Monday, March 29, 2004

Kaldor-Hicks and Economic Growth

There is a lot of politically charged debate of late about how the economy is doing, whether it is "strong" and "growing" or whether it shows "continuing weakness." My own take on matters is that the economy is growing just fine, but that's not helping anybody I care about. The trouble is, I don't know how to go about proving this, because the terms of the debate are shaped by the way the economy is being measured, and I don't agree with those terms. If progressives are going to be able to recapture the debate on the economy, we need a way of looking at and talking about the economy that can measure progress in, well, a progressive way.

The problem, for me, is that we measure the growth in the size of everyone's income added together, without looking at who is getting richer and who isn't. (I also have problems with what is counted as "income," but that's a rant for another day). The ideological basis for this kind of measurement is found in the Kaldor-Hicks theorem. I love that name - it brings to mind the image of a bunch of hayseeds in cowboy hats, hanging out in a saloon in Kaldor, Texas with straw between their teeth.

What K-H basically says is that, when examining a change in policy, you will find some winners and some losers. As long as the winners win more than the losers lose, then from a utilitarian perspective, the change is positive, since the losers could theoretically be compensated out of the winners' gains, and then everyone would be ahead. Note that the compensation doesn't have to happen, it is enough, for the theorists, that it could happen.

In the real world, this compensation never seems to happen. And the winners always seem to be people who are already rich, and I don't care much about what happens to rich people. So for me, growth isn't necessarily good. It isn't necessarily bad, either, but it's not good unless the benefits actually extend to those on the lower rungs of the economic ladder.

What progressives need is a way of interpreting economic data that only looks at the effect on the bottom 60% of income earners. Gains or losses to the wealthy would be seen as neutral. That way, only if gains to the wealthy have multiplier effects that help working people will they be counted as a positive. A tool like this would demonstrate that the rapid growth of the late 1990's did in fact benefit working people, and minorities disproportionately. The result, for progressives, was that the standard of living for the poor and middle class generally rose. In the current economic expansion, gains are concentrated in the hands of a small cross-section of the public, and probably wouldn't show up in our "bottom 60" instrument at all - most reports I have seen indicate poverty has risen, while working-class pay has stagnated.

I bring this up because I am disappointed to note that what I have seen so far of the Kerry team's economic plans seem somewhat off-target. They would stimulate growth, definitely. But would they help anyone I care about?

Note to Bob: I haven't seen the Apprentice. I do think Condi Rice is quite an attractive woman, when she isn't scowling. I suspect this may be part of why the P - the P - the former Governor of Texas seems to like her more than he likes his actual wife. I don't mean to imply anything sexual here, but they work out together, watch football together, and she has Bush's ear more frequently than any two other advisors. I don't think much of the advice he's getting. People point the finger all over the place - Cheney, Rumsfeld, Wolfowitz - but those people only matter because Condi listens to them. She doesn't just have W's ear, she has his whole head. Now that brings to mind an image I'd rather not dwell on.
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