The inconsistencies between Clausing 1.0 and Clausing 2.0 are indicative of an economics profession that has eschewed its own humble insights.
What to do when an economic change — lower tariffs and trade barriers, easier mobility of capital and labor, technological innovations — increases the size of the pie, but the size of some people’s slices of the pie gets smaller, not only relatively, but also absolutely. This is the nub of the problem Richard Spady focuses on in “Economics as an Ideology.”
Spady has a formally narrow focus on economics, but the policy implications are much broader. His narrow focus is the way economists, at least “ideological economists,” glide too easily between two notions of efficiency. One notion focuses on the size of the overall pie. “Kaldor-Hicks” efficiency stands for the proposition that a move is efficiency enhancing if the gain in the size of the pie, relative to any losses, could (hypothetically) compensate the losers in the move, thereby making everyone better off. The other definition is Pareto efficiency, that there is no change that could be made such that some people would be better off without leaving even one other person worse off. Every Pareto-improving move will be Kaldor-Hicks improving, but not every Kaldor-Hicks improvement will be Pareto improving.
The thing is, while powerful when it can be satisfied, the Pareto criterion is a harsh taskmaster for economists and policy makers. The Kaldor-Hicks criterion is much easier to apply, and to satisfy. Because any transfers are hypothetical, a Kaldor-Hicks improvement really only means that a change is efficiency enhancing if it increases the size of the pie. A rising tide is Kaldor-Hicks improving whether all boats rise with it or not.
But gliding seamlessly from the Pareto criterion to the Kaldor-Hicks criterion, conflating them, means the people who lose in a transition become invisible. Here Spady’s argument intersects with common arguments today regarding the difficulties facing the American working class, particularly white working class men without college degrees. There is plenty of evidence for this: Death rates have been increasing for middle aged white men without college degrees in the U.S. since about 2000. Death rates for African American men without college degrees remain higher than for white men without college degrees. And while these death rates had been declining until 2013, they, too, took an uptick starting in 2013.
This group of whites left behind by the economy are also the core of the Trump constituency. Spady’s analysis is consistent with those who argue that Trump’s political success stemmed from this opening: He addressed a sizeable electoral group whose interests had been neglected by American political leaders of both parties over the last generation or so.
Spady focuses on Americans who have lost in the last generation because of shifts in trade, globalization, and technology, and whom, he argues, had been cut loose by American political and economic elites.
He posits three possible reasons why American elites have cut loose much of the American working class in the last generation. First, “[American elites] have all been direct economic beneficiaries” of the increase in international trade, not withstanding the losses among sections of the American working class. Secondly, the economic processes of the last generation have brought “large populations [throughout the world] from abject poverty,” nodding implicitly at reports that somewhere in the neighborhood of one billion people throughout the world have moved out of the ranks of “extreme poverty” in the last generation.
Thirdly, though, what about compensating Americans who lose in the global economic upheaval of the last generation? Spady writes:
Here we note a change in our public culture that is fairly recent, corresponding quite closely to accelerating globalization after 1989. These days, the losers are increasingly characterized as untalented, backward sorts. They are portrayed as morally less deserving than the foreign poor whose labor has displaced theirs. One can find religious leaders arguing, in effect, that American losers in globalization are less deserving in the eyes of Christ than the global poor uplifted by the changes of the last generation. Here is an example of a “comprehensive doctrine” welcomed by our technocratic, Rawlsian elites because it has a net positive effect on global utility by smoothing the way for its further beneficent development. It dampens populist resistance to globalization, or at least discredits it as morally reprehensible. In a global perspective, those American workers with depressed wages are rich. Why are the ingrates complaining?
I’m not entirely sure which religious leaders or other elites make this form of argument directly. To be sure, with Hillary Clinton’s language characterizing Trump supporters as composed of numerous “deplorables,” he doesn’t need to reach too far.
Yet at the end of it all, does Spady give us anything different in principle, or would he simply draw a slightly different line than the one drawn over the last generation?
Much of Spady’s argument implicitly concerns what I style as the break down in solidarity between the top third of American society (the elites, although I’m unsure being in the top third truly qualifies one as “elite”) and the middle third of American society in particular. The top third has generally gained, the middle third has borne losses, at least sectorally.
But just what would Spady do beyond counseling that elites “apologize” for the negative consequences of the last generation? Spady seems to reject Kaldor-Hicks compensation schemes as overly bureaucratic and intrusive. Is it all merely a matter of slowing down the transformation, à la Karl Polyani’s suggestion after all the crying in The Great Transformation?
Here’s the issue. Granting an appropriate solidarity between fellow nationals, what is the appropriate trade off, domestically, between solidarity and a bigger economic pie over all? Should policies that increase American wealth over all, but are not Pareto improvements, never be taken? If they can or should be taken, how would Spady have the nation respond to the losers in the process?
Secondly, with a nod, again, to all appropriate solidarity with one’s fellow nationals, Spady, too, would not ignore entirely the wellbeing of foreign nationals. As I’ve asked elsewhere, how many foreigners is an American worth? The question may sound factitious, but I don’t mean it that way. There’s an implicit tradeoff between improving the standard of living for middle class American whites, and growth from outsourcing in the developing world, and this is true no matter where one is on the spectrum (except at the outermost extremes).
I certainly don’t take Spady to suggest that no American job should be traded off no matter what domestic or international gains. But I don’t take the people Spady criticizes to suggest that domestic or international gains justify whatever American jobs are lost in the process. Perhaps it’s one of those “I-can-tell-it-when-I-see-it” things. The thing is, it seems one can concede any number of the powerful, careful arguments Spady advances in the article. But after reading it I am unsure what changes Spady would have made in the last generation of the economic and social experience of Americans over all, and working class Americans in particular.