Bill is joined by Oren Cass, a senior fellow at the Manhattan Institute (MI). The two explore the underlying factors that lead to poverty and what obstacles block progress to ending it. Cass is a proponent for a minimum wage policy designed to pull people out of the cycle of poverty that doesn’t over burden the government or punish businesses.
Bill: [00:01:30] Welcome to Common Ground with Bill Walton. We’re here today with Oren Cass who’s a senior fellow at the Manhattan Institute. He focuses on energy, environment, anti-poverty policy. He was the domestic policy director if Mitt Romney’s campaign in 2012 and since then he’s focused on conservative policy approaches to poverty, climate change, and environmental regulation. Prior to joining Mitt, he was a management consultant for Bain & Company in the firm’s Boston and New Delhi offices. He holds a B.A. in Political Economy from Williams College and a J.D. from Harvard University. Oren’s written extensively in Wall Street Journal, New York Times, Washington Post, National Affairs, City Journal, National Review, Investors Business Daily, and the Washington Examiner.
Oren: I try to write everyone once so that the list gets really long.
Bill: You’re prolific and accomplished and we’re delighted to have you here. Today we wanted to talk about an article that Oren wrote recently in a National Review, which has the provocative title, “The End of Work, and Why a Universal Basic Income is a Terrible Idea.”
Oren: That was the article.
What is a universal basic income?
Oren: First of all thanks for having me Bill. It’s great to be with you and I’m glad to talk about this topic in particular because I think it is starting to get attention and we will hear more and more about it. A universal basic income is the idea that we should just mail everybody a check every month.
Oren: [00:02:30] Everybody. That instead of the current approach to anti-poverty policy where we have the so called safety net of programs for people with low incomes, we should just send every American, or every American over the age of 18 maybe, the same check every month and have it be enough for somebody to live on. You’re talking about maybe $1,000 a month, $10,000, $12,000 a year, and if you do that then at least in theory you don’t really need the anti-poverty programs. You’ve guaranteed everybody an above subsistence income and government can at that point say from there you’re on your own.
The idea is that we’ve got this massive overhead administering all these poverty programs and if you just send everybody a check you can eliminate all those programs and everybody wins and you’re not wasting the money.
Oren: [00:03:30] That’s right. You both eliminate all the programs and you eliminate one of the biggest problems with our safety net, which is that right now it penalizes people for working. Under the existing system, the more you work the more money you earn, you start to lose your food stamps, your Medicaid access, your disability payments and so forth. At least at the margin it actually feels like a pretty high tax to go earn money because you lose government benefits for every dollar you earn. If you have a universal basic income, you get the same benefit whether or not you work, and so at least in theory that should make it easier to get people into the workforce.
Bill: [00:04:00] Now, this has the unusual type backers. I think Andy Stern and Robert Reich. Andy Stern ran SEIU and Robert Reich worked for the earlier Clinton administration, secretary of labor. One would expect this from the left but we also have Charles Murray from American Enterprise Institute who thinks this is a good idea. Why does he think that’s the case?
Oren: [00:04:30] Yeah, there’s a very interesting coalition behind this, which is one of the reasons I think it will continue to gain attention, which is you have the usual suspects from the left. You also have strong interest from libertarians who hate the existing safety net and say, “Well if we can’t get rid of the safety net, let’s at least have the safety net be one that relies on government programs as little as possible and creates as few bad incentives as possible.”
I hate to speak for Charles but I think at base his argument is our society will work best if we establish a clear principle that you’re not going to starve, you’re not going to go homeless, we’ve given you some resources and now you’re on your own. The book he’s written supporting it is called, “Our Own Hands,” and the idea is to say we can’t get rid of big government from a budgetary prospective, but let’s just have it be as transparent as possible, get the dollars straight to people, and get government out of the business of trying to manage the problem.
This raises all sorts of questions and I think I’m beginning to understand why this may be a terrible idea. How do you get $20,000, or whatever the number is, to every person over the age of 18 and what about the idea that somebody making a million dollars gets their $20,000 check and somebody making nothing gets theirs, and how does that balance out? How do you pay for it?
Yeah, I think there are 2 huge sets of problems with the basic income. One is very philosophical and one is very practical.
Bill: Let’s go at the practical first.
