It’s Not Race But Population Size That Explains America’s Welfare State

June 24, 2015

READ THIS by Paul Krugman first:

It’s Not Race But Population Size That Explains America’s Welfare State

by Tim Worstall

Paul Krugman2Paul Krugman has a piece today looking at the influence of America’s racial make up on the existence and size of the US welfare state. Given that I’m an extremely whitebread European this specific aspect of it all isn’t something I can discuss very well. So, entirely willing to agree that race could be a factor here: how much of one something that I’ll leave to others with more direct knowledge. However, I would add that there’s another factor at play here: and that’s the sheer size of the country itself. There’s 320 million people in the United States, around and about, and absolutely no one runs a large and substantial welfare state over that number of people, not anywhere.

The standard analysis is that it is going to be easier and more effective to run a decent sized welfare state in a small and homogenous population. The argument is simple enough to understand: we’re humans and we think of self first, then family, then tribe, and only later of nation. Families are pretty much run on the communist idea of from according to ability and to according to need. We start to become more selfish as the grouping rises, from tribe through to nation. And yes, it is part of our development as a species that tribe would be people we were largely related to and we’d be able to see that simply by looking at someone’s features. So, homogeneity is, in this instance, similar to the point that Krugman is making about race:

Yet racial hatred is still a potent force in our society, as we’ve just been reminded to our horror. And I’m sorry to say this, but the racial divide is still a defining feature of our political economy, the reason America is unique among advanced nations in its harsh treatment of the less fortunate and its willingness to tolerate unnecessary suffering among its citizens.

Of course, saying this brings angry denials from many conservatives, so let me try to be cool and careful here, and cite some of the overwhelming evidence for the continuing centrality of race in our national politics.

This particular observation strikes me as not being quite right:

Mr. Frank argued that working-class whites were being induced to vote against their own interests by the right’s exploitation of cultural issues. But Mr. Bartels showed that the working-class turn against Democrats wasn’t a national phenomenon — it was entirely restricted to the South, where whites turned overwhelmingly Republican after the passage of the Civil Rights Act and Richard Nixon’s adoption of the so-called Southern strategy.

And this party-switching, in turn, was what drove the rightward swing of American politics after 1980. Race made Reaganism possible. And to this day Southern whites overwhelmingly vote Republican, to the tune of 85 or even 90 percent in the deep South.

That is, I think, to fall into the rather Marxian (i.e, informed by Marx, but not actually Marxist) idea that it is the means of production that determine social relations. Or, as we might put it, that the working class should be voting for liberals. But theSouthern working class has always been fairly conservative socially: attitudes to religion and military service show that quite clearly. So why it should be a surprise that they vote for cultural conservatives is a bit mystifying.

And it’s not just health reform: a history of slavery is a strong predictor of everything from gun control (or rather its absence), to low minimum wages and hostility to unions, to tax policy.

So will it always be thus? Is America doomed to live forever politically in the shadow of slavery?

I’d like to think not. For one thing, our country is growing more ethnically diverse, and the old black-white polarity is slowly becoming outdated. For another, as I said, we really have become much less racist, and in general a much more tolerant society on many fronts. Over time, we should expect to see the influence of dog-whistle politics decline.

As I say above I’m entirely willing to believe that race is a part of it, how much I don’t know. But my point is about the other part of that phrase, “small homogenous”. That small part is important I think.

Denmark is pretty much the poster child for the sort of society American liberals at least say they desire. But it’s important to understand how it actually ticks. For a start, it is small. 5.6 million people small, about Wisconsin or Minnesota small. I maintain that it’s going to be a lot easier to get such a small group to think of themselves as all being part of the one polity, within which there should be substantial redistribution, than it’s going to be in a country of 320 million people.

But it goes much further than that. The national income tax rateTim Worstall is 3.76% (yes, really, 3.76) and the top national income tax rate is only 15%. That’s the amount that is collected from the citizenry and sent into the centre. Denmark does have astonishingly high tax rates overall, yes, but the bulk of that is paid to the commune. A commune being a unit of as small as 10,000 people. And that’s where all that redistribution and social caring is done. In those much smaller units, not at the national level. My suggestion is that precisely because it is being done in these small units that people are willing to cough up so much money to have so much of it.

