Monday, March 11, 2019

Book event on Kim Clausing's Open

Today we had a book event at NYU Law School on Kim Clausing's new book, Open: The Progressive Case for Free Trade, Immigration, and Global Capital. I offered brief comments after Kim's opening presentation, and Timothy Noah, as moderator, added questions and comments.

Here is a quick version of much of what I said at the event, expanded from my notes:

This is a great book that performs a valuable public service in bringing important and widely misunderstood ideas, of great current political and policy relevance, accessibly to the attention of a broader audience. In one sense, however, it's a commenter's nightmare! The problem I have in that regard is that I agree with too much of it, whereas commentators are more fun to hear when they offer criticism. But.luckily, I know the standard fallbacks that academic commenters have used, when faced with this problem, for decades, if not longer.

"Why did you write THIS book, instead of a different one?" - I get this all the time, as do plenty of other people when they present their work at a given forum. Usually the person who makes such a comment has a perfectly good hypothetical book in mind. But this doesn't weigh against the value and importance of the book that the author actually did write. Nonetheless, faute de mieux I will not completely refrain from using it below.

"If X is such a great idea, why isn't it already happening?" - This was a favorite at the University of Chicago, where I spent 8 quite happy years before coming to NYU Law School in 1995. It is an application of the old joke in which the economist says: "That can't be a $20 bill on the floor right by my feet, even if it looks like one. Because if it really were a $20 bill, someone would have picked it up already."

The sense in which I am reminded of it here is that Open proposes a political Grand Bargain, involving a decent swathe of the political spectrum and buy-in from many in the top 0.1% and the business, with features that would include the following: far more extensive free trade (and immigration) but with help offered to those displaced by the transitions, a decent safety net, better infrastructure, better education and healthcare, more support for basic scientific research, sound macroeconomic policy, proper financial regulation, and policies addressing climate change,

Surely this set of policies could attract enough consensus support that there would be no need to write a book advocating them. Indeed, I would "predict" (a favorite phrase among academics, when they aren't actually predicting the future) that surely we must have these policies already.

No, wait a second, strike that.

If one had to find a "weakness" in the book, but only by being unfair, it doesn't show how, as a matter of politics, we can get to a reasonable policy space, But that not only would be a version of the "different book" complaint, but would involve deeming it a "weakness" not to have found something that isn't there. When you have a political system that's rife with bad people, bad power imbalances, and bad incentives, you get collective $20 bills (so to speak) just staying, and indeed accumulating, on the floor.

That said, here are three quick sets of comments on particular topics in the book:

High-end inequality - I've long been a proponent of breaking down "inequality" talk into at least two distinct realms: high-end inequality or problems of plutocracy, and low-end inequality or problems of at least relative deprivation. (One could add more categories if one liked, e.g., addressing patterns in the middle.) Aiming to raise those at the bottom is commanded by beneficence, while wanting to lower those at the top requires a different sort of motivation, which I'd put in terms of the negative externalities resulting from extreme concentration at the top. For now, I'll note just that, while the difficulty of enacting a clearly desirable Grand Bargain has many causes, to my mind one of them is the extreme concentration of both political and economic power at the top in current U.S. society. Plutocratic outliers want it all, they're mainly not interested in Grand Bargains, and the darkening ripple effects throughout the society of extreme high-end wealth concentration make reasonable policy outcomes less accessible still.

Low-end inequality - In addition to arguing that trade and immigration are on balance good for all - not just for those at the top - and that trying to unwind them would only make things worse still, the book offers wide-ranging suggestions for helping those who have been at least relatively left behind. At the risk of entering the "different book" realm, I just want to suggest that yet further expansion of policy debate might be of interest. For example, the book mentions using at least modest negative income taxation to address the distributional impact at the bottom that stand-alone carbon taxes and VATs would likely have. And it urges expanding the earned income tax credit (EITC), thus helping, as the saying goes, to "make work pay." Whatever one's ultimate policy conclusions, I'd propose adding still more items to the discussion list. A huge issue is the relationship between work and distributional aid at the bottom. E.g., discussion of demogrants or Universal Basic Income on the one hand, and federal job guarantees on the other.

Tax policy - Recent talk about increasing tax progressivity at the top has focused on at least 3 alternative approaches: (1) significantly raising the top marginal tax rate (as per AOC and Diamond-Saez, (2) enacting a wealth tax (as per Elizabeth Warren), and (3) raising the capital gains rate and estate taxation (e.g., Bill Gates).

The book is mainly in the third of these camps, based partly, but not wholly, on the idea of a widely politically palatable Grand Bargain. I myself am somewhat agnostic in this fight, and/or believe there could be some of each, with the details being vital to the merits, but I'm not convinced that a Grand Bargain is in the offing anyway, so I suppose a fella might as well dream in multiple channels. But my point for now is just to keep the set of alternatives more open (no pun intended).

I'd also note a possible downside to the book's view that capital gains rates should generally be the same as ordinary income rates. Capital gains realization tends to be far more elastic than labor supply, reflecting that it's often easier to just keep holding an appreciated asset than to change how much one earns and works in a given period. So, at least absent further structural changes to the tax system, one oughtn't too swiftly to rule out ordinary income rates that are higher than capital gains rates.

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