I only read the introduction to The 4% Solution because I borrowed the book from Barnes and Noble (the perks of being a bookseller) and had to give it back, but here’s a quick reaction to that, at least. Fortunately, it briefly summarizes a lot of what the rest of the book will cover, so this is still an improvement over the New York Times article referenced in the last Bush post.
James Glassman wrote the introduction. In case you don’t feel like clicking the link and browsing his wiki page yourself, he’s a government nerd with a lot of publishing experience, and it shows. There’s no needling the left or lionizing the right in the introduction. It’s a no-nonsense preview of what the rest of the book will be about, and it’s concise and well-written. Anyway, to work.
Here’s how we start the introduction:
For the past few years, the United States has been afflicted by some of the worst of economic maladies: a financial crisis followed by recession and stagnation. Now many economic forecasters see sustainable U.S. growth declining by a full percentage point from its trend of the past seven decades. One point may not sound like much, but over the longer term, it has a huge effect. It means that the standard of living of an American born today will be roughly half what it would have been. [xv]
…if growth had continued at an identical rate. But this is really an argument that growth, for some reason, should follow its historical trendline. We’ll come back to that later. Glassman doesn’t just want the trendline back though. He wants bigger growth. This is consistent with how dick measuring functions on the national level. We were afraid of China because they were growing at 10% annually, and we thought of sub-Saharan African countries as backwards because their GDPs weren’t growing. Anyway, the point is that ambition means a bigger number when we look at our annual GDP growth. Here’s Glassman again:
President Bush believes in setting aggressive but achievable goals, and we established a target of 4% average annual sustainable GDP increases. Why 4%? We wanted to reach. To call for a return to 3% would not be so inspirational or aspirational. Four percent: We can get there. (emphasis added)” [xvi]
And this is where the growth plans start to be confusing. We’re going to average something that on the next page [xvii] Glassman says has happened 23 times in the last 60 years? The years in which we exceeded four percent growth were unusual as well; they included the massive capital account surpluses in the Reagan years and the huge military/space spending in early 60s. Later [xix], Glassman will claim that borrowing from foreigners won’t produce lasting gains if it produces gains at all, but some of the highest growth years in the chart he included were heavily dependent on borrowing from foreigners. It’s also true that, right now, since foreigners will literally pay us to hold on to their money for them, we should be able to borrow as much as we want without burdening future generations, but of course the long-run negative interest rate is a more recent phenomenon than the book’s realization.
Most confusing, though, is this line: “Why 4%? We wanted to reach.” The discussion around this had to be something along the lines of picking the biggest growth target anyone could imagine might still be reachable, and this is where I think the message starts to reel, at least with respect to the individual/market-centered narratives conservatives usually focus on. In endowing “reaching” for 4% economic growth with some kind of moral quality, Glassman and the others in this book make the claim that the purpose of individual activity is to realize national economic goals, rather than the usual thin lie about the national economy working for individuals. I’m not trying to claim that this attitude isn’t prevalent at the national level, only that this seems a little bit… transparent? Transparent. Usually the purpose of individual activity, at least in the market narrative, is to make one’s life better, but this is clearly something different.
… or at least for a moment it is. Quickly, we’re back on the rugged individualist narrative.