The policy implication here being that if US liberals desire that sort of social democracy (which many do) then they’re going to need abandon their insistence that it be done at the Federal level. Because our examples (and Sweden is much the same as Denmark, perhaps not quite so fine grained) of societies where social democracy does work are places that are doing it not at the level of the Federal government, not even at the level of a US State, but at something much more like the level of a US county or even township.

320 million people simply won’t send 45% of their income off to Washington DC for a faceless bureaucracy to then dispense. But they might well (and Americans’ famed willingness to get involved in local charitable activities bears this out) be willing to spend some equal or nearly so amount if they knew that it was to be spent in the actual community that they themselves consider they are part of. I’ve described this before as Bjorn’s Beer Effect:

Instead they have what I call the Bjorn’s Beer Effect. You’re in a society of 10,000 people. You know the guy who raises the local tax money and allocates that local tax money. You also know where he has a beer on a Friday night. More importantly Bjorn knows that everyone knows he collects and spends the money: and also where he has a beer on a Friday. That money is going to be rather better spent than if it travels off possibly 3,000 miles into some faceless bureaucracy. I give you as an example Danish social housing or the vertical slums that HUD has built in the past. And if people think their money is being well spent then they’re likely to support more of it being spent.

In the end, local collection and spending of taxes is likely to lead to people being willing to pay higher taxes.

To recap: I’ve no doubt that race, as Krugman says, has a part in this I’m only uncertain as to how much. And the standard analysis says that redistribution is going to work best in small homogenous societies. All I’m arguing is that the small is also an important factor, along with the homogeneity that Krugman is pointing to. The end result of which is that the United States is simply too large to be a highly redistributive society. If that’s what you want, more redistribution, then you’re going to have to organise it around much smaller units of population.

My latest book is “The No Breakfast Fallacy, why the Club of Rome was wrong about us running out of resources.” Amazon and $6.99 and relevant prices in other currencies.

Book Review: Joe Stiglitz’s The Great Divide

One Man Against the 1%

For the past 50 years, liberals have gotten almost exactly the policies they’ve wanted. So why are they still complaining?

by Brian Wesbury

Along with Greece and Detroit, the modern liberal economic argument has gone completely bankrupt. That’s what Joseph E. Stiglitz proves in “The Great Divide.”

_piketty_krugman_stiglitz_wagnerThe book, which is a compilation of articles written over the past seven years by the former World Bank chief economist, is built on three major themes. First, it blames the financial crisis of 2008 on President George W. Bush, bankers, deregulation and inequality. Second, it laments the great income divide in America.

Mr. Stiglitz describes himself as a “comrade in arms” with contemporary Marxist economist Thomas Piketty, while making the argument that contemporary democracy is “closer to a system of one dollar one vote than to one person one vote.” Third, Mr. Stiglitz thinks that if he could just run the world, all would be well.

“In my [Oct. 17, 2008] Time article,” he writes, “I put forward a simple agenda [to fix the crisis]. Regrettably, what was done reflected more the interests and perspectives of the banks and the 1 percent than it did the agenda I laid forth.” Mr. Stiglitz proposed a five-step plan: recapitalize banks; increase bank regulation; stop foreclosures; boost stimulus spending; and create a new global financial-markets regulator. This agenda, he argues, was stymied by “the role of special interests in our politics.” The Troubled Asset Relief Program (TARP) bailed out shareholders—not homeowners. The stimulus was too small. And regulation didn’t go far enough.

Mr. Stiglitz claims that he saw the crisis coming, and in a general sense this is true. One of the pieces in this book was originally published in Vanity Fair in December 2007. Titled “The Economic Consequences of Mr. Bush,” the piece argued that the financial problems already evident in sub prime loans were caused by tax cuts for the wealthy, deficits, low interest rates and the war in Iraq. Later in the book, Mr. Stiglitz also blames Alan Greenspan, ratings agencies, regulators, mortgage originators and, for good measure, Ronald Reagan.

