly to carry out and is merely vindictive with no long-run favorable implications.

Baker's remaining recommendations are important in principle but a long way from being currently implementable in fact. For instance, Baker notes that fostering international competition might be used to curb health care costs. Medical procedures are a fraction of the USA cost in other countries, and the quality of the services provided is equally high. Why not encourage Americans to go abroad for expensive medical procedures, and make it easier for foreign professionals to gain accreditation for working in the US health sector? Any such suggestion would of course engender the immediate and sustained animosity of the rich and influential physicians' organizations, with Americans' traditional suspicion concerning the quality of foreign services leading them to listen closely to the counterarguments. The success of this proposal would depend on carrying out several careful studies of the international health care market weighing pros and cons. Hopefully Baker's arguments will encourage others to undertake such studies.

Baker's final suggestion is based on the observation that economic efficiency requires that price be equal to marginal cost, whereas in some very rich sectors of the economy, including recorded music, computer software and especially pharmaceuticals, marginal cost is close to zero, but firms charge very high monopoly prices because they have secure patent rights on the product. Of course, drug firms must make a significant profit per unit sale to make up for the high costs of discovery and testing of products, but once on the market, it would be most efficient if they were sold at their marginal cost. Drug that costs thousands of dollars could then sell for a few dollars. The problem is: how do we encourage the research if the resulting products cannot be counted on for a stream of high-level returns?

Baker's answer is not convincing. He notes that there is considerable rent-seeking with big pharma and other patent and copyright holders, but surely eliminating this (how do you do that, pray tell?) does not solve the problem. He then suggests that NIH and other governmental agencies do the innovating. This is not a very well thought-out policy. Governments are not subject to competition, and hence they do not innovate. Finally, he suggests that "government could construct a prize mechanism under which it buys up patents after the fact for a premium keyed to the patent's usefulness." The problem here is that the government has no incentive to buy up the most effective drugs, but rather has an incentive to buy the drugs of the most politically influential pharma firms. The potential for graft and rent-seeking is extreme. This does not mean that such a scheme would be impossible, provided there were citizen/scientific boards that made the choices, but these too would be ripe for corruption.

Baker's suggestions for a more egalitarian system of economic regulation deserves our attention, especially if touches the really unfulfilled promise of liberalism, that of eliminating poverty at homing and helping the poor of the world to rid themselves of predatory and corrupt governments.
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Tracked by 4 customers

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Showing 1-10 of 15 posts in this discussion
Initial post: Sep 23, 2011 11:03:22 AM PDT
L. Douglas says:
This review is remarkably informative, not only about the book, but about liberal and conservative views on economics and even politics in general. Well worth reading. You might even explore Herbert Gintis's website, which appears to be full of useful information.

Posted on Oct 2, 2011 12:53:57 PM PDT
Last edited by the author on Oct 2, 2011 7:49:12 PM PDT
Wuf says:
This review is simply excellent.

Here is a quote from your review that touches on something I have yet to see explained well.

"Politically, I don't think it is a winning strategy to advocate an alternative policy in which manufacturing workers are supported by taxpayers and consumers through trade restrictions and high consumer prices"

Would trade restrictions be an inefficient form of welfare to American labor, or would it be a return to the kind of jobs and benefits which sustained robust consumption?

It seems we're damned either way. We can either force capital to make concessions to labor, social safety nets, and entitlements (on Henry Ford's theory that the domestic economy dies if the worker can't afford the car he produces); or we can force the worker to compete with Asian sweatshops, in which case his wages/benefits plummet and that Model T goes on a Visa (until the meltdown...because you cannot borrow forever). If capital makes concessions, it can't compete, invest, innovate, etc. If if doesn't make concessions, workers lack the income to consume. If I had to choose the lesser of two evils, I'll take the postwar years (when consumption was sustained by a well paid middle class) over the Reagan era (when consumption was sustained by debt, and profits were so large that Wall Street had to invent fictitious products to handle the unprecedented amounts of surplus capital looking for good returns).

