So a former partner of Mitt Romney’s at Bain Capital says, in a new book, what Mr. Romney probably believes: we should be really grateful to the rich for all the rich things they do.
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Because, you see, they don’t spend all their wealth building homes as big as the Taj Mahal; some of it they invest in innovation. “Most citizens are consumers, not investors,” Edward Conard, the author of a forthcoming book titled “Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong,” told the columnist Adam Davidson for a recent article in The New York Times Magazine. “They don’t recognize the benefits to consumers that come from investment.”
This actually represents a break with the previous defense of the rich. Until now, the official line has been that what they need are incentives — that jaawwb creeaytohrs won’t do their thing unless we dangle the carrot of immense wealth in front of them.
There are many things you could say about this, but surely high on the list is the degree of historical ignorance it requires. I mean, this argument might have some surface plausibility if the era when America didn’t have such an overweening plutocracy — the ‘50s and ‘60s, when the top 0.01 percent received only about a fifth the share of income that it commands today — was a time of economic stagnation and low innovation. In fact, the postwar generation experienced the best economic growth — and the fastest productivity growth — of any era in the past century.
But this is how it’s going. If the right continues to make political gains, coming next is a reaffirmation of the hereditary principle.
Romney Promises to Create Eleventeen Million Jobs
O.K., not exactly. But he did say after the latest jobs report was released on May 4 that we should be creating 500,000 jobs a month — which almost never happens — and that we should have 4 percent unemployment, which is way below almost anyone’s estimate of the lowest rate we can have without accelerating inflation.
But he understands the economy, right? Incidentally, since Mr. Romney is proposing a complete return to Bush economic policies, it might be interesting to note the average rate of job creation during President George W. Bush’s first seven years in the White House — that is, his record even if you ignore the catastrophe at the end.
And that average monthly rate, from the Bureau of Labor Statistics, was … drum roll … 66,000.
DEBATING INEQUALITY
The American multimillionaire Edward Conard argues in his forthcoming book, “Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong,” to be released in June, that the rising rate of economic inequality in the United States is merely a sign that the nation’s capitalist system is working.
Mr. Conard, a former colleague of Mitt Romney’s at Bain Capital, has said in recent interviews that the bigger the profits for risk-taking investors are, the more innovations they will fund. And these innovations eventually benefit everyone — just as Silicon Valley entrepreneurs made computers cheaper for the consumer, in the process earning billions of dollars.
“Conard concludes that for every dollar an investor gets, the public reaps up to $20 in value,” wrote the columnist Adam Davidson in an article for The New York Times Magazine.
Critics of Mr. Conard say his views are unrealistic. Peter Cohan, a commentators for Forbes, wrote that if Mr. Conard is going to contend that income inequality is indeed beneficial, “it would help to learn his explanation of why income inequality peaked in the U.S. at two points in its history that preceded the worst economic collapses in the last hundred years — 1928 and 2007.”
The economist Nancy Folbre argued in an online article for The New York Times that “the most recent global financial crisis showed that increasing the reward for risk can create temptations to conceal its dangers or offload it onto others.”
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In South America, Separating Fact From Fiction
The columnist Matt Yglesias, who just spent time in Argentina, recently wrote in Slate about the lessons of that country’s recovery following its exit from the one-peso-one-dollar “convertibility law.” As he says, it’s a remarkable success story, and one that arguably holds lessons for the euro zone.
“Default and devaluation were hardly a party. They destroyed the country’s banking system and wiped out many Argentines’ savings,” Mr. Yglesias wrote on May 1. “But it did work. Argentina has grown rapidly in subsequent years and its unemployment rate has fallen steadily to 6.7 percent, a rate we envy in the United States.”
I’d just add something else: press coverage of Argentina is another one of those examples of how conventional wisdom can apparently make it impossible to get basic facts right. We keep getting stories about Ireland’s recovery when there is, in fact, no recovery — but there should be, darn it, because they’ve done the “right” thing, so that’s what we’ll report.
And conversely, articles about Argentina are almost always very negative in tone — they’re irresponsible, they’re renationalizing some industries, they talk populist, so things must be going very badly. Never mind the data, shown on this page.
Just to be clear, I think Brazil is going pretty well, and has had good leadership. But why exactly is Brazil an impressive B.R.I.C. while Argentina is always disparaged?
Actually, we know why — but it doesn’t speak well for the state of economics reporting.
Don’t Know Much About (Ancient) History
The things I do for book sales. I debated, sort of, Ron Paul on Bloomberg TV recently (it can be seen online at bloomberg.com/video).
I thought we might have a discussion about why the runaway inflation he and his allies keep predicting keeps not happening. But no, he insisted (if I understood him correctly) that currency debasement and price controls destroyed the Roman Empire. I responded that I am not a defender of the economic policies of the Emperor Diocletian.
Actually, though, appeals to what supposedly happened somewhere in the distant past are quite common on the goldbug side of economics. And it’s kind of telling.
I mean, history is essential to economic analysis. You really do want to know, say, about the failure of Argentina’s convertibility law, of the effects of Chancellor Brüning’s dedication to the gold standard in Germany, and many other episodes.
Somehow, though, people like Mr. Paul don’t like to talk about events of the past century, for which we have reasonably good data; they like to talk about events in the dim mists of history, where we don’t really know what happened. And I think that’s no accident. Partly it’s the attempt of the autodidact to show off his esoteric knowledge; but it’s also because we don’t really know what happened — what really did go down during the Diocletian era? — so you can project what you think should have happened onto the sketchy record, then claim vindication for whatever you want to believe.
It’s funny, in a way — except that this sort of thinking dominates one of our two main political parties.
LESSONS FROM ARGENTINA
Though Argentina is experiencing full employment and its economy is showing a high rate of growth amid the global economic slowdown, the nation's government has faced criticism for following unusual economic policies.
Earlier this month, President Cristina Fernandez’s decision to nationalize the country’s biggest oil company was widely vilified by commentators and business leaders around the world. Argentina's government approved the plan on May 4, which re-seized a majority stake in Y.P.F. (the oil company was privatized in the 1990s) from Repsol, a major Spanish stakeholder.
According to a recent analysis written by the reporter John Paul Rathbone for the Financial Times, Ms. Fernandez’s decision could lead to diplomatic isolation from the European Union, the United States and Mexico.
Mr. Rathbone suggested in an article posted online on April 17, shortly after Ms. Fernandez’s decision was announced, that Argentina’s president left early from the Summit of the Americas, held just days before, mainly because she could not find support for Argentina’s claim to the Falkland Islands. “There were also mutterings that Argentina might be kicked out of the G20,” Mr. Rathbone wrote. “In Buenos Aires, Ms. Fernandez took revenge,” he wrote.
But in a series of recent articles, Matthew Yglesias, a columnist at Slate, has suggested that Argentina’s experiences (apart from its “dubious energy policies”) can provide valuable lessons for struggling nations in the euro zone, namely Spain. In an attempt to stabilize its currency in the mid-1990s, Mr. Yglesias explained, Argentina enacted a “convertibility” law that officially fixed the exchange rate between the Argentine peso and the dollar. The country abandoned the currency peg after defaulting on its debts in 2001.
The nation’s banking system was decimated, Mr. Yglesias wrote, but, “foreigners suddenly found Argentine stuff cheap, so exports and tourism soared. This is how austerity is supposed to work. Your society consumes less, but produces more.”