Some fiscal conservatives may find a little common ground with Mr. Stiglitz’s analysis—at least his 2007 analysis. Low interest rates were a problem. But conservatives didn’t like TARP because it implicitly admitted that the government was needed to save the economy. Mr. Stiglitz and other liberal economists argue that TARP was aimed at the wrong target—the 1%—while the 99% were left to manage on their own.Some fiscal conservatives may find a little common ground with Mr. Stiglitz’s analysis—at least his 2007 analysis. Low interest rates were a problem. But conservatives didn’t like TARP because it implicitly admitted that the government was needed to save the economy. Mr. Stiglitz and other liberal economists argue that TARP was aimed at the wrong target—the 1%—while the 99% were left to manage on their own.

Joe Stiglitz's Great DivideThe reality, however, is that the financial crisis was not caused by inequality or by banks. It was caused when the government used Fannie Mae and Freddie Mac, under the banner of equality, to encourage subprime lending to promote home ownership. Then the government allowed a very strict mark-to-market accounting rule to be enforced, turning a fire into an inferno. The crisis would have never spun out of control if government had avoided overly strict mark-to-market accounting rules.

Mr. Stiglitz acknowledges that global inequality has narrowed in recent decades, but he says that “American inequality began its upswing 30 years ago, along with tax decreases for the rich and the easing of regulation on the financial sector.”

He contrasts this with the decades after World War II, when the U.S. “grew at its fastest pace, and the country grew together.” But now, he says, “the American dream is a myth.” The 1% are sailing along, while the rest are drowning. Like advisers to FDR who believed the Soviet Union had found the secret to growth through central planning, Mr. Stiglitz holds up China as a role model, praising the country’s top-down economic management. Yet the truth is that embracing Western-style free markets and adopting technologies invented in the U.S.—not central planning—have lifted hundreds of millions of Chinese out of poverty.

A running theme of the book is that the American dream is dead because policy makers have failed to implement truly liberal policies. But for the past 50 years, liberals have gotten almost exactly what they wanted. Between 1950 and 1965, government spending outside of defense was just 7.8% of GDP.

Liberals weren’t happy with that, so they proposed to make America a “Great Society” by creating the modern welfare state along with Medicare and Medicaid. After five decades of growth in these redistribution programs, non defense government spending is now 16.8% of GDP. In other words: Core, prosperity-sharing government spending has more than doubled, while military spending has fallen from 9.5% of GDP to less than 3.5%.

Liberals have shaped the tax code to their preference as well. In 1979 the top 1% paid 14.2% of all federal taxes. In 2011 that share had risen to 24%. The lowest quintile paid just 0.6% of all federal taxes in 2011, down from 2.1% in 1979. Following the expiration of the temporary Bush tax cuts in 2012, and the new surcharges in ObamaCare, this dichotomy has widened.

Mr. Stiglitz constantly refers to income inequality without adjusting for taxes and transfers. But this is misleading. A 2014 Congressional Budget Office (CBO) study showed that the lowest quintile of income earners saw their market income grow just 16% between 1979 and 2011, while the highest quintile experienced a 77% increase. But after adjusting for taxes and transfers, the CBO found that the lowest quintile, which receives about a third of its income from transfers, saw an increase in income of 72%, while the top quintile had a gain of 87%. In other words, liberal policies of tax and redistribute have created a much more level playing field than liberals will admit.

Liberals are like the dog that finally caught the car. Now what will they do? If Mr. Stiglitz is indicative, they will gripe about the wealthy, argue that their ideas of redistribution weren’t tried hard enough and blame self-interest for hampering real progress. Conservatives said that our current fiscal path would be bad for the economy; liberals insisted that it would be good. The fact that Mr. Stiglitz is still complaining would seem to be proof that liberals were wrong.

Mr. Wesbury is chief economist at First Trust Advisors LP in Wheaton, Ill.

Leadership by moral legitimacy

June 7, 2015

Leadership by moral legitimacy

by Graham Harris*

*After completing a degree in Botany and PhD in Plant Ecology atgraham_harris Imperial College, London in the late 1960s, Professor Graham Harris worked at McMaster University in Canada for 15 years where he became a Professor of Biology and carried out research on the ecology and management of the Laurentian Great Lakes.