Oren: [00:06:30] Sure. If you start with the practical, there’s a really excellent framework created by a professor named Kevin Milligan. He introduces the concept of what he calls the impossible trinity, which is that there are 3 things that you want a basic income to do. You want it to be enough to live on. You want it to be available to everybody, meaning it doesn’t phase out as you earn more money. You want it to cost the same amount as our existing safety net, so that you don’t have to increase the budget to pay for it. The problem is you can’t do all 3.
[00:07:00] We have a very large generous safety net today and we actually spend about $20,000 per person below the poverty line. If you wanted to just send a check to everybody below the poverty line, you could do that, but as soon as you open it up and say, “Actually we want to send it to everybody,” you have a huge budget problem. You either need to raise an enormous new amount of money, you need to cut what you pay to everybody so it doesn’t actually support them all, or you have to phase it out, and as soon as you phase it out you’re right back to having the problems you had with the safety net to begin with.
Bill: By phasing it out it punishes work. You go back to work and you start making money and then as you make more, in effect you lose your $20,000, it drops to lower number and it’s a tax.
Oren: [00:07:30] That’s exactly right. What Charles Murray has proposed is he said, I believe it’s $13,000 a year for everybody over the age of 18, but to pay for it he also has to get rid of things like Medicare, social security, and even farm subsidies. As soon as you get rid of Medicare and social security, you have a huge problem.
Bill: We might as well stop there because getting rid of farm subsidies, that’s never going to happen, and Medicare.
Oren: Well that’s right. The politics of it is its own challenge.
Bill: The politics are difficult, yeah.
Oren: [00:08:30] I think this is a good concrete example where to make the math work you say well let’s sweep Medicare and social security in two because the elderly will receive this check. The problem is what we currently spend on the elderly for Medicare and social security is more than twice the size of the check he’s contemplating. Same thing happens, someone with disability. Same thing happens with a single mother with 2 kids. You ask that whole family to live on $13,000, tell her she has to spend $3,000 of it on health insurance, now you’re asking them to live on $10,000. Now you’re only at half of the poverty line for that family.
Bill: Something like the farm bill, I don’t think people recognize that it has both the constituency among the agricultural community but also among the food stamp community and that’s sort of a favorite of both the left and the right. That’s a tough one to dislodge.
Oren: [00:09:30] Yeah, and I think the other political point to make about it is that the idea of this clean swap, where you get rid of the whole safety net and replace it with this new program sounds great in theory. If you actually try to do that and imagine this moving through Congress, you can imagine how quickly other programs would start to get added back on. What about this group, they need more. Well, what about this group, they need a special program of this type. Well we also need to provide this and that and we need to adjust by region and on and on and on and pretty soon you’ve now promised to pay everybody a check every month and you have a whole safety net on top of it.
Bill: [00:10:00] This brings us to your other issue. What would be people’s incentive to work? Why would you get up in the morning and go to work? Doesn’t this all of a sudden have an incredibly corrosive effect on people’s character, I wouldn’t even say character, but just … Author Brooks, AEI has this notion called earn success which is where people are happiest when they feel like they’ve earned their success and that’s because they get up in the morning and they practice their craft whether it’s being a nuclear engineer or working at McDonald’s, but at least they get the satisfaction of work. Doesn’t this seem to go right at the heart of that?
Oren: [00:11:00] I think it does and it doesn’t. To quickly address that it doesn’t, the reality is that you still get to keep any money that you earn. So $10,000 a year, let’s say is enough to keep you from starving, but I think there are very few people out there who would say, “Well once I have $10,000 a year, what else do I need?” If I want to go work at McDonald’s on top of my $10,000 a year check, I still earn money every hour and can buy things with that money. In that sense, there’s still a reason to work and some would argue there’s more of a reason to work than in the existing system because in the existing system, if I don’t work I’m getting all sorts of benefits, as soon as I work, you start taking away those benefits and make me pay for that stuff myself.
The problem though is at the even more conceptual level, which is what’s the point of work? Especially when you’re talking about more low wage jobs. Those aren’t pleasant jobs but the reality is that you work those jobs to provide for your family. We, despite our safety net, still have a very strong commitment in this country that people are supposed to provide for themselves. That if you do not, that that is a failing, and that if you do, that that is admirable. If you shift to a basic income, you’re sending a very strong message that says actually we’re rearranging the obligations of this society. The new standard is government is responsible for providing for everybody, and to the extent that you work you do that to afford nicer things, but you are not working because it is your fundamental obligation to provide for yourself, for your children, for your parents, or for anybody else.
