Thanks to a recommendation by Henry Farrell at Crooked Timber, I've been reading Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century , which tracks the rise and fall of "embedded liberalism" in the U.S. and Sweden. The opening chapter has drawn me into a background discussion of the different ways in which these developments can be analyzed -- in terms of individual economic interests as a microeconomist or rational choice political scientist would do; or by looking at ideas and how the emergence and acceptance of ideas can change the institutions in which political and economic choices are made. (A gross oversimplification of this section of the book, but it makes my point.)
That this interpretive choice is of more than just academic interest should be clear as we attempt to divine the Bush administration's ultimate goal on tax policy. Consider two excellent articles that appeared in the last few days: Jonathan Chait's "Tax Fraud" in the New Republic and Nick Confessore's "Breaking the Code" in the Times Magazine. Both are superb pieces of journalism and analysis, and they start from the same premise: that what Bush calls "tax reform" is something that would be utterly unrecognizable to those who struggled to make the tax code simpler, fairer and less distorting of economic activity from the 1960s through their breakthrough in the 1986 tax reform. Both trace the current "reformers," such as Grover Norquist and Ernest Christian, directly back to the opposition to reform in the Reagan era. In many ways, they are similar articles, although Confessore's is on a larger scale.
But they differ in one important way: Confessore really tries to understand the evolution of the ideas -- if there are any -- that are motivating the current drive to shift the tax burden off investment income and onto labor. Chait views it as a matter of interests: the same corporate lobbyist sleazeballs that opposed reform in the 1980s oppose it now, although they've perhaps draped their interests in a cheap veneer of "theory."
So, which is it? Is the Bush tax plan a story of ideas in politics, of a radical and fairly recent philosophy that, among other things, happens to fit the prejudices of K Street, Tom DeLay and the plutocrats in positions of power? Or is it that some corporate interests have funded a tenuous theoretical underpinning for their own short-sighted economic preferences? The slight difference in emphasis between Confessore and Chait is important to our understanding of how to approach this argument. If the tax "reformers" don't take their theories seriously, why should we?
That said, there is not one answer to this question.
Former White House economic advisor Glenn Hubbard presumably has some sort of theory about taxation, the lobbyist for Exxon-Mobil probably doesn't -- or at any rate, it's not his job to have such theories except to the extent they serve the company's bottom line. If that's the spectrum, where do others fit within it? Bush? Rove? DeLay? Cheney? Norquist?
The Iraq War presented the same question. There were those who were certain that it was all about oil, or all about Halliburton or all about the political benefits of a war, or whatever, and those who tried to take the ideas expressed by Wolfowitz and others as seriously as possible. Two years on, I think it's clear that the ideas expressed to and by Bush -- of an undivided war on "evil," of democratization by force, of remaking the Middle East, of Iraq as a regional model, etc. -- while mostly wrong and all badly implemented -- provide a much more robust explanation for what happened than a calculation of interest.
Is the same true on taxes? My first instinct is that it's less likely. I think Bush gave himself away when he said of Kerry's proposals to roll back the portion of the Bush tax cuts that went to those earning over $200,000: "you know how the rich is: They've got accountants. That means you pay." Unlike Treasury Secretary Donald Regan, cited in Chait's article, Bush is not someone who has any outrage over the complexity of the tax code or any belief that it could be otherwise. He is pure cynicism. And it is not surprising: Bush made his dubious living in an industry -- oil -- that depended entirely on its tax advantages for its economic model. His passive investors in Harken Energy were buying his losses. That was the most significant of all the loopholes closed in 1986. It's also telling that Bush has passed three tax bills and every one has made the code vastly more complex.