He came to Australia in 1984 and worked for CSIRO for over 20 years where he held many research management and senior executive appointments. Graham has worked in a range of disciplines including plant ecology, freshwater and marine ecology, space science and remote sensing. He was the foundation Chief of Division for CSIRO Land and Water, and until 2003 he was Chairman of the CSIRO Flagship Programs. After completing this task he stepped down as Flagships Chair and was made a CSIRO Fellow. He left CSIRO in early 2005.

Graham is the Director of ESE Systems Pty. Ltd., a consulting company specialising in research into, and the management of, complex environmental, social and economic systems. He is an advisor to a range of universities, research agencies, private companies and government jurisdictions both in Australia and overseas.

Graham is an Affiliate Professor at the Centre for Environment, University of Tasmania and an Honorary Research Professor in the Sustainable Water Management Centre at Lancaster University, UK. He was awarded the CSIRO Chairman’s Gold Medal in 1996 and was elected a Fellow of the Australian Academy of Technological Sciences and Engineering in 1997. In 2002 he was elected a life member of the International Water Academy, Oslo. He was awarded the Australian Centenary Medal in April 2003 for services to environmental science and technology. Graham has published more than 140 papers, and three books. His latest book Seeking sustainability in an age of complexity was published by Cambridge University Press in June 2007.

The_Thinker_in_NTHU_TaiwanThe Thinker @NTHU, Taiwan

We still seem to be fighting Cold War battles over whether neoliberalism and individualism – the “bottom up” strategy – is the best model for modern democracies, or whether more state intervention – the “top down” control model – is preferable. The debate in the West is quite brutal with polarized politics and biased media coverage frequently providing only a partial view.

[The Web does however provide an antidote to the prevailing ethos by providing access to other points of view; blogs by George Monbiot and Harry Shutt for example.]

When confronted by complexity most of the decisions we must make are not just uncertain they are logically un-decidable (see Pascal Perez’s comments on my last post). The fundamental problem is that “facts” and models in such situations are under determined; they are inevitably supported by beliefs about what counts as evidence and what constitutes a proof, and values creep in. Without an appropriate moral stance to aid decision-making these limitations are becoming ever more obvious.-G. Harris

As we find we have to deal more and more with systems of systems – which requires both systems thinking and an appreciation of complexity – we are finding that simple slogans and remedies do not suffice (even though the air waves and the Web are flooded with them). To quote H.L. Mencken “For every complex problem there is an answer that is clear, simple, and wrong.” The predominant debate is too simplistic and does not provide sufficient nuances or sophistication.

I am reminded of David Berlinski’s concluding words in “On systems analysis: an essay concerning the limitations of some mathematical methods in the social, political and biological sciences” (1976): viz. “Grand efforts brought low by insufficient means”.

When confronted by complexity most of the decisions we must make are not just uncertain they are logically un-decidable (see Pascal Perez’s comments on my last post). The fundamental problem is that “facts” and models in such situations are underdetermined; they are inevitably supported by beliefs about what counts as evidence and what constitutes a proof, and values creep in. Without an appropriate moral stance to aid decision-making these limitations are becoming ever more obvious.

Faced with such a situation we have both a knowledge problem and a collective action problem – and they are inextricably intertwined. The conjunction of constraints, complexity and community provides us with a perfect epistemological, political and moral storm. There is a moral space for communities to fill, but it is presently vacant. We require a new approach.

David Colander and Roland Kupers in “Complexity and the art of public policy: solving society’s problems from the bottom up” (2014) – hereafter C&K – have provided an alternative – middle ground – view on how to organise institutions and economics in a complex world. They favour what they call laissez-faire activism – combining both top down and bottom up innovation and facilitation. In a complex system of systems knowledge will always be partial, and neither the market nor state regulation will be able to provide complete solutions. History shows us the truth of this.