Bill: You write, “An underclass dependent on government handouts would no longer be one of society’s greatest challenges but instead would be recast as one of its proudest achievements.”
Oren: [00:13:00] Yeah, I think that’s exactly write. That if you think about what it means to have poverty, for instance, you could say look we will have less poverty in this country if we have lots of people who don’t have to worry about providing for themselves and maybe never even step onto the economic ladder, but if you think both about what you want from a society beyond just economic distribution, and also how you want people to be able to progress over time, you would much rather have a system that yes it makes sure people don’t starve, but that establishes a very strong principle that you are supposed to step onto that ladder and that that minimum wage job, the fundamental of providing for yourself and your family is both an obligation and, by the way, something that can lead somewhere, that over time for yourself and for your children for that matter, can mean a much better future.
Bill: You’re saying this would provide less of an incentive to step onto the lower rung of the economic ladder?
Oren: That’s right. Not necessarily economically, but culturally.
Bill: Explain that.
Oren: [00:14:00] Well, I think that’s a huge division in how people across the political spectrum think about a problem, like poverty for instance. I think it partly explains why someone like Charles Murray is more interested in the basic income. Murray, going all the way back to his landmark work, the book called “Losing Ground,” looking at the way that traditional welfare discourages work, believed in a very economic analysis that people, particularly at the bottom of the economic ladder, are making very rational decisions about how many hours should I work, what pay do I get, what benefits do I get if I don’t work? In that model, you can say a basic income’s actually okay. That yes they’ll have this money in the bank, but now they’ll actually face a much cleaner cut decision that every hour they work, they get to keep that money.
[00:15:00] The other view, and the one that I subscribe to, is that the actual dollars and cents of these decisions are less important than the broader cultural messages that a government policy sends, and that an entire social structure of support sends. In that when you move to a system that says work is optional, you start to create all sorts of really bad follow-on effects. For instance, you make it much much easier for, let’s say, young unemployed males to remain young and unemployed. That that is going to create a peer culture within that community that makes the guy who wants to go to work and earn a minimum wage seem an outlier in not an attractive way at all. You create a similar culture, for instance, for upper class folks who now graduate from college and, frankly, can backpack around Europe indefinitely.
[00:15:30] All of these kinds of things don’t show up as quickly in the economic analysis of a marginal tax rate, but I think the real lesson of what has happened in the war on poverty ever since the government started getting heavily into these types of welfare programs, is that the social messages that you send and the cultural environment that you establish matters at least as much as some of the dollars and cents incentives that you might try to create.
Bill: [00:16:00] Well, you also write that work not only gives meaning but also structure and stability to life and the virtues responsibility, perseverance, industriousness, the Victorians worried about poverty and they worried about it in the following way, the morality of helping people, and they talked about the deserving poor and the undeserving poor. This blurs that distinction all together I guess in that sense. We’re all the deserving poor.
Oren: [00:16:30] Well that’s right. It changes the entire idea of welfare from being trying to distinguish who is worthy of help or who can be assisted most effectively in what way to a model that just tries to take economic need off the table entirely. The reality is that economic need can be an incredible force for good in the stability and growth of a society. I don’t know that it’s something that we should want to take away, even if we could.
One group that is very passionately engaged on this issue is the Silicon Valley set. There are folks on the cutting edge of technology who really believe that advances in artificial intelligence and so forth are going to make most jobs obsolete and are interested in the idea of a basic income, partly because they think we’re going to need it, but because they really envision a society where so much wealth is generated that it can simply be spread around while the machines do the work. Certainly machines are going to be able to do a lot more work, but the lesson of every industrial revolution, every step of technological progress we’ve seen so far, is that people will also find ways to be useful and create economic value if you encourage that, and so there’s also that fork in the road that we’re coming to that as technology’s capable of doing more, do we want to use that to create a society where the machines do all the work, or do we want to use that to empower us to be even more productive and produce even more and create even more value.
Bill: [00:18:30] It’s 1800 and you’re living in the United States and 90% of the population works on the farm and then you fast forward to 2000 and we’ve got 2.6% working on the farm. Somehow with that theory, those jobs, there’d be nothing to replace those jobs on the farm with. Then you look at the number of jobs created, really since the year of computers. There’s been some 50 million new jobs created in the United States and some 20 million jobs created just since 2000, when we ushered in the internet and all that technology. It seems though that it’s a very elitist view.
