Part I Part II
We Iranians are obsessed with many things; the healthier obsession is with our kids. We often brag about them stridently. We take pride in their success particularly in education and in their careers. We claim, for instance, that they earn more than we do. But do they really? Not according to Matt Miller, the author of a very intriguing book entitled The Tyranny of Dead Ideas. In this book, he explains how the current economic crisis has changed our collective perception of many axiomatic ideas that we have believed in for so long, albeit erroneously. Miller explains why our economy will not prosper in the future and cannot mend its deteriorating position in the world unless we abandon these obsolete ideas and replace them with what he calls “tomorrow’s destined ideas.”
In this book, Miller identifies and extensively examines the six widely-held ideas that represent the conventional wisdom of the public in the U.S. However, he believes these ideas are obsolete and no longer practical. For instance, he argues that the idea of “upward mobility” is no longer true and that real earnings keep diminishing for masses of American workers. Even if the size of our national wealth expands over time, its benefits will not be evenly distributed because the productive gains are only going to the top income earners. The rich are getting richer and the poor are becoming poorer. Our kids are earning less than we do, and our middle class is shrinking in size and losing its economic sovereignty.
The current economic turmoil, Miller argues, has led to the erosion of our confidence in the free market and to the emergence of mutinous thoughts that aspire to invalidate the pillars of capitalism and question its central ideology. Because of globalization, inertia, and technological changes, the U.S. economy has changed structurally and so should its system. However, our business and political leaders, and conservative economists have not done enough to ameliorate the system. These people are resistant to change because they are enslaved to what the author calls the “dead ideas.”
Even though we are told that the current U.S. economic crisis was triggered by the crisis in the housing market which was then extended to financial and ultimately into the industrial sector, the author seems to suggest rightfully that this crisis has been in the making for several years, and is more likely due to irreversible forces of globalization. These forces if not dealt with prudently, create a backlash for our economic system. We need to question certain ideas that have been engrained in our minds and the validity of axioms that no one has dared to challenge. These ideas may sound appealing, at least from a theoretical standpoint, but they are far from practical in today’s world. Miller claims that these ideas may lead to the “creative destruction” of capitalism if they remain intact. We need a new way of thinking; we should have the desire and the willpower to abandon these ideas and to embrace the new global economic paradigm.
The forces that strengthen this desire for change are: (1) the white collar anxiety triggered by lingering fear that their good-paying jobs are being outsourced to cheap labor countries, (2) the escalating cost of healthcare, hence labor, for business firms that results eventually in financial stress, and forces businesses to craft a relief strategy, (3) the aging population will soon push pension costs through the roof and our social security system into an underfunding quandary, and (4) the widening wealth and income gap that eventually will have disastrous consequences for capitalism because it will choke off the middle class whose spending power is so vital to the survival of this system.
The following are the “dead ideas” the author believes we should abandon.
1- Our kids will earn more than we do. This is no longer axiomatic for most of us. First, changes in technology have led to increasingly complex jobs that now require delicate technical and communications skills. In the absence of such skills, potential earning power will be weaker leading to downward economic movement instead of upward. Second, inertia has created a sense of mediocrity in our kids evidenced by their belief that they can gain a college degree with minimum mental effort, and by their general inability or unwillingness to work hard for a good education. In the experience of most of us, especially immigrant families, parents are more educated than their kids. Our kids choose to be involved in so many frivolous and time-wasting activities that they have no time left to devote to learning and education. As a result of this, their “upward mobility” is changing to “downward mobility.” A couple of other factors behind this “downward mobility” could also be the globalization that forces American workers to accept lower wages because business firms can so easily outsource good-paying jobs to low-wage countries, or the popularity of free trade that results in equalization of wage rates among nations. All these happenings, according to the author, have created public anxiety especially in the midst of recent structural changes in the U.S. economy, and revised public attitudes toward the role of government. He argues that European countries have been more receptive toward the idea of strong central authority than the U.S. That is why in the U.S. “it took literally a depression to get the enactment of the first modest version of Social Security.” He concludes that “The death of this idea, as a measure of American progress, will force us to rebalance American capitalism, to augment our romance with the power of free men and free markets with a deeper awareness of its limits.”