We can do without the brutal debates between the political right and left (they are more and more indistinguishable anyway), between the positivists and the relativists or between, say, the followers of Hayek or of Keynes. Indeed C&K show how the debate has been engineered to deliberately polarise the political and economic landscapes. The original positions of many intellectual luminaries were much more nuanced and sophisticated than is now made out. It is the old story: the messiah got it right – just beware the disciples.

Through the air waves and the Web we are flooded with emotivism. The polarised Western debate is no more than this. Statements of the form “this is good” can be taken to mean “I approve of this: do so as well”. Our moral debate consists mostly of shrill, impersonal assertions; our language of morality is in a state of disorder.–G. Harris

As Kwame Anthony Appiah has argued in “Cosmopolitanism: ethics in a world of strangers” (2006) the prevalent liberalism and positivism favours the belief in value free (scientific) “facts” because we can hold and assert our own individual beliefs. Values, on the other hand, are more about things we share and how we deal with each other in communities. So values require us to discuss and debate their context and efficacy, but because the mantra is “there is no such thing as society” we rarely do this.

C&K take an optimistic view of people as “smart and adaptive” and argue that the role of government is to set norms for behaviour and to provide leadership by moral legitimacy. They agree with Kwame Anthony Appiah who argued in “The honour code: how moral revolutions happen” (2011) that it is morality and values – our shared norms – that best regulate how we deal with each other and our environment.

Alasdair MacIntyre in “After virtue” (2007, 3rd Ed.) has argued that one of the main failures of modernity has been the demise of morality and the instrumental behaviour of bureaucrats and corporate managers in commercial and institutional settings. There is much confusion of means and ends and people and the environment frequently get used and abused. This is also true of politicians and politics and it explains why there is an evident and rapid decline in trust.

Through the air waves and the Web we are flooded with emotivism. The polarised Western debate is no more than this. Statements of the form “this is good” can be taken to mean “I approve of this: do so as well”. Our moral debate consists mostly of shrill, impersonal assertions; our language of morality is in a state of disorder.

At the moment there seem to be few sanctions for unethical or even criminal behaviour in many spheres of public life. Despite clear indications of criminal activities associated with the financial crash of 2008 and of irregularities in global markets since – collusion and market rigging – very few sanctions or criminal prosecutions have been pursued. Worse there is no evidence that anyone feels shame or remorse. The guardians have been inactivated.

Environmental degradation is, likewise, a moral issue. No amount of attempts to monetise environmental values or design market-based instruments will alter this. Easily quantifiable substances like water and carbon dioxide may be traded, but for complex 2nd order cybernetic entities like ecosystems everywhere is different. Concepts like markets for ecosystem services and biodiversity offsets are therefore a fraud. We cannot swap like for like and ill-defined incommensurate values cannot be monetised. Offset payments to a conservation fund are a sop for the conscience.

To arrest the decline in trust and moral behaviour Appiah and MacIntyre argue that we need a return to concepts of virtue, honour, shame and esteem. To grease the wheels of society we need a debate about codes of honour that are compatible with morality and professional ethics. We can have positive regard for people who meet certain standards of behaviour and we can sanction those who do not. Those standards need to be debated, clearly stated and enforced.

C&K see a key role for government in providing the leadership and in setting those norms. Geoffrey Brennan and Philip Pettit have noted in “The economy of esteem: an essay on civil and political society” (2005) that because we all (should) have a stake in making society work the cost of policing an honour world is very low and we do not have to worry about who is guarding the guardians. We all have a role to play.

Now I am sure some will argue that liberalism and modernism have defeated such outdated concepts, but the failings of Western politics since the 1970s are now clear: instrumental reason, rising inequality, environmental degradation, lack of political will and moral corruption. Governance and leadership by moral authority and legitimacy? Now wouldn’t that be something to behold!