If you’re a technology person in Silicon Valley to think that somehow you’re going to invent machines that magically do all the work and then everybody else is just going to get this basic income, they’ll be left a line free to not work, when in fact work really defines people’s life. Freud, I was looking for the quote before our program, I couldn’t find it, but I think Freud said, “Love and work are a person’s link to reality,” and that in a way our craft is incredibly important.
Oren: [00:19:30] I think that’s very true and I think it’s elitist’s not just in the positive vision that these technologists will somehow be able to achieve this vision. It also tends to end up being incredibly condescending.
Bill: They’re going to have all the high paying jobs and everybody else is going to get the basic income.
Oren: That’s right.
Bill: I mean talk about income inequality.
Oren: [00:20:30] Well what they would say is, “Look these technologies are coming, your choice is to be unemployed or receive a basic income.” I don’t think that’s right at all, as you eluded back to prior technology revolutions but it’s not just elitists, it also tends to end up being very condescending. In the article I quote a venture capitalist who takes the example of a truck driver and says, “What a waste of a life to have, to take a human brain and a human individual and have him spend 20 years driving a truck across the country.” Which I think just captures so perfectly this attitude that if you’re not doing what the elite consider to be “cool work,” than you’d really be better off if someone would just send you money.
Bill: [00:21:00] We’re into a whole other area in this and we seem to be featuring Charlie Murray, but in his book, “Coming Apart,” he talks a lot about the fact that the silos in America, not just income inequality but just the kind of lives people are leading, the gap between the kind of experience you’d have living in a small town in America in 1900 where you’re living cheek to jow with the butcher, the guy that owns the flour mill, the local feed mill guys, the whole society’s all together. Now, increasingly professional groups cluster in the New York, Silicon Valley, things like that, they only talk to other elites and there’s a chasm culturally growing between those people and the rest of America. I think that some of that’s manifested in the 2016 election.
Oren: Yeah. That will be a whole other discussion, the 2016 election, but I do think that you’re right.
We can talk about that too.
Oren: I have plenty of thoughts.
Bill: Okay. We’ll save the segment for 2016.
Oren: [00:22:00] I do think that’s right that part of the appeal of this basic income concept is being driven by a coalition of people across the political spectrum, but all concentrated in these types of enclaves that have a view that the only kind of work that’s valuable or constructive or a person should even want to do is the kind of work that they do. It’s incredibly important to look at it from the other side and think about what communities everywhere else in the country look like and acknowledge maybe we could generate enough wealth to send checks but do we really think that those are the kinds of communities we, or they, want to have?
Bill:[00:22:30] What a corrosive idea though to view that some work is worthy and other work is unworthy. Talk about something that drives people apart. I think the biblical view, and my view, is that all work is valuable regardless of the income or the type of work. You’re doing something useful.
Oren: Well that’s right. It’s not only corrosive, it’s all just empirically wrong.
Bill: Okay. Even better.
Oren:[00:23:00] If you look at surveys of attitudes towards work, the overwhelming majority of Americans, regardless of the kind of work they do, for instance report that they are satisfied with their work. Even at that level, the idea that people can not find meaning or view as a constructive part of their life the work that they’re doing, it’s just not true and it also completely misses the many ways that work contributes to a more fulfilling life.
In many ways what makes work fulfilling, and I think this is something that somebody in Silicon Valley misses because they think that work is fulfilling because they’re excited by the thing that they’re creating. Work can also be fulfilling because at the end of the day of work you get a paycheck that you use to buy food for your family. The term breadwinner still has meaning in this society because that’s the point. You are earning the things that your family needs, and that is frankly an end unto itself, and something that basic income tries to strip away.
Bill: You mentioned the coalition. One of the pieces of the coalition I’m intrigued by is what you call the post-productivist left, which is you say, “Strongly feminist, ecological and rejects the less traditional celebration of labor.” Talk about that.
Oren: That’s right. I don’t know what the ecological feminist left is or what it even means necessarily.
Bill: I think we’re going to invent a whole new category here.
Oren: I do say that in the piece but I preface it that way to say that I’m just quoting …
Bill: You’re quoting somebody else here. I see.
Oren: Yeah, exactly. I think that’s important because …
Bill: Shannon Icaby, this is writing in Jacabon in terms I guess, or Jacabon or whatever.
