Responsible liberals
This post was motivated by a recent piece by Tyler Cowen on why fiscal stimulus is not popular among social democrats in Europe. I am worried than any liberals will come away thinking that my message is simply:
1. Northwest European social democrats–good
2. American liberals–bad
Well, it’s not quite that simple. I am somewhat libertarian and even vote that way. But I would be horrified by the thought of the current libertarian party coming to power. Why do I vote for them? Because I suppose I assume they would become somewhat more responsible as they got closer to power–as did the German Green party. So don’t view this as an ad hominem attack on liberals (some of my best friends are . . . ) but rather an inquiry into how politics shapes ideologies.
Let’s say the center of power in America is in the center. In that case neither liberals nor conservatives will be able to construct the sort of society that they dream about. In frustration, they will demonize the other side, and take some extreme; and perhaps unrealistic positions. In particular, liberals will be able to indulge in the very satisfying sport of capitalism–bashing.
Now let’s assume that in Northwestern Europe (especially the Nordic countries (including Holland), but to a lesser extent the other countries north of the Alps and west of Poland) the center of the political spectrum is “liberal” as the term is defined in America. So they are successful in erecting a large welfare state. Once they achieve this success, however, they start running into problems. The heavy tax and subsidy burden starts slowing growth in the 1970s and 1980s. Unemployment rises sharply. In response they frantically cut away at all sorts of non-essential statist interventions, anti-market policies that don’t seem to have much egalitarian benefit. In particular, they do the following:
1. Adopt tax systems biased toward consumption, not capital. I believe that many of the countries in that region have no capital gains taxes. Sweden has no inheritance tax. All have lower corporate income tax rates than the U.S., often by a wide margin. And their corporate rates are falling rapidly, whereas ours is stable.
2. Institute a policy of openness toward trade and investment. Many of those countries are more open than the U.S.
3. Most importantly, privatize everything in sight. Not just Conrail, like we did. But also passenger rail, postal services, highways, water systems, air traffic control, airports. In other words exactly the sort of public services that if I told my liberal friends should be privatized, they would call me a reactionary. Indeed our Hollywood movies actually demonize those who favor such policies. The new Bond movie replaces SPECTRE with an evil businessman who wants to privatize water distribution in Bolivia. (More “political art.”)
4. Improve education through school vouchers programs, as Holland has done, and Sweden has begun to do.
5. Encourage saving (to offset the disincentives to save in a welfare state) through fully-funded private social security accounts.
So when I read Tyler’s post I wondered if aversion to fiscal stimulus could also be added to the list. I’m not sure, but here are a few possible interpretations for his finding:
1. The small country effect, the stimulus would leak out through the trade account. Tyler rejects this interpretation.
2. A slightly different small country effect. I have argued that the underlying reason for the new found interest in fiscal stimulus is the implicit assumption that monetary policy has run out of ammunition. Of course that’s not literally true (as readers of this blog know.) But perceptions matter; and I do think this perception is very pervasive. In small countries, however, there is no real concern about liquidity traps, as they can always devalue their way out of trouble. Of course that argument applies to Britain, Denmark, Norway, Sweden, and Switzerland, but not the Eurozone. So I’d have to add on some assumption to the effect that aversion to fiscal policy became deeply ingrained before the euro, and mindsets are not easy to change. I agree; that’s not the most persuasive argument.
3. Perhaps it is the size of the government in these welfare states. They may be operating near the top of the Laffer curve, and thus may be much more cognizant of the long run budget constraint than is our Congress. In addition, they don’t have sharp ideological divisions that allow the right to indulge in the fantasy that deficits will be exclusively paid for in lower future spending, and that allow the left to assume that the deficit will later be paid for through taxes on the rich.
What would a responsible American liberalism look like? In my view it should look a lot like a country such as Singapore, except with much higher marginal tax rates on high levels of labor income. (This obviously refers only to economic policy. I’m not for petty authoritarianism.) But at the very least it should look a lot more like Denmark, which excluding size of government is arguably the most free market country on earth.
