Thursday, June 02, 2011

EJ Dionne's delusions

Steve Benen at the Washington Monthly approvingly cites a EJ Dionne Jr. column on the economy, which essentially is in praise of dirigisme. While Dionne Jr.'s writings are usually safely ignored, this particular piece so perfectly captures much of the economic thinking found on the left that it cries out for a response. He opens:
While the United States remains utterly frozen in a debate about budget deficits and all the things that government shouldn’t do, other countries are marrying public and private resources to make themselves stronger and more competitive.
The logic here -- that good things happen when the power and brains of the public and private sectors are combined -- is both seductive and flawed. The private sector is motivated by profit-making, which is typically accomplished by filling some need with the lowest cost and highest quality product or service possible. Government faces nothing of the kind, and is instead concerned about maintaining power and capturing votes through payoffs to favored constituencies.

The private sector gives us the iPhone and cheap HDTVs, while the public sector gives us ethanol, Amtrak and the US Postal Service. Marrying the two is nothing more than an invitation to corruption and economic decision-making perverted by politics.

The lack of any specific examples of public-private marriages producing any successful offspring is also notable.
While Americans pay less in taxes than the citizens of other rich countries — and currently pay the smallest share of their incomes for taxes since 1958 — one house of Congress thinks the only thing that can be done to help the country is to cut taxes even more.
Dionne Jr. unintentionally makes an interesting point here. Despite the fact that US tax rates are higher today than under Ronald Reagan when he left office -- when federal incomes taxes consisted of two brackets at 15 and 28 percent -- we are paying a smaller share of our income in taxes. In any case, as the link provided by Dionne Jr. notes, the decline in share of taxes paid is mostly attributable to the poor state of the economy rather than any tax relief and thus holds little insight regarding public policy.

It's also worth noting that Americans are wealthier on a per capita basis than their counterparts in higher-tax countries such as Sweden and Denmark, so it is not entirely obvious why the fact that others pay higher taxes is relevant or something to be embraced.
While other countries have jumped ahead of us in green economics, we have backed away from any effort to put a price on carbon to battle climate change and promote new technologies. In the Republican Party, politicians have to apologize for even thinking about global warming.
First off, what is this failure to promote new technologies he speaks of? According to Mother Jones:
Roughly $60 billion of the $789 billion [stimulus] package will be devoted to spending on clean energy, environmental projects, and scientific research. "Overall, this will be by far the biggest investment in new green technologies that we've ever seen from the federal government," says Gene Karpinski, head of the League of Conservation Voters. "And that's good for our economy and for our environment."
And if other countries want to take the lead on money-losing green industries, why should that be cause for concern? Is there a global race to be the first lemming to jump off the cliff? Moving along:
And while other countries invest in their basic facilities, we are letting our broadband access, roads and bridges, and rail and water systems go to seed. We created the interstate highway system, and now we can’t maintain our sewers.
This is indeed damning. In 2011 federal, state and local governments are projected to spend over $6 trillion, and yet this is insufficient to meet basic obligations such as maintaining roads, bridges and sewers? Where is the money going? If basic services are beyond the government's capabilities even with trillions to spend, why should they be trusted with any more of our money?

With regard to broadband access, Dionne Jr. is simply -- and grossly -- wrong. Rather than going to seed, broadband penetration in the US increased from less than 10 percent of homes in 2000 to over 80 percent by 2007. That is not to say that further improvements cannot be made, but the answer here is found in reduced government interference rather than increased public sector expenditures.

Dionne Jr.'s criticism of the US rail system is also misplaced, with The Economist declaring the US system of freight rail to be the world's best. Given that US freight rail is operated privately rather than by government this should come as little surprise.
Yes, they most certainly are, and this despite a massive stimulus bill, huge and continuing deficit spending and loose monetary policy by the Federal Reserve. The Keynesian tonic has done about as much to invigorate the economy as blood-letting. This should prompt some serious introspection on Dionne Jr.'s part, but I am not holding my breath.

We then get into the heart of his argument:
The larger and more important challenge is to figure out how we can plan, invest and compete with countries far more focused than we are on how the new global economy works.
Who is "we" buddy? The government? Should Harry Reid be mapping out the future of the economy? Should Chuck Schumer pick which industries are most deserving of government largesse spending investment? Look at the brain trust here: Nancy Pelosi, Joe Biden, Trent Lott, Barney Frank -- this is who should be making such decisions?!

But this is what Dionne Jr. and his fellow travelers believe in when it comes to the economy: central planning and government spending.
Encouraged by Carl Pope of the Sierra Club, I spent time recently with the Wall Street Journal’s report on its annual ECO:nomics conference, published in March. Right off, the Journal’s account emphasized that China is “grabbing clean-technology market share not because of its cheap labor . . . but through strong mandates and subsidies to build a new export industry.” Ahem, those words “mandates” and “subsidies” don’t come out of the free-market playbook.

The report quoted Mark Pinto, executive vice president of Applied Materials, who said that in solar power, the United States is “neither the largest in manufacturing nor the largest market.” He added: “That’s very unusual.” Do we really want to lose this market?
It's instructive that China's path to clean energy dominance is based on forcing people to buy certain products and taking money from some people and giving it to others. It's certainly in keeping with the government's authoritarian nature. While this may quicken the beat of Dionne Jr.'s statist heart, and would no doubt please the CEOs who receive the subsidies and sell the products people are forced to buy, this doesn't strike me as the road to prosperity.
You might recall an observant politician who noted this year that “South Korean homes now have greater Internet access than we do. Countries in Europe and Russia invest more in their roads and railways than we do. China is building faster trains and newer airports. Meanwhile, when our own engineers graded our nation’s infrastructure, they gave us a ‘D.’ ”
Again, the fact that the US receives such a poor score given the trillions spent by government should bring into question why it should be given additional money and power. With regard to China, however, this politician may want to note the stories detailing the country's empty airports and growing problems with the high-speed rail system. The real story in China is one of resource misallocation on a massive scale.

Reality can be such a buzz-kill.

Update: Looks like I wasn't the first to point out Dionne's nonsense.

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