2- Does free trade make everyone better off? Not according to Mr. Miller. Public anxiety over the damaging consequences of free trade can be evidenced by a public opinion poll conducted in 2008 which indicated that a wide majority of Americans “thought globalization was bad for the U.S. economy.” The author argues that despite such a negative sentiment, economists have been able to convince our political leaders that free trade is good when in fact our domestic industries and our labor force are hurt by it. Have they been misleading us? Yes, according to the author. However, it should be made clear that the economists’ insistence on the benefits of free trade is based on its long term efficiency-enhancing consequences at the expense of some short term losses. He challenges the notion that free trade is good for America on the grounds that there is a conflict of interest between the companies benefiting from free trade and the national interest. His solution: provide incentives for those companies that are hurt by free trade, possibly through changes in the corporate tax system such as basing it on value added. No doubt, people who shop at Wal-Mart or Target stores are reaping the benefits of free trade by being able to buy inexpensive made-in-China products. However, those losing their jobs to cheap imports do not like it. We must also be mindful of the fact that quantification of the costs and the benefits of free trade is tedious and judgmental to a great extent. He acknowledges though that free trade may be beneficial for the U.S. in thriving economic conditions. However, when its economy is in crisis, free trade is bad for American workers. He disagrees with the notion that free trade is good no matter how many people may lose their jobs, and believes that we should have “protections” in place to make people sufficiently secure in times of rapid economic change. That means having a “healthcare and a pension security system that is not tied to a job that can suddenly disappear.”
3- The employer, and not the government, should provide healthcare and pension benefits for workers. The author argues that from a historical perspective providing such benefits was a cunning strategy by business people to keep down labor unrest and the threat of violent strikes against industries; it was also a way to attract and retain more efficient workers. The absence of tough global competition and the accumulation of high profits in the earlier decades after WWII made it easier for American companies to afford the high costs of healthcare and pension services. However, American companies can no longer make enough money to pay for these benefits in the face of global cut-throat competition with foreign companies that are often subsidized by their governments. Employer-based healthcare makes jobs vulnerable to economic cycles. When companies downsize or go out of business during an economic downturn, workers’ healthcare and pension security are adversely affected. It seems that employer subsidized healthcare was the product of an era in which new business leaders emerged who felt that they had to respond to the realities of the times and accommodate their workers. Now, however, as American companies become less competitive in the global market, the high costs of these benefits are forcing many companies to find ways to deal with financial stress.
Toward the end of this particular chapter of his book, the author explores the shortcomings of the employer-based healthcare system that have been masked by the fortuitous circumstances of the past. First, this system has left out those who are unemployed, and those who are not married to an individual who works for a company. Second, those who suffer from medical conditions that render them uninsurable are discriminated against in this system, and they may also be discriminated against in the job market. He argues that we are living in a different world now. In the early decades following the Second World War, the employer-based insurance system was a tacit policy of the government aimed at preventing the country from falling down the slippery slope to socialism. But, the threat of socialism has been long gone as should be the need for employer-provided healthcare. This system eliminates worker flexibility, and the desire to change jobs because they may lose their healthcare coverage if they do so.
Corporate America has been caught in a time warp in regard to its attitude toward government. It is reluctant to overcome its fear of government and its hostile anti-government mode. The author goes on to quote from Carl Camden, the CEO of Kelly Services, that too many CEO’s “blind allegiance to free market principles has obscured the fact that our system isn’t working and that healthcare can’t be a free market anyway.” His proposed solutions to improve the affordability and the accessibility of healthcare services are very similar to those proposed by Mr. Obama during the course of his campaign; the plan consists of affordable healthcare coverage through regional insurance exchanges subsidized by government, and creative incentives for healthcare providers to improve the delivery system. He concludes that “the persistence of business’s determination to remain at the heart of American’s welfare system doesn’t make sense” any more. The reform of our healthcare system is not only forced by global competition, it is a requirement for the promotion of social justice. The escalating cost of healthcare for business firms, as well as for individuals, is eroding real income, and is weakening the competitiveness of our industries in the global market. This has led to the gradual rise of other countries to the status of economic powers. These and other colossal uncontrollable happenings, should force us to tackle our economic problems from a new perspective, to rethink the working free market, to pay closer attention to its failures, and the need for more aggressive government policies. The more our economy stagnates, the more our attitudes become pessimistic about its effectiveness.