Oren: [00:25:30] I think some more, what I would call, mainstream basic income proponents would take the critique that I’m making and say that’s not true, it won’t have those effects. I think it’s important to say no, no, no, even many of your allies, the proponents of a basic income think it will have these effects, that there is a huge enthusiastic group of people to the far left who view the very idea of the market economy and the idea that you have to earn money to provide for yourself as fundamentally coercive. That the entire capitalist system as it is constructed is designed to force people into labor in order to feed themselves and that that is wrong. That in itself is a larger discussion of what exactly capitalism is but the fact that a lot of people who support basic income are excited by the idea that we can disconnect work from providing, they’re welcome to be excited by that. I think they’re write and I think that’s the whole problem.
Bill: [00:26:30] We figured out that A, we probably can’t afford it. B, it’s politically impossible. C, it’s going to be corrosive to character and the sort of things that we view in society, I think the term we use now that I like a lot is grit, which is where people learn to pull themselves up and learn through different types of jobs over the course of a career, or course of a life. The general notion of supporting everybody and being compassionate is a good one. It’s a very good one. What’s the alternative to the universal basic income and what should we be pushing instead?
Oren: Sure. I should say briefly I don’t know that it’s politically impossible. I think this will become something that’s increasingly the big idea on the left and that probably fairly mainstream democrat politicians will start dallying in a little bit.
Bill: Then let me specify. Politically impossible to do it the right way.
Oren: Yes, that’s right.
Bill: I mean what I mean is for it to be in the purest form you would get rid of everything else and substitute that with their income. My point is getting rid of the other stuff is not likely to happen. We’ll end up with an earned income or a universal income on top of everything else.
Right. Yes, then we are in violet agreement. I think the question about alternatives is critically important because I don’t think anyone would say the safety net is functioning well today. I think that there is a very important insight in the interest in the basic income, which is that the incentives we create at the margin are not good and the message we send in general is a little bit confusing. I think the way to address that is not to throw everything out and just give up, which is how I would say the basic income approaches it, but it’s actually take that lesson and run with it.
[00:29:00] Which is, we actually want to encourage people to work and we don’t feel the safety net does that very well. The way to encourage people to work is to make it more attractive to work. The best way to do that is with a wage subsidy. Economics 101 says you subsidize things when you want more of them and they have social value. Low wage jobs is that thing. Low wage jobs are something that we need more of than exist right now and we need more people to want to take them. Government, particularly given how much we spend on the safety net, has plenty of resources at its disposal that it could target in that direction, which means, not to put too fine a point on it, if you’re earning $7.25, minimum wage, let’s make that $9.25. That difference isn’t by raising the minimum wage and imaging that we’ll just invent new money to pay these people. It’s to take the money we spend on the safety net, and spend it that way, by putting it in the paychecks of people who work.
Bill: Would you take that from other programs or would that be a new program?
Oren: [00:30:00] It should come from other programs because the reality is that actually a huge amount of the money we spend on the safety net goes to people who are working. A lot of the Medicaid spending, a lot of food stamps, a lot of housing vouchers, there’s a tremendous amount of support that we’re providing to low wage workers through a really terrible safety net and if we instead said, “Look if you’re working, we’re going to still try to provide that support to you but it’s going to come in the form of cash,” that makes the work much more attractive and it creates a much firmer, clear dividing line between the non working poor and the working poor. It says we’re committed to supporting everybody in the society, but if you’re not working you have some, frankly, pretty lousy government programs to work through, and if you’re working then we think you deserve cash.
Bill: The root to supplemental income and support is through work?
Bill: You’re incentivizing work.
Bill: The way this would work as I understand it, I think the French have tried this haven’t they?
Oren: I don’t know if the French have. There’s a few different pilots of this kind.
Bill: [00:30:30] They’re proposing paying companies X amount of money so they can pay people more, which is essentially what you’re saying. How extreme would we make this? How many programs could you get rid of and could you do everything through this program or some of it?
Oren: I think ultimately you can probably take about half of the safety net, so about 500 billion dollars a year and put it in this direction because we do spend so much of our safety net money on people who actually work. Even if you don’t do that initially, even if you say focused on 200 billion dollars. That’s 3 to 4 times larger than the earned income tax credit, which is the main program that we have today to provide additional cash to people who work.