What would a responsible American liberal press look like? At a minimum it would not use venues like the NYT editorial pages to constantly bash privatization, deregulation, and tax cuts for coupon clippers, at the same time it exalts the Northwest European model as near ideal. Even better it would not engage in fantasies such as that an expensive welfare state could be erected here with taxes on the rich and by squeezing out money from drug companies and insurance companies. [In fairness, the columnist I am thinking of does sometimes acknowledge the real costs, but I think the overall tone of his and other reporting is still very misleading to readers that don’t know the relevant numbers.)
America is different from Denmark in all sorts of ways. And some of those differences would make it impossible to erect their system here. Indeed there is some evidence that their system would be hard to erect in even much more similar countries, such as Belgium (especially southern Belgium.)
I also have a suggestion for those who hold right wing economic views. Stop demonizing liberals. [Yes, I am also criticizing myself here.] Useful market-oriented reforms (1970s deregulation, 1986 tax reform, NAFTA, welfare reform) cannot be adopted in our political system without at least some support from responsible liberals. Instead of demonizing them, try to persuade them. As Brink Lindsey argues, we need “liberaltarians.”
So who are the responsible liberals? In the end it doesn’t matter where they are from, Europe or America. Responsible liberals are liberals who have been given responsibility. And who have done their homework. BTW, I’ve never been able to work up the antipathy that many right-wingers feel for Obama. He seems pretty responsible.
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16. April 2009 at 09:57
Scott,
Liberals in America are like a kid of a rich family on its early twenties, full of left wing ideals bashing capitalism. Europeans are the same kid but thirty years later. They been through life long enough to see what their extreme ideals would lead them to and that in the end markets are the way to go for many things. They still have their socialist ideals but they been able to separate them from social misconceptions and what is most importantly they been able to prioritize.
I’m not sure about your claim on openness to trade. What measure do you use to claim that some of this European economies are more open than the US? Just because you are very open with your neighbor(s) doesn’t mean you are a very open economy. Trade between Sweden and Finland is counted as international trade but trade between NY an CA is not so size matters here. The bigger the economic unit the the more it resembles a close economy. I’ll give you a measure that shows that the EU is much more closed than the US.
Foreign born population in the US in 2004 11.8%
Foreign born population in the EU13 in 2006 6%
16. April 2009 at 10:02
And about the Bond movie, I remember seeing it and when it was finally revealed what the malefic plan was I was like WTF? Who is running the bad guys’ organization? Dr. Evil from Austin Powers holding the world ransom for 1 million dollars? Talking about liberals and movies? What is your opinion on slum dog millionaire?
16. April 2009 at 11:33
Alex,
You appear to be confusing free trade with immigration.
The Heritage Foundation attempts to measure trade freedom
http://www.heritage.org/index/ranking.aspx
Developed countries tend to have a relative liberal trade policy while the basket case countries tend to be highly protectionist.
16. April 2009 at 11:44
I don’t hate or worry about Obama. He’s seems a fairly restrained person, its the Congress that scares me. It also seems that he is afraid to oppose them sometimes. Bush seemed to have the same problem with his Republican Congress. The best Bush years were when he was fighting against the Democratic Congress.
16. April 2009 at 11:44
I find it amusing that a conservative is wistfully searching for responsible liberals. They are really not hard to find. Though listening to right wing politicians makes one wonder if there are any responsible conservatives out there. And I sure wish there were and had been.
There is a presumption in your comments that the conservative viewpoint is the obviously superior viewpoint. I find that that presumption makes having a responsible conversation difficult. Perhaps a bit of humility might be more useful.
16. April 2009 at 12:09
Richard,
I know of a couple of theorems that say that the two are the same. My point is that if the US did not receive so many immigrants from Mexico and so many US factories went South then trade in final goods would be greater. Openness to trade does not refer to trade in final goods only, but all types of goods. Now you mention the Heritage Foundation ranking. Look at how they define freedom:
“Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself”
http://www.heritage.org/index/PDF/Index09_Methodology.pdf
If you read the methodology section you will see that they look at Investment Freedom and one of the components is the equal treatment of foreign and domestic capital. Yet when they look at the Labor Freedom there is no mention of treatment on foreign vs domestic labor. If they did the ranking would change (although I don’t think the top portion would change that much). Still traditional measures of openness to trade like |X+M|/Y fail to account for country size or tariffs because again the EU has no trade barriers across their members and there is a lot of trade between them, the AU (American Union) has no trade restrictions among its 50 members and my guess is that it has even more trade trade than the European counterparts. The US economy is bigger and more diversified than the economy of any European Union Country and up to the moment it is still beats the Union as whole. So given the same amount of trade barriers it will trade less because it does need trade as much.