Book Review: Chinese Politics in the Era of Xi Jinping

May 21, 2015

Phnom Penh

BOOK Review

Book Review: Chinese Politics in the Era of Xi Jinping

by John Berthelsen

Renaissance, reform or retrogression?  By Willy Wo Lap Lam. Routledge, 323 pp, softcover, available in local bookstores

China by JBIt often appears there are two Chinas – one fast-rising, showing an aggressive face to the world, building an infrastructure empire, a network of Silk Roads that stretches from Pakistan’s Gwadar Port to the corners of Southeast Asia, dominating the South China Sea, pillaging resources from as far away as Africa, with all roads leading to Beijing much as they led to Rome in the Roman Imperium.

There is a second China, however, that is in a welter of ferment.  It is this China that preoccupies Willy Wo Lap Lam, a widely recognized authority on China, who has formerly held senior editorial positions with the South China Morning Post, CNN and Asiaweek and is now an academic. From the very introduction of this book onward, it is clear that he is a pessimist on China and is not a fan of Xi Jinping, who has battled his way to the top.

“While China is on course to overtake the United States as the world’s biggest economy soon,” he writes, “Chinese who do not belong to the ‘red aristocracy’ – a reference to the unholy allowance between top cadres and their offspring, on the one hand, and big business groups, on the other, see no cause for optimism.” 

Certainly Xi represents a dramatic change from his predecessor Hu Jintao, who with Premier Wen Jiabao presided over historic economic change while the party stultified and fell into a stew of venality. But although Xi has kicked off the biggest anti-corruption campaign since the advent of Communist government, with as many as 200,000 people arrested or otherwise disciplined, it is still unclear whether the cleanup masks a surgical expedition to clear out Xi’s enemies and potential rivals.  The  biggest to fall is famously Zhou Yongkang, “Uncle Kang,” the former head of China’s security apparatus and an ally of Bo Xilai, the now-imprisoned boss of Chongqing and a major opponent.  Zhou is the highest public official ever to be prosecuted. But Xi has also cleared out the entire top of the country’s oil and gas sector – where Zhou’s son was a top official.

Lam’s 323-page analysis of Xi’s rise to power is deeply detailed and essential reading for anybody who is interested in the China that lurks behind the confident consolidation of government that has gone on since he became the head of the government in November 2012.  In particular,  of interest is the reversal of philosophy from that put in place by Deng Xiaoping, who in the wake of the terrors and capricious actions that characterized Mao Zedong’s later years, created a collegial and collective leadership. 

Xi is clearly having none of that. He has sidelined or pushed aside most of his rivals. The first to go was Li Keqiang, the prime minister put in power as his Sancho Panza, who quickly learned that he was a distant number two. Li rose through the ranks in the Communist Youth League and was an ally of Hu Jintao, the former leader. Hu was unceremoniously dumped by Xi in the 2013 party conference that brought Xi to power, unable to retain any of his former titles including those connected to the military. Although Li is a trained economist and touted “Likonomics” at the outset of his premiership, Xi is clearly in charge of economics, along with everything else.

“…Compared to both ex-presidents Jiang Zemin and Hu, the leader of one-fifth of mankind is a relatively simple person committed to defending what he regards as self-evident truths,” Lam writes. Including those is a notion that “the nature of the Party will never change.”  There has been no  thought of democratization and no letup on the war on intellectuals, the press and those who do not believe in communist orthodoxy. “Any idea that the party will undergo ‘peaceful evolution’ is out of the question.”

The Internet, perhaps the most opportunistic venue for subversion, is being tightened even further. Since Lam’s book has come out, the “great cannon” has been added to the “great firewall” as a new tool for censorship, pouring massive sprays of traffic against enemies in an attack called “distributed denial of service or DDOS target two anti-censorship sites in the US and closing them for days.

David Shambaugh, for decades one of China’s most optimistic backers in the west, shocked the world of sinologists by saying the China system was inevitably doomed.  Is Lam that pessimistic?

“Even more than factors such as shifts in China’s foreign and defense policies,” Lam writes, “the most important determinant of the trajectory of China’s development in the twenty-first century will be domestic questions. Foremost is whether China will pick a development path that favors the construction of a real market economy and a just and passionate society that embraces values such as the rule of law and equal opportunity.”

