Left and Right Converge on Basic Economics

Mr. Peter Galuszka took one for the team when he bought, read and reported on Thomas Sowell’s “Basic Economics.” I was unable to respond to his post in a timely fashion, so I’m posting here to show where our political perspectives from the Right and the Left blend on the basics of basic economics. Because, I theorize, we are both children of the Enlightenment and agree that rational empiricism is the foundation of good science.

Likewise, we might posit, jointly if I may presume so, that good governance for policy issues that involve issues with scientifically-based alternatives should rack and stack alternatives with clear links to rational empiricism. Analysis. Good analysis.

Here are my comments on Mr. Galuszka’s (PG) findings.

I would grade him with an A-. And I was a tough grader at the Department of Social Sciences, USMA. The minus comes from his last comment which is addressed at the end of this list.

I, too, used Paul Samuelson’s text on econ as an undergrad and went took economics at Keynesian grad schools.

But, what jumped out at me in Herman K. Bator’s bedsheet model of the macroeconomy was how little government spending did and how much productivity did. Nothing beat improvements in productivity as a single variable change in the olde GNP.

Since then I read Milton Friedman on the role of capital growth. But, even in grad school I got the idea that the way to cut the American pie for the American People better is, first, to grow the pie. Bigger slices for all are possible.

I agree with PG that unions are important. Unions and shareholders are the only checks and balances on corporate bad behavior. When the legislatures try to fix the corporate barn doors after the horses have run, they pretty much muck it all up for everyone – creating a new set of winners and losers in the business/government mixed economy.

I argue that unions and shareholders have vital roles in the future to provide the moral suasion needed on organizations run by sinful men (as we all are) and to protect the employees. My political issue with unions is ideological – and not pertinent here.

I agree that CEO compensation is out of whack. But, it isn’t an issue for government. It’s an issue for the unions, shareholders and the public marketplace of ideas.

The impacts of free trade are tough to live with. But, economic risk has always been brutal. The long range study I led (back in 90-92 for the period 2005-2015) pointed to the biggest single driver of change would be – domestically and internationally – political understandings (reactions) to economic changes. Whole regions can lose industries in no time. But, there are counters that can mitigate such events – to a degree – like Commonwealth Trust Accounts and SS that are individually owned. Producing more capital can offset the loss of an industry. New industries will be created.

I don’t see the problem with foreign corporations given our laws and shareholders – what is different now that is so scary?

My only complaint with PG’s findings is his comment about not seeing the application specifically for Virginia.

We need a Macro-Economic model of the Commonwealth. The GA could put together a consortium of our universities for a couple of million and get a first class model for tax policies. And the economic effects of transportation and land policies, as well as environmental policies.

We may still break Right and Left on issues, but where possible, lets do so from the same common economic analysis.

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  1. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    Corporate America has isolated the power of shareholders. Indeed, in today’s environment the shareholders are merely bagholders. Witness the recent Bear Stearns mess.

    Union bosses and CEO’s, where to begin. They are swimming buddies at the same country club bathroom. The purpose of unions is not to look out for their membership, the labor version of shareholders, but to keep the workers in line. Wildcat strikes are messy affairs. Better that the union bosses reach agreement, leaving the membership with bags of crap. “Hey, it was the best deal we could get.” wink, wink.

    In Virginia, a ‘right to work’ state, the only entities that have an effective union is the government. Ever wonder about that? Well don’t think about it too long because the budget hearings are coming up and the halls will be filled with government employees waiting their turn to squeal at the trough.

    So JAB, ole buddy, I really appreciate your analysis but in today’s world the pie may be bigger but the crumbs are still the same.

  2. Anonymous Avatar

    Professor Bowden,
    First off, thank you very much. An “A minus” is far better than I ever hoped for.
    Your idea of creating some kind of university-based institute to study what kinds of taxes Virginia should undertake is a good one. If free from political influence from any side, it could provide clarity and give good predictions as to what new additions or deletions to taxes could have what desired result. It might have, for instance, helped avoid the controversy over Gilmore’s car tax program by providing unfettered anlysis of what the impacts might be under which scenario.
    Meanwhile, I note with interest who Barack Obama is using as his economic advisers. Plenty of folk on the left are upset that he appears to be taking a rather non-ideological approach with Austan Goolsbee who comes form the U. of Chicago, the home of Milton Friedman. The left is also concerned that the Goolsbee types are too close to free marketeers, but my take is that Obama is influenced by the U. of Chicago since he happened to live nearby for a long time. (When I worked in Chicago and it was apparent I was heading to Moscow. my company paid for me to work out with a Russian language professor from U. of C at night. I thoroughly enjoyed the association although it was an informal one).
    According to a recent article in the New York Review of Books, Goolsbee is a “behavioralist” who is seen as trying to strike a common ground between Keynes and Freidman. In this blend of two concepts (if I understand correctly), the free market might prevail, but the government could give “behavioralist” nudges to individuals or companies so that they perform a certain way. (for more info see the June 18 article).
    I also understand that Goolsbee has a curious proposal for income tax returns. If you aren’t making any changes and don’t have freelance income, the IRS fills out the form for you, based on the previous year, sends it to you, and if you agree, you sign it. It could save a lot of time, trouble and money.
    Also of interest is that Obama debunked an idea by both Hillary and McCain to give drivers a gasoline break. He wanted the market to prevail in that case.
    So, it is going to be an interesting season. Who wins the presidency might have a big impact on how your idea of the Virginia economics institute gets formed.

    Peter Galuszka

  3. James Atticus Bowden Avatar
    James Atticus Bowden

    PG: You are thinking bigger than I am. I was talking about a model and model maintenance. Dunno about an institute.

    I had an idea about a Virginia “Heritage Foundation” when I was working long range futures for the Army in the 90s. Figured out the funding bill. Found a couple of competitors working out of their garages. But, alas alack, didn’t have the time or ability to raise the money to make a small think tank self-supporting.

    Darrell: No argument about unequal pieces of the pie. I think the profit sharing and productivity focus – if Unions could think that way – would provide a lot of energy to unions even in a right to work state.

  4. Anonymous Avatar

    “Your idea of creating some kind of university-based institute to study what kinds of taxes Virginia should undertake is a good one. If free from political influence from any side, it could provide clarity and give good predictions as to what new additions or deletions to taxes could have what desired result. “

    This is a bigger idea than a model. A model this big and complex will need full time staff. How to keep political influence out will be a tough one, but critical to the final performance. This needs to be the kind of organization that people can believe produces dispassionate results.


  5. Anonymous Avatar

    One way to ensure fairness on these important policy questions is to make sure that the findings are reviewed by a politically diverse group that will not just wink at shoddy analysis. A group that included some big spenders and some no taxers would be more likely to be an honest broker than the typical blue bunch of rummies that usually appear.

    As far as unions are concerned, they are a plague. I once worked in a union shop, where I was required to pay union dues even when I was laid off. In college, I came back to work after a seasonal lay-off and found my entire check went to pay taxes and back union dues. That experience shaped my views on labor unions forever.


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