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Scott Winship on the Latest from American Compass

Oren Cass’s organization, American Compass, continues to dispense economically uninformed analyses of the American economy, all in an effort to pave the way for Cass and other nationalist-conservatives to impose on the rest of us their vision of what outcomes the economy should achieve.

Scott Winship has done a deep dive into American Compass’s latest effort – this one on inequality – and he is not impressed with what he found. Scott’s analysis is devastating. A slice:

At a time when national conservatism seems obsessed with cultural grievance to the exclusion of economic and social policy, we should all root for more serious policy analysis on the center-right. But as with earlier projects, American Compass’s latest looks like it begins with a set of priors about political economy—center-left priors—and then figures out how to make its argument with whatever evidence can be marshaled. Their inequality work looks similarly aimed at advancing center-left views through flawed analysis, ostensibly to advance national “conservatism.”

A brief review of AC’s past projects lays out the pattern. There was the early claim that the century-long project of modern inflation measurement had overstated improvement in living standards. Echoing Democratic Sen. Elizabeth Warren’s similarly confused Two-Income Trap from 17 years earlier, Oren Cass claimed that our lousy economy and dumb policy had created a situation where families need two workers to afford the same lifestyle that a single breadwinner could provide in the past. As I showed at the time, that was all wrong. Cass had simply misunderstood and assumed away the very measurement and conceptual challenges that economists have become successively better at addressing over time—namely how to account for consumers’ ability to switch up the goods and services they buy as prices change and how to address the replacement of older, lower-quality products with newer better ones.

Not only did American Compass purport to be smarter than microeconomists measuring inflation, in its next big economics project, “Coin-Flip Capitalism,” it discovered that hedge funds, private equity, and venture capital investments are losing bets—a conclusion that up to then had evaded ultra-wealthy investors putting their own money on the line.

But the AC analyses neglected the stronger long-run performance of private equity and venture capital beyond the 10-year window AC examined. Ignored, too, were the other reasons beyond expected average returns that investors turn to hedge funds (to hedge!), private equity, and venture capital. But concern for rich investors wasn’t the point. As Doug McCullough of the Lone Star Policy Institute succinctly put it, “American Compass seeks a virtual seat at the deal table to ensure private business decisions align with their concept of the general welfare.”

Like progressive groups such as the Roosevelt Institute (circa 2015), American Compass thinks the financial sector adds little value to the economy or the lives of everyday people and is a sort of vampire industry sucking up young talent who could do some good “in the real economy.” These critics reject arguments that finance promotes growth and higher living standards for all.