The next decade of China’s development under Xi probably isn’t going to meet those goals. Lam quotes Xi as saying the country could be undermined by “subversive mistakes.” What he meant, Lam says, “are economic, social or political policies that would compromise the monopoly on power that is enjoyed by the CCP – or more specifically, the party’s ruling elite, also known as the “red aristocracy.”  That is not a cause for optimism.

Triumph of the Unthinking

May 13, 2015

Triumph of the Unthinking

by Paul Krugman

John-Maynard-Keynes-190Words,” wrote John Maynard Keynes, “ought to be a little wild, for they are the assault of thoughts on the unthinking.” I’ve always loved that quote, and have tried to apply it to my own writing. But I have to admit that in the long slump that followed the 2008 financial crisis — a slump that we had both the tools and the knowledge to end quickly, but didn’t — the unthinking were quite successful in fending off unwelcome thoughts.

And nowhere was the triumph of inanity more complete than in Keynes’s homeland, which is going to the polls as I write this. Britain’s election should be a referendum on a failed economic doctrine, but it isn’t, because nobody with influence is challenging transparently false claims and bad ideas.

Before I bash the Brits, however, let me admit that we’ve done pretty badly ourselves.It began very early. President Obama inherited an economy in free fall; what we needed, above all, was more spending to support demand. Yet much of Mr. Obama’s inaugural address was given over to boilerplate about the need to make hard choices, which was the last thing we needed right then.

It’s true that in practice Mr. Obama pushed through a stimulus that, while too small and short-lived, helped diminish the depth and duration of the slump. But when Republicans began talking nonsense, declaring that the government should match the belt-tightening of ordinary families — a recipe for full-on depression — Mr. Obama didn’t challenge their position. Instead, within a few months the very same nonsense became a standard line in his speeches, even though his economists knew better, and so did he.

So I guess we shouldn’t be too harsh on Ed Miliband, the leader of Britain’s Labour Party, for failing to challenge the economic nonsense peddled by the Conservatives. Like Mr. Obama and company, Labour’s leaders probably know better, but have decided that it’s too hard to overcome the easy appeal of bad economics, especially when most of the British news media report this bad economics as truth. But it has still been deeply disheartening to watch.

What nonsense am I talking about? Simon Wren-Lewis of the University of Oxford, who has been a tireless but lonely crusader for economic sense, calls it “mediamacro.” It’s a story about Britain that runs like this: First, the Labour government that ruled Britain until 2010 was wildly irresponsible, spending far beyond its means. Second, this fiscal profligacy caused the economic crisis of 2008-2009. Third, this in turn left the coalition that took power in 2010 with no choice except to impose austerity policies despite the depressed state of the economy. Finally, Britain’s return to economic growth in 2013 vindicated austerity and proved its critics wrong.

Now, every piece of this story is demonstrably, ludicrously wrong. Pre-crisis Britain wasn’t fiscally profligate. Debt and deficits were low, and at the time everyone expected them to stay that way; big deficits only arose as a result of the crisis. The crisis, which was a global phenomenon, was driven by runaway banks and private debt, not government deficits. There was no urgency about austerity: financial markets never showed any concern about British solvency. And Britain, which returned to growth only after a pause in the austerity drive, has made up none of the ground it lost during the coalition’s first two years.

Yet this nonsense narrative completely dominates news reporting, where it is treated as a fact rather than a hypothesis. And Labour hasn’t tried to push back, probably because they considered this a political fight they couldn’t win. But why?

Mr. Wren-Lewis suggests that it has a lot to do with the power of misleading analogies between governments andDr Paul Krugman households, and also with the malign influence of economists working for the financial industry, who in Britain as in America constantly peddle scare stories about deficits and pay no price for being consistently wrong. If U.S. experience is any guide, my guess is that Britain also suffers from the desire of public figures to sound serious, a pose which they associate with stern talk about the need to make hard choices (at other people’s expense, of course.)

Still, it’s quite amazing. The fact is that Britain and America didn’t need to make hard choices in the aftermath of crisis. What they needed, instead, was hard thinking — a willingness to understand that this was a special environment, that the usual rules don’t apply in a persistently depressed economy, one in which government borrowing doesn’t compete with private investment and costs next to nothing.