Alex.
16. April 2009 at 16:18
Alex, You may be right in arguing that having seen more socialism, the Europeans more aware of its flaws. The immigration numbers are unrelated to trade openness. Slumdog Millionaire was an above average, entertaining, overrated film. The biggest flaw was that foreigners have a lot of trouble understanding a culture as different as India, so it never had the ring of truth. It was a westerner’s view of India. I liked the director’s earlier film “Millions” better.
Richard, Thanks, but I wasn’t referring to economic freedom as define by Heritage, which is what I’d call “Libertarianism” or “Capitalism”. Rather, I referred to trade freedom. By the way, my comments on Denmark were based on the Heritage index, removing the two size of government indices, and averaging the other 8.
libfree, I agree on both points. And I’d add that Clinton’s best years were under divided government.
lxm, I am afraid you misunderstood my views. In my view almost all progress in the past 200 years is due to liberals. I consider myself a right wing liberal. After 8 years of Bush I didn’t think there was even any point of talking about conservatives. Liberals are our only hope right now. That’s why I criticize them when I think they are going off in the wrong direction. I made those distinctions in earlier posts, and probably should have briefly mentioned them again here.
Alex, Both areas have free trade within their region (although I think it’s a bit freer within the U.S.) But I believe many of the northern European countries have lower external barriers than we do. Perhaps I am wrong. And southern Europe is probably different.
16. April 2009 at 17:32
Scott,
I think immigration has everything to do with trade. As a matter of fact in GNP accounting X-M (the current account balance) includes labor services exported and imported by the country (emigrants and immigrants). Another way in which trade of factors (international trade of labor is migration) and trade of goods are linked is the factor price equalization theorem which basically implies that trade in goods yields the same outcome as if factor were free to move across countries.
Alex.
16. April 2009 at 17:34
I should have said that the CA includes the wages received by migrants, as I wrote it it sounds like the CA includes the value of the flow of people. My bad.
16. April 2009 at 18:08
Guest-workers are an example of importing labor but not receiving immigrants. I would endorse a large guest-worker program like Dubai’s rather than simply letting the workers immigrate. I say this because I am not a liberal or perhaps even a libertarian.
16. April 2009 at 18:44
Speaking of Denmark, looking at figure 2 from the following link, Denmark managed to keep its average tariff on imports low from 1928 to 1938. The same can be said about Japan.
http://www.voxeu.org/index.php?q=node/3280
17. April 2009 at 08:45
“Improve education through school vouchers programs, as Holland has done, and Sweden has begun to do.”
Sweden is voucherized completely, 100%, everyone is very happy with it, even the schools unions, and it has produced the benefits that proponents claimed.
http://news.bbc.co.uk/2/hi/uk_news/education/3717744.stm
http://ideas.repec.org/p/hhs/iuiwop/0578.html
I’m always amazed that US voucher proponents never point to this example.
Sweden also has private accounts in Social Security, has privatized its urban mass transit systems, etc. You are right regarding the NY Times and all — Sweden’s social-economic policy is far too right-wing for US Democrats. I’m surprised that Krugman hasn’t denounced it as a Cato front.
“Perhaps it is the size of the government in these welfare states. They may be operating near the top of the Laffer curve, and thus may be much more cognizant of the long run budget constraint.”
I’ve seen several statements by government leaders over there that fit well with this.
17. April 2009 at 09:28
Scott,
I sometimes describe myself as libertarian because I am closest in views to the Libertarian Party/Ron Paul — but that is only because I disagree with them the least of all the political options in America. It’s really disappointing that there isn’t a party promoting classical liberalism here — and I don’t just refer to the “right-wing” paradigms of Bastiat’s “what is seen and unseen” but also Smith’s observations on collusion, Bastiat’s note that welfare is sometimes necessary to aid structural adjustments, and Mill’s very keen idea that to food and house convicts without doing the same for innocents is tantamount to a subsidy on crime.
What’s most disappointing is that America is really the exception in the Anglo-Saxon, if not Western European world. Australia, New Zealand, Ireland, and the UK all pursue policies much closer to the classical liberal ideal than I think either the Republicans or Democrats are. And as you’ve observed here, many Western European countries are also pursuing welfare states without jeopardizing the workings of the market system — to the point that in spite of their huge amounts of government spending, New Zealand and Denmark both have freer economies than the US.
Sigh. I really wish there was a party like the Liberal Democrats in the US. For an American accustomed to petty partisan bickering between Democrats and Republicans, it’s probably a bit of a shock to see politicians staunchly defending social safety nets and human rights while insisting that “government doesn’t know what’s best for us, and it never will.” And for most Libertarians, countries like Singapore, New Zealand and Denmark are hard to place, just as parties like the Lib Dems don’t make any sense — but these countries and parties are as much rightful heirs of classical liberalism as the extreme Randian objectivist philosophy which most American Libertarians adhere to.
17. April 2009 at 13:12
If the convicts are forced to labor (as explicitly permitted by the 13th amendment) and the money derived from their labor exceeds that spent on their food and housing, we would no longer be subsidizing crime. Keith Preston has some ideas about forming penal communities where exiled criminals would live and work to pay off their debts to society.
17. April 2009 at 14:16
Scott,
In point 1 above, you seem to suggest that inheritance taxes are somehow anti-market. If this is true, could you please explain why?
17. April 2009 at 14:43
Scott,
An additional question regarding point1:
I understand that our corporate tax rates are too high, but are you really suggesting that Sweden’s income and wealth taxes are more ‘responsible’ than our estate taxes? I don’t understand how taxing income and wealth constitute a “bias toward consumption rather than capital.”
17. April 2009 at 15:48
Alex, I suppose there is an indirect relationship between immigration and trade, but I still think the issues can be evaluated separately. But you have a point–I certainly don’t want to suggest the Europeans are freer in all areas.
TGGP, I have an open mind on guest workers. I see pros and cons to those programs. I suppose I tend to favor immigration over guest workers, although if I had my way I’d change our immigration program to something closer to what Australia and Canada have. If I am not mistaken our immigrants are skewed toward the low-skilled. It might be better to have a more balanced approach. I’m not an expert here so someone please tell me if I am wrong in my comparison of the U.S. to those other two countries.
Richard A, Thanks, I am always coming across interesting new info on Denmark. I recently read they were the leading European country for venture capital. So Denmark can’t be as socialist as many assume.
Jim Glass, Thanks for that info. I think my error had to do with the public/private distinction. I recall that about 70% of Holland students go to private schools, whereas in Sweden it was much lower. But even giving all students a choice among public schools is a good first step.
I also like your remark about Sweden being too right wing for the NYT. You should have you own blog.
Johnleemk, Nice comment. I should say that I am not endorsing a government as big as Denmark’s, but the point is that the U.S. can learn a lot from countries like Denmark. The thing that intrigues me about Singapore is that they have universal health coverage at around 5% of GDP, and still have the personal choice offered by health savings accounts. But for liberals that do favor a bigger government than I do, I’d think Denmark would be a case worth studying. In an earlier post I pointed out that they also lead the world in happiness surveys. I’ve always wished we had a centrist party like Germany’s liberal democrats–socially liberal and fiscally conservative.
TGGP#2, I also have a lot of trouble with our criminal justice system. I don’t have many answers, but legalizing drugs would be a good first step. I also think the Federal government has criminalized far too many things. (Stuff like insider trading, campaign spending laws, etc.) I skimmed the interesting essay you attached–I find the more I read about our system the more radicalized I get.
Melchi, Taxes on capital distort the market by discouraging savings and investment. I’m not an expert here and could be wrong, but I read that many Northern European countries have so many tax breaks for investment that the net tax on capital is near zero. But again, that’s just something I read a long time ago, I don’t do research in this area. I think Peter Lindert has argued that Northern Europe relies heavily on consumption taxes–perhaps someone could find an essay by him.