Bill: We’ve seen a tremendous increase in labor force non participation. People leaving, no longer looking for work because they can be supported by these other programs. The net effect of this would bring those people back into the labor force. What am I missing? What’s wrong with this idea? Why wouldn’t we want to push this right away?
Oren: I can’t think of any reason.
Bill: Well let’s work at it.
Oren: There are certainly some challenges to it. One is just purely administrative, which is how do you actually make it work? I actually think it is fairly straightforward because we already have a payroll tax system, which is the principle that every pay period we’re going to take money out of everybody’s check. A parallel system can pretty easily say every pay period we’re going to put money in some people’s checks.
The bigger problem is that over the short term, from year 0 to year 1, you are very clearly going to have winners and losers. That’s a problem that I think effects a lot of policy challenges. Tax reform faces the same issue. Even if over the long term it’s better off for everybody, it’s very easy to find people who in a given year are worse off under a new system than under an old system, and so to take an example of one group. A huge part of our safety net today is targeted toward single parents with children, primarily single mothers. For instance the earned income tax credit is dramatically more generous to single parents than it is to single workers. If you moved the system I’m describing it says all we care is whether you’re working or not. The same amount of support goes to any worker. That by default has the effect of dramatically transferring resources that we’re currently dedicating to single parents to people with no children.
[00:33:30] Now, as a long term policy matter, I think if you said look let’s focus more of our safety net on catching the 17-year-old, 18-year-old, 19-year-old hopefully isn’t a single parent yet, can get attached to the workforce, can receive a really generous benefit to be working, and put them on a different track, that’s vastly superior. In the short run, figuring out a transition that either holds the existing beneficiaries harmless or make sure they at least have something to fall back on is a lot less straight forward.
Bill: [00:34:00] Well this is appealing because I think the thing that’s overlooked in this argument over minimum wage is just the fact that part of the reason even working for $7.00 an hour is a good thing is that you learn how to work. You start at $7.00 but presumably you go to $10.00, then you go to $15.00 and you work your way through. When I was younger, a kid, I probably had 100 jobs between the ages of 15 and 25. I learned a lot. Sometimes you learn what you don’t want to do. Maybe I found 99 things I didn’t want to do but nevertheless it was useful.
Oren: [00:35:00] Yeah, no, that’s right. I think actually your point about getting those raises over time also highlights another huge advantage of a wage subsidy over the way that we do the safety net now, which is that the way that we do the safety net now, we phase out your benefits as you earn more money. A wage subsidy obviously has to phase out too. We can’t subsidize everybody, but a wage subsidy only phases out as you get a raise. Which means if you’re working one minimum wage job and you want to take a second minimum wage job, you get the full subsidy for every hour you work at both. If your husband or wife wants to go take a job, you get the full subsidy for every one of those hours too. The only way you start to lose your subsidy is when you get a raise. As your wage goes up, your subsidies going to go down and then eventually phase out. The great thing is that people like raises. People have very little incentive to not pursue a raise or a promotion, even if it means the wage subsidy is going to phase out.
Bill: The other side of wages, and this is from my experience running business is you want to give somebody a raise because they’re doing a good job and so the companies are incented to do that to promote the people that they want to see help build their business or their organization.
Oren: That’s right, and retain good workers, and from the individuals perspective even if some portion of that raise gets eaten away by a subsidy reduction, you still now have the better job, you have the status, you have the trajectory of your career, and so it’s really a much better way to encourage work and encourage every additional hour somebody wants to work to try to earn more money without getting into the universal basic income world where we’re just sending everybody a check.
Bill:[00:36:00] This is an intriguing, and I think very promising, idea. I hope you pursue it because this could do a lot of good. Thanks for that.
Oren: Sure, and I should mention it’s something that people in Congress are looking at as well. Senator Marco Rubio in particular has looked at ways to try to convert the earned income tax credit to something that looks more like a wage subsidy and from conversations I’ve had I know it’s saying that people, frankly, on both sides of the aisle have some interest in.
Bill: Let’s talk about 2016, the election coming up in November. Donald Trump. You work for Mitt Romney.
Oren: A better man.
Bill: Very different men but Donald Trump is our candidate and let’s talk about that.
Oren: [00:37:00] Yeah, sure. I think the Donald Trump phenomenon is first of all really unique to the time and place when it occurred. I don’t mean that in the sense that we’re at some important moment in 2016 for the country. I mean it was a really bizarre republican primary. I think it’s important not to overlook both how unique the massive size of the field and the way that they behaved was in allowing him to emerge. It’s also important to recognize how unique he is.