But hard thinking has been virtually excluded from British public discourse. As a result, we just have to hope that whoever ends up running Britain’s economy isn’t as foolish as he pretends to be.

Why Social Progress Matters

May 6, 2015

Phnom Penh by The Mekong

Why Social Progress Matters

by Michael Porter

CAMBRIDGE – Economic growth has lifted hundreds of millions of people out of poverty and improved the lives of many more over the last half-century. Yet it is increasingly evident that a model of human development based on economic progress alone is incomplete. A society which fails to address basic human needs, equip citizens to improve their quality of life, protect the environment, and provide opportunity for many of its citizens is not succeeding. Inclusive growth requires both economic and social progress.

Michael_porterThe pitfalls of focusing on GDP alone are evident in the findings of the 2015 Social Progress Index, launched on April 9. The SPI, created in collaboration with Scott Stern of MIT and the nonprofit Social Progress Imperative, measures the performance of 133 countries on various dimensions of social and environmental performance. It is the most comprehensive framework developed for measuring social progress, and the first to measure social progress independently of GDP.

Drawing on 52 indicators of a country’s social performance, the SPI offers a practical tool for government and business leaders to benchmark country performance and prioritize those areas where social improvement is most needed. The SPI thus provides a systematic, empirical foundation to guide strategy for inclusive growth.

The data reveal that many aspects of social progress, not surprisingly, tend to improve with income growth. Wealthier countries, such as Norway (which holds the top spot on this year’s SPI), generally deliver better social outcomes than lower-income countries.

But a striking finding is that GDP is far from being the sole determinant of social progress. Costa Rica, for example, has achieved a higher level of social progress than Italy, with barely a third of Italy’s per capita GDP.

And Costa Rica is not an isolated case. Across the spectrum of countries, from rich to poor, we see examples, such as New Zealand and Senegal, that are far more successful at translating their economic growth into social progress than others, such as the United States and Nigeria. Many of the fast-growing emerging economies, including China and India, have also not yet been able to attain the level of social progress that their economic progress enables.

Where there is an imbalance between economic growth and social progress, political instability and unrest often arise, as in Russia and Egypt. Lagging social progress also holds back economic growth in these and other countries that fail to address human needs, build social capital, and create opportunity for their citizens. Countries must invest in social progress, not just economic institutions, to create the proper foundation for economic growth.

In my own experience, I have seen how Rwanda made investing in social progress – including gender equity, a 61% reduction in child mortality in a single decade, and 95% primary school enrollment – integral to its economic development strategy. Rwanda’s positive economic performance would not have been possible without improvement in these and other dimensions of social progress.

Focusing on social progress in this way leads to better development strategies, and builds political support for the controversial steps sometimes needed to increase prosperity. Rigorous measurement of social performance, alongside traditional economic indicators, is crucial to starting the virtuous circle by which GDP growth improves social and environmental performance in ways that drive even greater economic success. And, by avoiding narrow debates, such as GDP versus income inequality, the SPI provides an essential tool with which to craft a feasible agenda that does just that.

Interest in the SPI has grown exponentially since its beta release in 2013. Findings are being shared among millions of citizens around the world, making it a tool for citizens to hold their leaders accountable.

Moreover, strategic initiatives to drive improvement in social progress are underway in more than 40 countries. Paraguay, for example, has adopted the SPI to guide an inclusive national development plan for 2030. And the SPI is being used not just at the national level, but by regional and municipal authorities as well. States such as Para in Brazil, along with cities like Bogota and Rio de Janeiro in Latin America and Somerville in the US state of Massachusetts, are starting to use the SPI as a measure of development success.

This year, the European Commission will roll out regional SPIs across Europe. And companies, such as Coca-Cola and Natura, are using the SPI to inform their social investment strategies and build collaborative relationships with public and private partners.

GDP has been the benchmark guiding economic development for more than a half-century. The SPI is intended to complement (not replace) it as a core metric of national performance. Measuring social progress offers citizens and leaders a more complete picture of how their country is developing. And that will help societies make better choices, create stronger communities, and enable people to lead more fulfilling lives.