Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Sperling, a Poor Choice for Director of National Economic Council
Gene Sperling, who pretends to be an economist although he has no economics degree, has been chosen by Pres. Obama to be the Director of the National Economic Council. He has a law degree from Yale. He owes his excellent reputation as an economic policy expert to the fact that he served on Pres. Clinton’s National Economic Council and chaired the Council during Clinton’s second term. We decided to read his 2005 book, The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity (NY: Simon & Schuster, 2005) to learn more about him. The title of the book tells you he would like to be known as a pro-growth Progressive by which he apparently means that he is devoted to the growth of the economy and wants to ensure that government economic policies create benefits for the lower economic classes. He is not a good enough economist to follow through on whether in fact the lower economic classes actually did benefit from earlier policies. He mentions some and some were failures. He paid no attention to the trade deficit with China that exploded during Clinton’s second term and cost American workers hundreds of thousands of well-paid manufacturing jobs and causes American wages to stagnate.
He writes that the “(t)raditional divides in American politics are increasingly ill-suited to a serious inquiry about how to ensure we grow together in a dynamic global economy.” [my italics] His solution to the loss of jobs is retraining. He writes that we are out of touch with the “growing imperative for public policies to help workers adjust to the uncertainties of the global market and ensure that growth is fair and consistent with our values.” In other words, he was then and presumably continues to be a free trader even, apparently, when we are the only ones practicing free trade. As the reader knows, we have been urging that a “scaled tariff” be imposed on imports from all countries with which we are experiencing chronic trade deficits. In 2008, while Sperling was Director of the National Economic Council, our trade deficit with China was close to $800 billion, an amount roughly equivalent to the output of 8 million American workers. Neither he nor the Council of Economic Advisors acknowledged any problems the huge deficit caused.
He writes that a pro-growth progressive consensus on economic policy should include, one, what progressive values we should “stand for and demand that a successful economic strategy promote”, two, what hard-nosed economic realities we must accept and embrace in a competitive global economy capable of both tremendous productivity and painful dislocation, and three, “in this dynamic economy characterized by accelerating globalization and technological change, what is the role for public policy in ensuring that we enjoy strong economic growth that truly lifts all boats.” We don’t get much in the way of answers to what we need to do about the trade deficits.
He writes, “Of course, there are goals—banning child labor in our factories; preventing racial, religious, and gender discrimination in the workforce—that require direct intervention in the market regardless of their efficiency or economic impact.” Really, regardless? What happened to benefit-cost analysis? What happened to consideration of lower cost alternative solutions?
No recognition in the book that increased globalization means subordinating the U.S. to a superior power with the U.S. obliged to follow policies established by that power. When Communism was still active, this power was called “the international”. Today it is the G-20, tomorrow, who knows, the G-57? He recognized that the very forces that bring efficiency and lower prices “raise concerns about whether armies of new workers from China or India will eliminate jobs and force wages in the US down for decades to come.” He favors a third-party movement on outsourcing, the “Humility Party”. “Because outsourcing is primarily a function of unstoppable forces such as global information networks there was no way to complexly eliminate it without hurting long-tem US job growth.” It is only unstoppable if we’ve abandoned the idea that we are a nation under God and the Constitution and have not yet signed the Kyoto agreement and are independent.
I am giving the reader the impression that the book is about globalization but most of the book is devoted to domestic issues. He is critical of the beliefs attributable to conservatives, i.e., Republican leaders. Indeed, we often differ with Republican leaders. And some of his criticism is right on the mark. But this is an article intended to reveal to the reader the ideas, right and wrong, of Gene Sperling.
Here are a few. “Those who create great wealth do so on the backs and shoulders of previous generations of taxpayers…” “The notion that 'you earned it' is more correctly, 'you earned it with the indispensable help of the government.'”
As we have shown, the current recession is a product of do-good Democrats and Republicans who wanted the poor to own housing they could not afford. It gave neighborhood groups the right to participate in hearings under the so-called Community Reinvestment Act. ACORN and others blackmailed the banks and became rich. We need government. Government needs to provide and enforce a system of laws, sound money, patents, and provide some public goods.