On the other hand, the economic interests of the anti-reformers were always there. They were always looking for the same thing. In 1986, they lost. The reformers had a theory about taxes that was persuasive and cohesive. The key moment in the 1986 tax reform came when Republican Senator Bob Packwood, chair of the Finance Committee, decided over a pitcher of beer with a staffer to throw out entirely a bill that had become encrusted with all sorts of special provisions, and start over again with a version that met the theory of simple/fair/efficient. Anti-reformers had power, but they didn't have a theory that could organize their claims and make them seem like something more than self-interest. What's changed is that now they sort of have a theory, however dubious.
Whatever you do, read both articles.
Are there any good, serious references on likely reactions of the world bond market to Social Security reform?
[Specifically, do you know of any trustworthy quantitative estimates of what happens if reform entails several trillion dollars in new US debt in the next decade or two, as opposed to the status quo: a several trillion dollar shortfall that may occur three or four decades out in the current setup under conservative-to-pessimistic secarios?]
Posted by: Bill | 01/19/2005 at 11:51 AM
Bill: I don't have any figures, but if SS reform were to result in the US government selling a lot more bonds, and buying a lot more stocks, then it seems a safe bet that bond prices would have to fall, and stock prices would rise - or at least that stocks would rise relative to bonds. That's the only way you could persuade enough current equity owners to switch into bonds.
I'd like to see a comparison between the economic effects of this, against the alternative of just increasing taxes on equity returns (dividends and capital gains) - which seems a simpler way for the government to take a cut of the stock market.
Posted by: Richard Cownie | 01/19/2005 at 10:14 PM
May I suggest that the notion of ideology would be useful to you here. Ideology is a kind of seamless melding of interests and intellect. The emotional juice provided by interests helps ideologues vault over logical gaps in their arguments, and the intellectual justification allows them to feel that they aren't simply self-interested or shallow. Ideologies are the great weapons in political life and ideologues the great warriors. The Democrats lack a functioning ideology right now (the death of social democracy as an ideal has a lot to do with this). In its place they have tended to become the party of responsible technocratic government, which I think is a fine thing but lacks punch in a public arena where people don't understand very much about the complexities of policy.
Lakoff has some understanding of the power of metaphor, but he mistakes the metaphors for the underlying ideology itself. Unless there is an ideology underneath them metaphors do not catch hold and lack power.
Posted by: Marcus Stanley | 01/21/2005 at 01:44 PM
May I suggest that the notion of ideology would be useful to you here. Ideology is a kind of seamless melding of interests and intellect. The emotional juice provided by interests helps ideologues vault over logical gaps in their arguments, and the intellectual justification allows them to feel that they aren't simply self-interested or shallow. Ideologies are the great weapons in political life and ideologues the great warriors. The Democrats lack a functioning ideology right now (the death of social democracy as an ideal has a lot to do with this). In its place they have tended to become the party of responsible technocratic government, which I think is a fine thing but lacks punch in a public arena where people don't understand very much about the complexities of policy.
Lakoff has some understanding of the power of metaphor, but he mistakes the metaphors for the underlying ideology itself. Unless there is an ideology underpinning them metaphors do not catch hold and lack power. Clifford Geertz wrote an excellent piece on metaphoric systems back in the 70s that catches this well.
Anyway, it's too simple to call Bush's taxation position "cynical" and his democracy position "sincere". If his foreign intervention is so sincerely idealistic, then why did he only attack dictatorships that have traditionally not cooperated with the U.S. foreign policy/military/corporate elite (Iraq, Iran, Syria), while retaining alliances with traditionally cooperative dictatorships that actually gave support to Al Qaeda (Saudi Arabia, Pakistan, Egypt)? And his tax position may appear cynical if you buy the fairness arguments behind "base broadening" (which have their own underlying ideology). But if you are driven by the idea that wealthy entrepreneurs are the most deserving people in our society, the actual creators of our collective wealth, and government has no right to take their money then they don't appear so cynical.
Posted by: Marcus Stanley | 01/21/2005 at 01:52 PM
Sorry for the double post, or the post and a half I guess.
Posted by: Marcus Stanley | 01/21/2005 at 01:54 PM