[00:38:00] Putting totally aside anything he might have in the way of a policy message, just as both a reality television star, the brand that he has established, the persona he has and frankly the skills that he has as a communicator, and even what his interests are, what he is likely to get out of participating in the entire process. I think it’s far from given that we were at a moment in time where surely Trump needed to emerge. I think by contrast if you think just a few months before that to the crisis in the House of Representatives over the resignation of speaker John Boehner and this question of who could the Republicans possibly find who would unite this caucus and then very quickly there was Paul Ryan, who was obviously the opposite of Donald Trump in a lot of respects.
[00:39:30] The line between where we are now and a world where you have a Marco Rubio or John Kasich as the nominee on top of republicans holding unprecedented majorities in the house, in the senate, in state houses, and in state governorship’s, that’s a very thin line. That being said, we are where we are and the fact that Trump has even been viable I think has usefully highlighted some under appreciated challenges that the country is facing right now. That the vision from the right of just broad based prosperity that a rising tide lifts all ships and as long as we grow the economy everyone will win, has clearly proven to not be as successful and widespread as I think the right had hoped and expected and conversely the view from the left that the country can be managed as a set of interest groups, that traditional melting pot style, multiculturalism can be replaced by a model where we go find every single group that has an interest and promise them something, and just leave out the white middle class as the one group that doesn’t need anything, is probably not a very stable approach to governance either.
I think as the weaknesses of those have come to the front, that has made Donald Trump viable and the good news is that people are now seeing both of those things, which in the long run could actually lead towards some much healthier reforms.
Bill: [00:41:00] Let’s take trade for example. Trump talks about negotiating better trade deals. He’s talked about tariffs and those of us who were brought up in the Austrian economic system and supply siders, we think gosh that sounds like a terrible idea. Everybody knows free trades good for everything and everybody and yet where I live at in Rappahannock County, Virginia, we had a blue jean factory out there. Employed about 55, 60 people and was doing just fine, and then North American Free Trade Agreement was passed and all of a sudden within a year or two that jean factory was out of business and people were out of jobs and so what they see from trade is not the benefits but they see only the pain. Their perspective, and increasingly it’s becoming my point of view, is that well yeah they can go buy their blue jeans for $1.50 cheaper at Walmart but they don’t have a job. He’s speaking to that and I don’t think we’ve got a very good answer to that.
Oren: [00:42:00] Well, that’s right. I think there has always been two flaws in the free trade consensus. One is the distinction between free trade actually being good for everyone versus free trade creating enough economic surplus that if you spread it around it’ll be good for everyone. That’s a huge distinction and as actually especially problematic for the right, which doesn’t like redistribution. You can only came that trade is going to be good for everyone if you’re willing to sign on to the re-distributive policies on the backend of it. That’s not necessarily a good idea. If you go back to the basic income discussion we started with, a model that says some people are going to really prosper and then we can mail money to the people who don’t prosper, might maximize GDP, but that doesn’t mean it maximizes the welfare of the society and especially those less well off. That’s one real tension that I don’t think has been sufficiently addressed.
The other problem that I think Trump is rightfully focusing on, and frankly it’s something that Governor Romney talked a lot of about in 2012, much to the chagrin of the Wall Street Journal and others, is that free trade to a large extend is premised on everybody playing by the same rules. Now, there are some purists who will say free trade is good no matter what. You just drop all your tariffs, open your borders, and you’re better off, no matter what mercantilists policies anybody else pursues. I first of all don’t think that’s true but it also leaves an enormous amount on the table. By which I mean a good trade agreement that both sides adhere to is better for American than a trade agreement that only America adheres to.
Bill: [00:43:00] I think that’s really what Trump’s talking about. He wants to bring in some grizzled Wall Street or business types to negotiate better deals and that seems like a pretty good idea. I don’t know that I’d want the state department negotiating on my behalf for a lot of economic outcomes.
Oren: [00:43:30] That’s fair enough. I do think it’s important to distinguish between negotiating better deals which he says in theory but in practice of course requires another side. Everybody agreed to NAFTA, there’s no saying that everybody, Mexico and Canada, are going to agree to what Donald Trump has in mind. It’s also important to recognize that we have deals that have been put in place that the other side simply does not adhere to.