17. April 2009 at 18:32
I agree that our immigration regime skews low-skilled, due to both the heavy role family reunification plays and the tacit acceptance of large amounts of illegal immigration from certain regions. I was surprised when I found that African immigrants hold white-collar desk-jobs at a rate higher than the native-born white population (though maybe I shouldn’t have been). To me that screams “marginal returns have a ways to diminish before they turn negative!”. My ideal immigration system would be two-tiered: high-skilled workers would be encouraged to come here permanently and could bring family (though we may want to put them through an initial period of lots of soul-draining profitable work & anomie). I think smarter voters will tend to do a better job, and so they can be enfranchised. Like a company considering hiring a long-term employee or a condo association considering a new occupant, our perspective will be: “Is this the best deal for us [the current “shareholders” of the company] we can find”? Because there are so many people willing to immigrate, we can levy higher taxes on them and provide fewer services and still expect many to accept.
It would be extremely difficult to try and stop immigration from our southern border, so instead we will institute a guest-worker program to control it. They would truly be guests and would be encouraged to send remittances home. They would have a pre-established relationship with an employer who is in effect “vouching” for them. The vouching company will be held responsible for any complaints the citizens may lodge against the immigrants (in addition performing a bail-bondsman like duty of keeping track of their whereabouts). Bryan Caplan acknowledged the resistance many Americans have to immigration and proposed that we simply tax the immigrants (or their employers, it is equivalent) and bribe the natives into putting up with them. There are large enough gains from trade for this to be quite feasible. With their status being perfectly legal, immigrants will not be punished for returning home by being unable to go back again to the U.S. While there are some costs involved in employee turnover, we don’t want a lucky few immigrants to hog all the available slots indefinitely and so visas will have a limited time and will be awarded semi-randomly to the pool of acceptable candidates. This way those who do not win initially will be more willing to accept it on the possibility that there’s always next time in the not-too-distant future, and returning immigrants will accept going back to their lower wages at home on the expectation that they may get to go north again.
I could probably put a lot more thought on how to maximize our gains, but it seems obvious right now that we have far from an efficient system.
I find the more I read about our system the more radicalized I get.
I have quite the same feeling. It actually makes me worried. Rational people should approach agreement as they obtain more information. We instead find that intelligent people (who are less politically moderate than average) interpret new information in a biased way to confirm certain beliefs and so tend to diverge over time. It seems likely that the most accurate beliefs are radically different from the conventional wisdom. At the same time the particular radical beliefs I hold may be radically wrong relative to both the correct (radical) belief and (to a lesser extent) the conventional wisdom I diverged from.
18. April 2009 at 06:27
>What would a responsible American liberalism look like? In my view it should look a lot like a country such as Singapore, except with much higher marginal tax rates on high levels of labor income.
I was quite surprised to see this statement here. A “responsible liberal” society is one where 85% of people live in public housing?
I’m not saying you’re wrong. I’m just damned surprised.
18. April 2009 at 10:20
TGGP, You actually know much more about immigration than I do, so I’ll just say that your views sound reasonable and well thought out. I don’t want to take a firm stand on the issue without knowing more about how the various options would work. One of the reasons for my earlier comment on the high skilled (which you seem to also support) was a quite “liberal” reason–it seems a bit fairer. I don’t know if the charges are true about illegal immigration depressing low skilled wages, but they might be true. If so, I actually benefit from the system. But to be fairer I think I should also have to compete with high skilled immigrants from places like India and China, just as low skilled American’s must compete. In other words I have no ax to grind on the issue, and I also understand that a lot of average Americans have concerns about overcrowding, traffic, cultural change, etc. Those issues probably concern me less than the average person, but we do live in a democracy. So again, I think you moderate approach is reasonable.
Steve, That’s the problem with any generalization I make. Even laissez-faire Hong Kong is mostly public housing. Isn’t Singapore beginning to turn some into condos? I think so–and I believe that policy was successful for Thatcher.
19. April 2009 at 11:30
Being a classic liberal from Sweden living in the US I despair about US Liberalism. I agree with this post that American Liberalism needs to get back to its roots, back to being responsible. Read Gov. Pat Browns inauguration speech and it says it all. Also go to libertarian Democrat Terry Michaels’ and his libertarian Democrat manifesto. He explains were US Liberals went wrong.
