Unfortunately, today’s journalists aren’t unbiased arbiters of what research the public needs. In January 2022, journalist Matt Taibbi tweeted, “Here’s how ‘Experts Say’ pieces work: journalists talk to a bunch of credentialed people, highlight the ones they agree with (especially in the headline), and bury the ones whose opinions are inconvenient.” This phenomenon has affected the field of economics, namely inequality research.
For more than a decade, the media has heaped praise on three economists: Emmanuel Saez, Gabriel Zucman and Thomas Piketty. Their data purport to showthat in the U.S. the income share of the top 1% of earners climbed to 21.1% in 2019 from 9% in 1970. Messrs. Saez and Zucman have leveraged public concern into a call for 75% tax rates. The higher tax rates’ purpose would not be to “soak the rich” but instead would “curtail inequality and sav[e] democracy,” they wrote.
It’s understandable that university economists would want to be seen as saviors of democracy, but are the findings of their research valid? In a recent paper that has received far less attention than the work by Messrs. Saez and Zucman or Piketty, Gerald Auten of the U.S. Treasury and David Splinter of Congress’s Joint Committee on Taxation raise serious doubts.
First, they find that the income share of the top 1% climbed to 13.7% in 2019 from 9.2% in 1970—or an increase in pre-tax income inequality that is only 37% as large as the Saez and Zucman work suggests. Second, unlike Messrs. Saez and Zucman, they also calculate post-tax and transfer measures of inequality. Incorporating the increase in redistributive government policy that occurred over this time, the income share of the top 1% only increased to 8.8% in 2019 from 6.8% in 1970.
So apparently the data don’t justify a need for sweeping income redistribution. Yet both research and public opinion have proceeded apace, largely as if the refutations of Piketty-Saez-Zucman don’t exist.
Also pondering Bidenomics is Wall Street Journal columnist Gerard Baker. Two slices:
Politics, like much of journalism these days, is about mendacious simplification and tendentious exaggeration. So we must expect a president to claim vindication for his policies when things go right just as we must expect his opponents to claim vindication when things go wrong. And voters—or at least the diminishing number of those who change their minds every four years—generally accept the paradigm.
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But the more important point is that, as with almost all other presidential economics, the real effect isn’t on short-term demand management, but on the structural condition of the economy.
Here, the legacy of Bidenomics is much clearer: surging public debt, feeble productivity growth, a degradation of the nation’s energy capacity, and a return to industrial policy based on the fantasy proposition that government can pick winners.
Bidenomics should be judged, not on the inflation and unemployment rate in a year’s time, but on the economy’s potential in a decade.
For overall economic performance, there is little apparent reason to prefer manufacturing to other sectors. The Economist looks at the countries in the OECD and compares their overall GDP growth rates to the percentage of value added from manufacturing over the period of 2002 to 2022. There’s basically no correlation. For example, the U.S. had about 12 percent of value added from manufacturing and saw GDP growth of 2 percent. Germany, much more manufacturing-dependent at 22 percent of value added, grew at only 1 percent. Australia, less manufacturing-dependent at about 8 percent of value added, grew at almost 3 percent.
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The idea of the need to “reshore” to make the economy more “resilient” is backward. The Economist says, “Research published last year by the IMF suggests that greater self-sufficiency is likely to leave countries more vulnerable to future shocks, rather than less.” You shouldn’t need IMF research to confirm what should be common sense. Depending on a global network of suppliers rather than only domestic ones means more competition and less reliance on any single supplier, making the system more flexible and responsive to shocks that inevitably arise. The 98-percent-domestic baby-formula market isn’t very resilient.
I don’t think most politicians really want to return to an economy with lower labor productivity, lower levels of education, lower real household income, lower GDP per capita, higher hours worked per worker, higher workplace-injury rates, higher poverty rates, and higher pollution than today. (Each of those facts is true whether you think the “good old days” were in 1955, 1985, or anywhere in between.) Designing government policy to encourage less productive employment — which is what the “manufacturing delusion” can mean in practice — is no way to do economic policy.
Also from Dominic Pino is this account of central planning. A slice:
China’s empty buildings, unused airports, and barren highways are what central planning looks like in practice.
One of the key problems with central planning is that government planners don’t know how much to produce. In the absence of price signals that communicate the need for goods and services, they just have to guess. The guesses aren’t guided purely by practical analysis, of course. Political considerations often play a large role, as do the desire to “uplift” less developed areas.
China’s province of Guizhou is one of its poorest. The government sought to spur development there and commissioned massive construction projects. Bloomberg reports some staggering facts of the government’s overbuilding.
Near the city of Zunyi, one of Guizhou’s largest, the government built three airports. The one furthest from the city only has four flights per week. Guizhou’s mountainous terrain has provided a playground for Chinese civil engineers, and the province is home to nearly half of the world’s 100 tallest bridges. It’s “questionable whether it was entirely necessary,” Bloomberg puts it mildly.
Tin-mill accounts for 2% of Cleveland-Cliffs’s steel sales volume. Were the Administration to slap steep tariffs on imports, domestic production wouldn’t come close to meeting demand. Prices would invariably rise, which would increase Cleveland-Cliffs’s margins. But higher prices would make U.S. can and food manufacturers less competitive.
Laura Dodworth reports on “the shameless fearmongering of the lockdown lobby.” A slice:
Aware of the damage caused by Covid fearmongering, [the U.K.’s] Nudge Unit co-founder Simon Ruda penned a mea culpa in 2022. ‘In my mind, the most egregious and far-reaching mistake made in responding to the pandemic has been the level of fear willingly conveyed to the public’, he wrote.
Other scientific advisers close to the government clearly share Ruda’s concern. As one told me when I was writing my previous book, A State of Fear: ‘The use of fear has definitely been ethically questionable. It’s been like a weird experiment. Ultimately, it backfired because people became too scared.’