With China in particular, that’s what he’s talking about, that the premise of China joining the WTO and us establishing normal trading relations with China was that we were going to open our market to them and they were going to open their market to us. They have not done that. The question is what should be our response? The standard view from the right has been to shrug and say we’re better off with our market open to China no matter what China does. The problem is that as long as that’s your attitude, China has no incentive to change its behavior. The question is to what extend do we actually say no, no wait a minute, this has to be a two way street and we are actually going to use at least the threat of the economic weapons at our disposal to force you to play by the same rules.
Bill: Which we have not been doing.
Oren: Which we have not been doing and which Governor Romney spoke a lot about the need to do of, which Trump now speaks with less credibility but more bombased about the need to do more of. You still have a large segment on the right from the Wall Street Journal to the Club for Growth to the classic free market constituency that doesn’t see things that way and still believes that the open market is the ultimate good and risking an economic conflict simply isn’t worth it.
Bill: [00:45:30] I think they should get out of New York more because I do think that the rest of the country tends to see this and not the theoretical terms but in the piratical terms. An average household incomes are down $4,000 or $5,000 from 10, 15 years ago, when we talk about the benefits of trade, nobody, at least as individuals, don’t see it happening for them.
Oren: That’s certainly true for some people. I do think an important qualification on the message that Trump is bringing is that most of the job losses in manufacturing, for instance, are a function of technology and increasing productivity, not of stuff being made somewhere else. If you look at our actual manufacturing output, it’s doing very well. What’s happened is that we are making stuff with much fewer people.
Bill: [00:46:30] There was a story about Milton Freeman, I think you may have heard it. 30 years ago he was visiting China and he’s looking at a construction project and everybody’s on site with wheelbarrows and shovels and picks and it’s all manual labor and he said, “Well look, we’ve got these big earth moving machines and we have all this equipment you can buy from the United States to make this go a lot fast,” they said to him, “You don’t understand. This is a jobs project. This is in order to create jobs.” He said, “If you really want to create jobs, why don’t you give them all spoons.”
Oren: That’s right. You can always create more jobs if your not concerned about the economic output associated with those jobs, but the idea that we’re going to make iPhones in America. You can make iPhones in America but it’s going to be robots making the iPhones in America. In one sense this again connects back to the basic income question of well what are the jobs for the people who used to work traditional blue collar jobs and that is an economic challenge that we can absolutely meet, but the policies that we need to think about to get there are neither the Trump style emphasis on stopping corporations from moving, closing down trade, etc, nor are they the solutions from the left.
If you look at Hillary Clinton’s economic plan it’s essentially the Obama stimulus. It’s hundreds of billions of dollars for a huge infrastructure program and clean energy. You say, “Well, how could the plan that we needed at the depth of the great recession, also be the plan that we need at the other end of the business cycle when unemployment is below 5%” and the answer is because it’s the only plan in the playbook.
Bill: [00:48:30] I think the real issue. Look at the democratic platform and you read it carefully and there’s really nothing in there about economic growth. It’s just not an item for them. What is in there is income redistribution. I think the central problem they say is that economic equality terrible, it’s an injustice. In order to right that injustice, we need to redistribute income. They’re not even interested in growth, so the idea of creating jobs, I don’t know it’s hard to see how you do that without growing the economy, unless you do redistribute it. Thoughts?
Oren: That’s right that you need economic growth to create jobs but I think it’s important to realize that economic growth is a necessary but not sufficient condition. That you can also get an awful lot of economic growth that doesn’t create an awful lot of jobs. If you see it as part of the government’s mandate to not just maximize GDP but actually make sure that people from their diverse backgrounds with their diverse talents and capabilities can find a place in our economy, then policy needs to do a lot more than just say what maximizes economic growth.
Hearkening back to something else we just talked about, that’s exactly where something like a wage subsidy fits in. A wage subsidy frankly it’s a means of redistribution but it’s a means of redistribution that’s focused on aligning the way our market economy actually functions with the needs of the people who have to work in our market economy and finding ways to bring those two things together rather than wishing we had a different workforce or wishing we were still in the 1960s has to be the future of good economic policy and it’s a real tragedy, probably the real tragedy of 2016 that where we are in this presidential race ensures neither side is going to discuss it.
Bill: Oren, thank you.
Oren: Thank you so much. It was a great discussion.