4- Taxes are bad for the economy and are always high. As societies advance, the demand for public services provided by government increases, and consequently, so does the cost of government operation. That leaves no choice for government but to increase taxes because they are the only major source of public revenue for government especially in developed countries. Often the gap between revenue and outlay leaves a huge deficit in the government budget; one of the ill effects of this gap is that social programs come into jeopardy. The popularity of the anti-tax opinion is based on the idea that taxes create disincentive effects for businesses as well as for consumers. However, the author believes that such an assertion is one-sided because it only focuses on the distortive effects of taxes, and not the long term benefits of taxes especially from a macro viewpoint. Furthermore, taxes will go up regardless of what kind of administration is in power and what economic philosophy dictates its policies. Although politicians may not tell us publicly, taxes do go up. It is a basic law of arithmetic. Under severe recession and the ensuing surge in deficit, even Republicans tell you that higher taxes are inevitable. If higher taxes are, indeed, inevitable, where does this anti-tax idea come from the author asks. Historically, he explains, the federal government’s revenue came mainly from non-income tax sources such as tariffs, fees, and excise taxes. The fundamental idea was that there is virtue in hard work. The foundation of capitalism was, and still is, based on the individuals’ economic initiatives such as risk taking, innovative ideas, and taking advantage of market opportunities. Taxing people, according to a proponent of this ideology which was dominant in the 19th century, is tantamount to penalizing good entrepreneurship. However, in the 21st century which has been credited for its staunch attention to social justice, the idea of paying taxes according to one’s ability to pay one’s fair share of the burden of public expenditures sounds more plausible. In addition, if you compare the marginal tax rates in the U.S. with those in other industrialized nations, the U.S. is not among the highest nations in terms of taxation especially when it comes to individual income taxes. The U.S. is also one of a few countries in which there is no value added tax. Taxes, after all, are used to pay for precious public goods such as national and individual safety and security. The rich definitely benefit more from such services.
What about the effects of taxes on the economy? On the micro level, taxes do have some disincentive effects for individuals; however, from a macro point of view taxes have no prohibitive effects on our economy’s production capability. Rather, they contribute to the long term growth of the economy. Taxes also facilitate social spending and there is no evidence that such outlays prevent or weaken economic incentives, or hamper economic growth. Therefore, “America’s taxes and spending can rise substantially from where they are today with little or no impact on the economy.” The author concludes that the idea that taxes are bad is “the biggest obstacle to pragmatically positioning the American economy for success in a global era.”
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It was all Ibn Khaldun's fault, and Arthur Laffer'sby Ostaad on Thu Mar 26, 2009 06:33 PM PDT
I have always looked at the myth of "freemarketcapitalism" as a way for the rich to make more money that's all. Because the "market" has certainly not been free lately, and "capitalism" that basically means availability of capital for those who want to enter the market expecting to make reasonable returns on their investment(s), has been the exclusive domain of the very well-to-do. The flow of capital has always been to the top and hard to get for the middle class - I am not talking about easy credit or car loans. The stats are out there for everyone to check. The middle class has become poorer and the ultra upper class has become atomospherically rich.
The current implementation of freemarketcapitalism has been based on the economic theories that Arthur Laffer evangelized in the 80s. Laffer and his curve, became gospel for the Reaganites, and supply side economy became the basis for economic and financial decision making.
Good source of info about Arthur Laffer and his ideas - check out the cast of characters too.
Unless we eradicate the supply side economy from the US business religion, we won't be able to really fix the current and future economic disasters.
I agree with many things the author is saying about the US economy and politics. The "class warfare" is no small matter. This the time to come up with sustainable solution.
Mr Siletzby varjavand on Wed Mar 04, 2009 05:35 PM PST
I believe it is really daring for the author of the “Tyranny of the Dead Ideas” to prescribe tax increase as the savior of the economy. Please read the second part of my review coming soon for more of his unconventional ideas.
There is always the possibility of so called Principal Agent problems where the politicians who are supposedly the agent of the voters may not act to their beat interests. As the saying goes “there is no free lunch” especially when is come government spending. When politicians spend such enormous amount of money, through Rescue Plan, so quickly, it is very likely that the needs of the economy be overshadowed by political considerations which are often skewed. What happened under Bush administration, I believe, there was no sound judgment when it came to spending money. The politicians yielded to the pressures by lobbyist and made costly mistakes. We hope Obama administration can do better.
Thanks for the reviewby Ari Siletz on Wed Mar 04, 2009 02:00 PM PST
Thanksby varjavand on Tue Mar 03, 2009 01:31 PM PST
Mr. Amir Kabir;
Thanks for your kind remarks. It really takes an Amir Kabir to appreciate the value of good writing!
The review as you probable realized is not complete. It was too long for one posting. So, I decided to split it into two parts. Part 2 will be posted soon.
Thanksby Amir Kabir reading free books (not verified) on Tue Mar 03, 2009 11:27 AM PST
Informative material and thanks for your efforts.