Of course, I don't have that choice, partly because of globalization. Rather than quaint nation-states where suppliers are more dependent upon local markets-&-labor, we have a situation where global suppliers (and their shareholders) have unprecedented mobility. Which is to say: Bill Gates doesn't need the American consumer or worker as much as Henry Ford did (nor by extension do you, as a shareholder or consumer - at least not in the short term). Worse: to the extent that Bill Gates does need local consumers, the political-financial nexus, using the staggering profits Bill has in the bank, will build a credit-card economy in order to lend poor consumers money to buy his products (until the consumer goes bankrupt). And it's "ok" if Consumer goes bankrupt because Bill is no longer dependent upon him: he can just skip to another debt-economy not in crisis. -a place where the local political-financial nexus can pump consumers full of credit . . . until they go bankrupt too. (If you look at capitalism since the late 70s - when cheap labor and austerity became primary goals - you will see an endless series of crises that are not resolved so much as moved around, from one bubble or credit market to another)

Hence the dystopia of neoliberalism where one economy after another blows up trying to loan money into the system because it's not trickling down into wages, benefits, etc., i.e., demand. Baker has his work cut out for him. His party decided to quit politics in the 60s because they were disillusioned with LBJ and the war. His ideas have no bullhorn. The Left has been dead for decades. Meanwhile, the "other side" - the party representing the suppliers - created a movement which converts profits into populist agitation and political outcomes unlike anything we have ever seen. In the span of 30 short years, they have created a world where not only governments but labor, resource, & consumer markets are forced into the service of a very small group of people.

In reply to an earlier post on Oct 3, 2011 3:41:28 AM PDT
Your rather eloquent remarks well express the predicament of modern American liberalism.

I do not agree that high union wages were the cause of American prosperity after WWII. This is just Keynesian hand-waving. It was the monopoly position of American manufacturing, caused by the devastation of the European economy, that led to American super-growth.

American liberals are being driven by a lack of imagination into the hands of the anti-globalization forces, which are all old-boy networks of government worker unions and businesses that hat competition from abroad.

I have argued that American liberalism has gone a long way in achieving most of its goals, including creating an affluent middle class. It has failed to cure poverty, and it is faced with new problems like global worming, which I believe it will also succeed in solving. Poverty is the big remaining problem. As I have said, I do not consider this much of an electoral issue.

Posted on Oct 7, 2011 8:34:37 AM PDT
el cid says:
Great review. If you don't have a Blog; You really should. t/y.

In reply to an earlier post on Oct 19, 2011 9:36:18 PM PDT
You misinterpret the push-back from the top 1% and the multinational corporations for the past 30 years. Liberalism hasn't "achieved most of its goals" but has been thwarted by reactionary forces, complacency, and the fading of the memories of the Great Depression. Had LBJ achieved FDR's Second Bill of Rights-- then your interpretation might be accurate. Liberalism (or progressivism, as it's now known) will be rejuvenated as the oligarchy overreaches again-- just as they did in the 1920's.

Posted on Oct 19, 2011 9:44:36 PM PDT
"Economists generally believe (and I quite agree) that opening international markets are not "trade deals" but their absence."
Given the adoption of a series of "trade deals" such as NAFTA, I'm mystified as to what you're writing about. We haven't (yet) thrown open the borders to goods produced everywhere else but we seem to be negotiating treaties (conveniently not treated as such because even the disfunctional U.S. Senate wouldn't approve these deals by 2/3's vote) to allow mulitnational corporations to ship American jobs to cheap/slave labor countries where they produce goods to be sold to masses of underemployed and soon-to-be-destitute Americans.

Posted on Oct 19, 2011 9:55:01 PM PDT
"As I have tried to stress in recent years, the beauty of American liberalism lies in its past struggles for occupational health and safety regulations, food and drug regulation, Social Security, Medicare and Medicaid, racial, ethnic, and gender anti-discrimination laws, birth control and family planning, sex education, and a culture of tolerance for alternative life-styles and personal choices. These struggles have been extremely successful. There of course remains more to do, but time is on the side of the liberal vision. "

This is disingenuous to the Nth degree. Well financed reactionaries have been pushing to rollback every one of the liberal achievements that you list (and more). In fact, I'd say that you entire review is soft soap attempt to discredit current day liberalism as outdated and irrelevant. This is a meme commonly utilized by the propagandists from the right to lull poorly informed people into thinking that liberalism/progressivism is passe.

In reply to an earlier post on Nov 10, 2011 2:04:35 AM PST
Mach1513 says:
Well said. The author doth protest too much. And ignores the fact that America's middle class is shrinking, with housing (non-)wealth effect just one of many glaring examples.

In reply to an earlier post on Nov 10, 2011 3:52:14 AM PST
They may be "pushing to rollback every one," but they have not and will not succeed.
I try to tell the truth, which sometimes leads me to making arguments that are supported by people with whom I otherwise disagree. My behavior is impeccable in this regard, and I do not accept your criticism.

In reply to an earlier post on Nov 10, 2011 3:54:00 AM PST
What is your evidence that "America's middle class is shrinking"? Are members moving into wealth or poverty?
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