Terry Michael
Government: assure liberty by staying as far away as possible from our bank accounts, our bedrooms, and our bodies. Spread pluralistic democracy and free markets by example, understanding that neither can be planted by force on political real estate lacking indigenous cultivators for their growth. Restore the moral authority of mid-20th century “civil rights,” fashioning public policy around individuals, not tribal identity groups.
Responsible liberal California Governor Pat Brown 1959 inaugural address
The essence of liberalism is a genuine concern and deep respect for all the people. Not monuments or institutions or associations, but people. Not one race, or one creed, or one nationality, but all the people. When people come first and special privilege is scorned, government is truly liberal.
In a liberal atmosphere, the individual stands secure against invasion of his dignity or intrusion on his conscience. He has the right to require justice and fair play, the right to demand protection from economic abuse and selfish threats to his security. At the same time, government must not, in naïve good intention, stifle his initiative or smother his growth. Men must indeed have freedom to breathe the air of self-respect.
A liberal program must also be a responsible program, a reasonable, rational, realistic program. We must know how much it will cost and where the money is coming from. Benefits must be measured against burdens. A program which pampers the people or threatens our solvency is as irresponsible as the one which ignores a vital need. But we will always remember that there is a difference between responsibility and timidity, and we are resolved to be governed more by our hopes than by our fears. ………………
Throughout the world, the cynical creed of Communism slanders democracy with the charge that men are too greedy, too ignorant, or too lazy to govern themselves. Let us, in our respect and concern for all the people, resolve to prove anew that representative government is the best government. Let us forge a program which will liberate our human resources and demonstrate the renewed vigor of American society. In this way, we will answer the slanders of Communism and expose its evil design.
19. April 2009 at 17:44
Thanks Illuminatus, I am an eternal optimist, as I think society does eventually learn from its errors. I know that view seems implausible today, but these things go in cycles.
19. April 2009 at 20:29
“Jim Glass, Thanks for that info. I think my error had to do with the public/private distinction. I recall that about 70% of Holland students go to private schools, whereas in Sweden it was much lower. But even giving all students a choice among public schools is a good first step.”
The bulk of the Swedish schools are still “public” but vouchers — particulary the fact that anyone can open a new private school to compete with the nearby public schools on an even basis — break the monopoly that is the cause of all the real WORST of “public schools”, I mean stuff like this…
http://www.scrivener.net/2006/03/accountability-for-performance-in-nyc.html
Adam Smith in WoN wrote about education as if he had a crystal ball looking 200 years ahead, which I guess shows the value of understanding the power of incentives.
He was OK with the government paying a lot of money as a subsidy for public education, he just didn’t want the government employing the educators. Starting from where we are today, vouchers and charter schools get us as close to that situation as possible as quickly as possible.
Actually vouchers and charter schools seem close substitutes in practice, the key in each case being that the money follows the students who have choice, creating competition, and the teachers and school staff are not part of the normal govt school bureaucracy (though voucher schools usually are “more” private sector).
So it seems odd to me that charter schools have been hugely more popular with voters than voucher schools.
Case in point, Washington DC: Obama and the Dems just killed vouchers there, but in the big picture it is a small loss for teh city’s reformers because charter schools are just sweeping through the city, a huge success.
BTW, I very much appreciate your point about *why* Sweden, Denmark, and those countries have liberalized things like schools, contracted government services, etc., even while being purportedly “socialist” or social democratic. I knew they had but the systemic reason for it all hadn’t occurred to me.
“I also like your remark about Sweden being too right wing for the NYT. You should have you own blog.”
Just click the link. 😉
20. April 2009 at 17:59
Thanks Jim, I’m still pretty new to blogging so I imagine that your blog is probably 10 times more popular than mine. This summer I hope to catch up on other blogs. That’s nice to know about Adam Smith, I’ll have to use it on my liberal friends next time they tell me how much he favored big government. It’s also good to hear about the success of charter schools in DC, I haven’t studied these issues as much as you have.
I don’t know if you saw my earlier post on Denmark from around the beginning of March, but you might find it interesting
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