According to Sperling, those who lose their jobs due to foreign competition need something like the Workforce Investment Act of 1998. Our view is that when trade is in balance there should be no net loss of jobs. Government should ensure balanced trade. The African exporters he writes about earn dollars. Why should they not spend them in the U.S.? The alternative is a government program requiring huge government expenditures and a bureaucracy and does not appear to work at all.
He cites Thomas Friedman who called the Work Force Investment Act “one of the best, but most underreported, bipartisan achievements of the Clinton era.” But in our opinion, it did not work well at all and was unnecessary. All we needed to do was balance trade! That happens to the purpose of trade – to exchange a basket of goods valued less for a basket of goods valued more, both baskets having an equal market value.
The clouded crystal ball. He proposes a new role for colleges. “We will need to increase the pool of highly skilled workers or face a growing labor shortage.” No mention of balanced trade as a goal. Pres. Obama’s five year program of increased exports likewise does not mention balanced trade as an objective!
Sperling is concerned about the shortage of Latino students qualified for college. Dealing with the problem led Gene to make his first policy proposal in 1987, -- the creation of an Urban Excellence Corps where colleges would adopt poor students in sixth grade and monitor with the assurance that kids would receive college aid if they made it all the way thru high school. When he became NEC director he got it included as a $295 million initiative serving 1.3 million children. He created a great bureaucracy that had little if anything to show for it.
Another proposal was to provide universal preschool or all disadvantaged kids. “The progressive case for investing in education in the first five years has always been compelling, but the pro-growth imperative of this investment gets stronger every day.” Just the opposite is true. The fact is Head Start was tried and was a failure! Clinton and G.W. Bush expanded the Head Start program and wasted billions.
Sperling writes, “We cannot afford to give up on young Hispanic and African Americans.” A question not raised is why is this a federal responsibility. Why are those communities not more responsible for their own progeny? Sperling wants to ensure that all disabled Americans have access to rehabilitative technologies. He asserts that we as a nation can justify such a program on moral and economic grounds. We doubt both. Moreover,why is it a federal responsibility? Acknowledging that there are questions of cost, he suggests that at least, there should be a loan program!
The politics of underinvestment in basic research because of our desire for instant results. Cites the success of Defense Advanced Research Projects Agency. (DARPA). Criticizes Bush’s new focus on short-term projects. Who decides on what basis research should be subsidized?
In part four of the book, entitled "The Nation that Saves Together Grows Together," he argues that the rich benefit more from deduction of interest and real estate taxes in the income tax code. And the poor have no 401k retirement plans. He was against Bush’s proposals for a retirement savings account. He proposes instead a universal 401k. The government would offer a retirement account with matching tax incentives to every working family. He proposes a “flat tax incentive”. “When a CEO and the person who cleans her [sic] office each put away an additional dollar, they get the same tax benefit.” And the economic effects? What about them? He has done no research. This is progressivity that make little sense. Government expenditures are highly progressive – schools, for example. And more effective. Every tax and every tax treatment does not need to be progressive to accomplish greater equality of well-being. I like also to remind Sperling and my fellow economists that the rich don’t take their money and wealth with them beyond the grave. As two of my favorite authors summed it up, “You know the rich are different than we are.” “Yes, I know, they have more money that we have.”
We believe nearly all of Sperling’s social amelioration proposals would fail benefit-cost analysis. Just as he misses the economics of unbalanced trade, nearly everything he proposes is bad economics. What is really worrisome is that he has given little thought to the unintended consequences of globalization. We need to do a benefit-cost analysis of international institutions, including the UN, the World Bank, and many others.
Ignoring the enormous trade deficits is what most economists also do. They are nearly all free traders and think it is normal for American manufacturing workers to lose their job to foreign competition and domestic outsourcing. What we need is balanced trade. We would gain as many jobs as we lose!
Sperling has a fertile mind but sees government as the solution to every economic and social problem. We cannot help believing that anyone with his ideas is the wrong person for the job of Director of the National Economic Council. The Director does not have to be an economist. Summers, a highly regarded economist, made a terrible director. But he/she should have some real work experience besides politics.
Last 100 Years
Real Estate Taxation
Journal of Economic Literature:
Atlantic Economic Journal: