All Social Policy
Carlyle called economics the “dismal science” and the name
stuck. But it’s not dismal science. It’s dismal history.
It’s impossible to concoct economic experiments the way a
physicist composes experiments. All the economist can do is
look at what’s happening—or, more frequently, what’s happened—in
the real world. The deep scientific name for this study is
econometrics. The result is a Niagara of statistics.
That’s why the financial pages in a newspaper resemble the
sports pages. The sports and financial pages are filled with
indisputable facts (the fund managers, the team managers)
and statistical records (strikeouts, defaults, touchdowns,
People clever with numbers sometimes make prediction as to
what’s going to happen in sports or finance. And if you’re
the innocent sort who believes what the deep-voiced sports
forecaster predicts, you should not go near the stock market
but keep your money under your mattress.
Now that we’ve come clean on the limits of economics as a
science, let’s turn to economic policy. The idea that economic
policy is just economics in action is equivalent to saying
that deciding to bomb Hiroshima is just putting nuclear physics
President Barack Obama urged Congress to get to work on economic
policy in a bipartisan way. He invited some senators and representatives
for bipartisan cocktails and had others watch the bipartisan
Super Bowl with him. All very friendly. Everyone knew what
the economic statistics showed: the falloff in trade, upsurge
in unemployment and mortgage defaults, the collapse of banks,
the plunge in stock values, the drop in commodity markets,
the implosion in derivative markets, the vanishing of credit.
The numbers described an economic collapse. Furthermore, the
numbers had been getting worse for more than a year and were
now worsening faster.
After the football game, after the corn chips and beer, the
lawmakers sobered up and got to work. The result was one of
the most partisan knock-down drag-out displays in recent memory.
Most people were surprised by the verbal slugfest. But nobody
should be surprised.
Economic policy is social policy—memorize that—and social
policy is all about constructing the kind of society you want
to live in. In other ages, Democrats and Republicans might
have had more agreement on what constituted the good society,
but not today. Nowadays, many Republicans don’t even call
the Democratic Party by its own name but insist on calling
it the “Democrat” Party. The awkward and ungrammatical usage
has no purpose beyond juvenile spite.
Michael Steele, the new chairman of the Republican Party,
addressed the nation just as our senators were butting heads
on the stimulus bill. According to Steele, Democrats were
“trying to force a massive spending bill through Congress
under the guise of economic relief.” Well, yes, any decent
stimulus bill is going to spend massively.
The chairman then mischaracterized the Democratic bill a couple
of times. Steele boasted, “Republicans have offered innovative
ideas to help struggling families and small businesses.” By
my count he offered a grand total of two ideas: “stop the
taxation of unemployment benefits” and “lower taxes for all
working American families.”
Economists believe that cutting taxes produces quicker but
smaller benefits compared to stimulus spending. Here’s why
benefits are smaller. Steele says families will “spend it,
save it, or invest it.” But most families won’t invest in
today’s stock market and saving their money won’t stimulate
the economy. Spending will help, but if they buy foreign goods—and
many, many goods are foreign—the final dollar goes to China
or Sri Lanka, not the United States.
On the other hand, if you pay our workers to repair our bridges
and build our schools, the money energizes this country and
we end up with a safe bridge and a new school.
Cutting taxes for “all working American families” sounds egalitarian,
but among other things, it means cutting taxes for the top
percent of the population. The last time I looked, the top
20 percent of the people held over 84 percent of the nation’s
wealth, leaving less than 16 percent for the bottom 80 percent
of the population.
It may strike us unthinkable that a group of conservative
Republicans would purposely weaken the stimulus plan in order
to have it fail. On the other hand, the last Republican president
was willing and eager to lead the nation into an optional
war that had catastrophic consequences. Nothing is really