The objective of economic policy is to allow hardworking individuals, no matter their status at birth, to take advantage of opportunity and achieve a good life. [xviii]
But again, we’re on uncertain ground. This sounds like a concession that hardworking individuals may not be able to take advantage of opportunity and achieve a good life without economic policy. That would suggest that the academic right, at least, is willing to admit that differences of opinion about economic policy are of degree rather than kind, which would put the mainstream academic right almost as far out of touch with the mainstream non-academic right as the mainstream academic left is. Or at least, that’s what it sounds like until you get a little further down the page:
Policy that encourages growth solves what Lord Keynes in 1930 called ‘the economic problem.’ Keynes wrote that ‘the economic problem may be solved, or be at least within sight of a solution, within a hundred year.’ Keynes was wrong about many things, but even in the depths of the Great Depression, he got this prediction right.1 The United States solved the economic problem a while ago, by putting the principles of the free market into practice, but we are now in danger of losing our way for good.2 [xviii]
Now we’re back on track with the usual policy calls from the right. “We did the free market once and it worked!” doesn’t suggest much for current policy, but it’s comfortable and easy and demands less critical thought than trying to find out what’s different now, or even to what particular “not now” we ought to compare current economic conditions. The usual argument is more clear on the next page:
A government can tax its citizens – or borrow from foreigners, as we have been doing recently – and use the proceeds to hire all sorts of workers. But the gains, if any, are fleeting because: a) no government knows how to allocate labor productively, and b) the money used to create the jobs ultimately comes from people and firms that actually do know how to allocate productively. [xix]
What would happen if some of those people who knew how to allocate productively were hired to fill government posts? I can only assume they’d forget everything they used to know, just as know-nothing government employees gain all kinds of useful productive knowledge as soon as they jump to the private sector. I mean, just look at the list of Treasury secretaries – worthless, as a class, by the way, because they’re part of government – who used to be effective as heads of private (usually financial) firms.3
Glassman does make an important point though. Despite calls for austerity now (!!) from conservative camps around the world, he points out that growth will do a much better job of reducing the deficit and debt than tax hikes or spending cuts. Projecting 4% growth starting in 2017, Alex Brill of the AEI found debt reduction in the neighborhood of $3.7 trillion, or a roughly 25% improvement over current projections, by 2021 [xx]. This in theory functions through a virtuous cycle, in which growth decreases debt, which frees up the economy to grow more, which further reduces debt.
The next argument is for a revision of the tax code, focusing on a shift away from income taxes and toward taxes on consumption and property [xxii]. This sounds, on the surface, incredibly regressive. People outside the highest wealth quintiles necessarily spend more of their incomes on consumption and have more of their wealth tied up in property. With that said, this type of change to the tax code isn’t an awful idea as long as it targets accumulated idle wealth of all kinds rather than just property. If anyone wants seriously to believe in the trickle down argument,4 an “idle wealth” tax would provide incentives to make wealth productive, and for the more rabidly patriotic, we could tax anything invested overseas at the idle tax rate and anything invested in the United States at the productive wealth rate. I personally hate this idea, but political efficacy demands some jingoistic compromises.
Next, there’s some argument about innovation and education reform, but I’m going to leave it alone because I seriously have no knowledge on this front and thus can’t engage.
More broadly, though, there seems in the introduction to be an unwillingness to make any argument about why economies should grow at all. Several times Glassman promises that essayists who will appear later in the book will make arguments about particular policies — usually getting out of the way of the market in some way — that promote growth, but there’s still something non-intuitive to me about why the market would on its own opt for more products next year than this year. Even if that were the case, there’s no explanation or even promise of an explanation about how this will make anyone’s life better. Percentage changes in total economic activity may not be linked to rising individual welfare, which the decoupling of economic growth and per capita income shows pretty clearly. From Glassman’s introduction, it appears that growth as such is good, and other good things are naturally supposed to follow.
That’s a weird tension. Somehow, Glassman managed to make it through the entire introduction without mentioning how growth was supposed to make anyone’s life better. The only particular argument about anything getting better in the introduction is debt reduction, the purpose of which seemed to be more growth, which I guess we’re supposed to ride gracefully into the sunset. To be fair, though, the book is a lot longer than the introduction, and the mechanism through which people’s lives improve through growth may be hidden somewhere else.
1 – His prediction, by the way, if we parse it from this quotation, is that it is possible that we will be within sight of a solution to the economic problem within a hundred years, but also possible that we may not be. Interpreting the quotation this way, we can say with Glassman that Keynes nailed it.
2 – It’s unclear what “putting the principles of the free market into practice” means or when we did so, or why we might “[lose] our way for good.” If the former Soviet states can transition to market economies, I don’t know why Glassman would posit a possibility of developing unrecoverably un-free markets. Oh well.
3 – Paulson, Snow, O’Neil, Summers, and Rubin (the five preceding Geithner) had backgrounds with Goldman Sachs, CSX, Alcoa/RAND, public service/academia, and Goldman Sachs, respectively, and Summers’s time in public service/academia, even as president of Harvard, was in large part a private industry/self-promotion tour.
4 – This might be Limbaugh-ian straw man-ing, but surely someone, somewhere still wants to believe in the trickle down argument.
All page numbers refer to:
Bush, George W., James K. Glassman, and Brendan Miniter. The 4% Solution: Unleashing the Economic Growth America Needs. New York: Crown Business, 2012.