Thursday, February 5, 2009

Libertarian Lunacy--Stimulus Through Inaction

Harvard Economist Jeffrey Miron posted the Libertarian stimulus plan this morning at CNN, proving unequivocally that academic econ is devil magic. This is relevant not because the Libertarian Party is suddenly going to storm the 2010 midterms and implement radical, Ron Paul-like revolution, but because their ideology has taken root in Republican circles, and it seems like a good idea to respond to this lunacy.

Miron discusses some awesome stimulus ideas that his Ouija board told him about (apparently all economics PhDs come with one). They must look brilliant to him on paper, but they completely fall apart in the real world. For instance, this nugget from the section addressing labor unions:
Laws that protect unions are problematic. Unions raise wages above market levels, increasing unemployment. 
So unions distort the wage market, but outrageous CEO compensation does not? The executive class can demand exorbitant compensation and benefits, but American workers should shut up and accept the market wage for their work? This is patently absurd--think about who defines the "market wage" in each case. An employer offers a job for a certain salary and the prospect either accepts or asks for more--it's just that for a CEO, the "employer" is the shareholders. The only difference between what unions do and what CEOs do is that executives are asking for things they don't need to support their families or do their jobs. The irony is that the anti-union sentiment is inconsistent with free-market ideology--the union is a market force and it is therefore setting the market rate for wages, completely independent of government intervention. It is true that unions sometimes make mistakes and overreach, but until corporate tax codes change in favor of middle-class workers, unions are the best chance we have for working Americans to make a better wage.

Miron also advocates increased carbon taxes to combat congestion and global warming. I can't fault him for his motives here, it's actually pretty commendable from the standpoint of wanting to lower emissions. But I've blogged before about how disastrous a national gasoline tax would be for small town, middle-class workers who have to commute in order to work. It would disproportionately affect areas like Southside, where there is no public transit to rely on and commuting is the norm.

But here's the most outlandish part of Miron's stimulus:
The Obama fiscal stimulus risks reviving this insanity, since both the House and Senate bills require that certain stimulus-funded projects use U.S. equipment and goods. The administration should oppose these provisions. More generally, President Obama and his economic advisors should state -- no, scream -- that America is unambiguously committed to free trade.
Let's see, we're in a near-depression in large part because millions of Americans no longer have a job. Therefore, the solution is to completely embrace "free" trade and allow even more manufacturing jobs to hemorrhage overseas? I agree that we can't put up a wall around our country and expect it to work out well--the world economy and the American economy are inextricably linked in a major way. But by the same token, if the U.S. economy collapses because everyone's out of work, the rest of the world will suffer and we won't buy foreign goods. We may not be able to go completely protectionist, but we can set standards for who we trade with--namely that potential trade partners meet environmental and labor standards at least on par with our own. And yes, Prof. Miron, that means encouraging union organizing in foreign countries, because if the market wage is equally "distorted" everywhere, there is less incentive to ship American jobs overseas.

There's plenty more where that came from.

Look, I'm not saying Prof. Miron is a bad guy or that he doesn't know his stuff. Clearly he's a very intelligent man, or he wouldn't be a Harvard PhD. But the problem with guys like him is that they live in the world of theory--everything is an abstraction that makes academic sense, but has little to no basis in reality for everyday Americans. They see everything through that lens, and the scary part is that they often end up having pull in the halls of power. Let's hope our elected officials have better sense than to let this sort of approach govern policymaking--if this guy has his way, we're in for a much longer and deeper depression than we have right now.

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