This past weekend, two influential economic commentators, Niall Ferguson and Robert Shiller, pronounced importantly different views of what is needed for a continuing successful future for our society. Perhaps characteristic of the venues, Ferguson wrote in the weekend (June 8-9) Wall Street Journal, drawing from his new book, “The Great Degeneration..” and Shiller wrote in the June 9th SundayNew York Times.
It won’t surprise readers of this blog that I am much more sympathetic to the views of Niall Feguson, who presents startling…and embarrassing statistics… showing a deteriorating position for the US for economic freedom, regulatory efficiency, reliable legal apparatus and defense of property rights, and global competitiveness. At one time, the US was the world’s unparalleled standard bearer on these dimensions and many US institutions are founded and run on fostering these characteristics for the rest of the world. If the change in relative position were a case of the pupils excelling their teacher, we could be happier about this result. Ferguson believes, and I suspect he’s right, that instead, this decline reflects a true degeneration. He cites classic theory to suggest that it may be the inevitable outcome of all republics (governments of the people, by the people, for the people) “giving way to oligarchy or tyranny”, where the chief benefits of a society flow only to the powerful. More optimistically, he cites many ongoing advantages to American society, relative to other already developed economies, but still faults many poor policy choices, especially in the tax and regulatory environment, and particularly at the federal level. His cure would be an honest look at and a careful dismantling of the impediments we’ve created to economic success.
At the outset of Robert Shiller’s piece, I was excited to see a well respected voice argue for a more nuanced approach to fixing the funding/benefits problem looming in Social Security. As I’ve commented in this blog ( “Elections have Consequences…” November, 2012) and elsewhere, there are many ways to fix the problem. No one of them needs to do all the work; and, in any case, trying to solve the problem on only one dimension is probably…and appropriately…politically impossible, even if it could be economically viable. Instead, small doses of those many forms of medicine will probably need to be combined in some form of generally tolerable prescription for the aggregate change to have any political viability.
Thanks to Shiller for adding another: benefit changes (presumably down as well as up) to reflect changes in real GDP per capita, rather than in mere CPI, chained or unchained. As he puts it, this would better insure that one generation doesn’t bear too much or enjoy too little of real changes in society’s overall welfare. Bravo! But, to my dismay, Shiller several times mentions, as if just in passing, that tax rates or the contribution base for employees, and employers, might have to be raised…as if that were an unimportant consideration. “So, be it”, he says, “…keeping our eyes on the integrity of Social Security, which is crucial to our identity as a civil society”. This sounded to me more like the classic logical fallacy of assuming the very thing to be proven (“begging the question”) and a politician’s pronouncement than the cooler perspective of a social scientist. Similarly, he makes only very brief mention of the relativesize of respective generations, thus dismissing probably the most important element in the arithmetic of inter-generational economic justice. How we divide up the per capita GDP of the economy as a whole will be hugely reliant on how many capita there are in one generation or another.