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Wednesday, February 27, 2008

"Reactionary, Populist, Xenophobic and Just Plain Silly" Roundup

This column, "The dangerous protectionism of Barack Obama," drew several responses. First, Greg Mankiw:

"reactionary, populist, xenophobic and just plain silly": That's how economists Willem Buiter and Anne Sibert describe the Patriot Employer Act.

Free Exchange:

Obama a dangerous protectionist?: Economists, the unaligned ones anyway, have had their hands full trying to parse the probable policy choices of the American presidential candidates. ...

With potential economic strategies unclear, observers are left to ascribe great importance to the smallest policy signs emanating from the campaigns. That, I have concluded, is what's behind a breathless and overstated attack on Barack Obama at VoxEU today. Forced to read so much into so little, authors Willem Buiter and Anne Sibert throw some of the nastiest adjectives available to economists (xenophobic, protectionist) at a piece of legislation introduced by the Illinois Senator.

Their piece opens on an objectionable note. The authors declare, "Senator Barack Obama’s campaign has been long on slogans and mood music but short on concrete proposals and policies." This is patently false and beneath Mr Buiter and Ms Sibert, who should have stuck to an analysis of the proposed policy itself. Mr Obama's website is home to a number of (lengthy) documents outlining energy and health care policies, among other things. The merits of the proposals may be debatable, but they are substantive.

Mr Buiter and Ms Sibert go on to criticise Mr Obama's proposed legislation, the dreadfully titled Patriot Employer Act. There is much to dislike in the bill. Essentially, it offers employers a tax credit, worth one percent of taxable income, in exchange for adherence to a set of economic limitations. Among them are: a minimum wage, minimum standards on retirement and health plans, and protections for workers and headquarters based in America. Certainly, the bill has an element of distasteful economic nationalism to it, as well as a preference for reduced flexibility in compensation.

In short, Mr Obama deserves a slap on the wrist. He does not, in my opinion, deserve the rhetorical pounding he receives. Why not?

This bill is much less bad than it could be, primarily because the restrictions it contains are optional. ... In other words, optionality ensures that firms will only adopt these measures if it's relatively cheap (and minimally distortionary) to do so. ...

There is a case to be made that Mr Obama is the most economist-friendly candidate out there. One would hope that he'd use his growing popularity as an excuse to defend good but unpopular economic policies. He hasn't done that with this Patriot Employer Act, and he deserves a dose of criticism.

But the language used at VoxEU is odd. This bill is bad, but it's not dangerous. It's far less offensive than many of the anti-trade, anti-immigration proposals seen elsewhere in the campaign. Politicians are practically required to say silly and outrageous things. Economists shouldn't volunteer to do so.

Felix Salmon:

In Defense of the Patriot Employer Act: ...Obama's proposal, while hardly at the top of any sensible economist's wish-list, is not nearly as harmful as Buiter and Sibert make it out to be. ... I think the amount of harm the Obama bill would cause is really rather small, and it might actually do some good for working families. ...

Andrew Leonard:

"The dangerous protectionism of Barack Obama": Barack Obama's "Patriot Employer Act," say Willem Buiter and Anne Sibert, two prominent U.K.-based economists, is "idiotic legislation" -- "reactionary, populist, xenophobic, and just plain silly."

Tell us how you really feel!

The guts of the Patriot Employer Act, which Obama introduced in the Senate last August, would provide tax breaks for American corporations that keep their headquarters in the U.S., maintain a certain ratio of U.S.-based employees to foreign employees, pay a decent minimum wage and at least 60 percent of healthcare premiums, along with a few other worker-friendly goodies. For Buiter and Sibert, such heavy-handed government interference would be the worst kind of economic policy, a misguided, "unenforceable" attempt to pander to organized labor that would end up punishing workers all over the world. ...

But for Sherrod Brown, the Democratic senator of Ohio who won an upset election in 2006 by campaigning on a strong economic populist platform (and who has signed on as a co-sponsor of the legislation), the Patriot Employer Act makes sound political sense. It's how you win in Ohio.

As he told Katrina Vanden Heuvel in the Nation two weeks ago, while comparing his success in Ohio in 2006 to John Kerry's failure in 2004:

[The Patriot Employer Act] does two things.. it helps win Ohio and helps   them govern in the right way. I think you can really take the country in a   very different direction building a progressive message around that kind of   economic issue... We won 32 or 33 more counties than John Kerry did mostly in   small towns in rural Ohio where they were very responsive to a populist   progressive message. One town in particular -- this is something that just   happened -- there's a company called American Standard, they make toilets,   plumbing fixtures... They're in Tiffin, Ohio, town of 20,000. They've just   announced back around 3 months ago, the closing of the plant. It was bought by   some investors, they're moving offshore, they're honoring the union contract   as far as they have to, which is those who already have their 30 years. If you   have less than 30 you're pretty screwed... And the company that came in and   bought it was Bain Capital, Mitt Romney's firm.... These investors come in,   take millions of dollars out of the company, and you know, it's pension and   healthcare. And those are going on all over the country. And this is a town of   20,000. I carried that county, Kerry didn't. ...

(Thanks to Ben Muse's Custom House for the link.)

How the World Works is sympathetic to economists who argue in favor of bulking up the social safety net and making investments in infrastructure and education, rather than attempting to micromanage corporate behavior, as a way of addressing the inequities catalyzed by trade. But if Willem Buiter ran for political office in Ohio with a stump speech that included a lecture on how the winners from trade outnumber the losers and how "Bill Clinton’s greatest achievement as President was his remarkable and unstinting support for a liberal international economic order" and therefore Ohioans need to stop moaning about NAFTA, he would lose. He would be pummeled. Economists pride themselves on understanding how the world is. But doesn't that imply that their calculus include political reality? The political reality is that voters in Ohio do not feel as if they have benefited from a liberal international economic order. And the political reality is that the voters of Ohio may well determine who the next president of the United States is.

It's tricky: There's a fine line between pandering and recognizing political reality. We have good reason to distrust politicians who say whatever it is they think will win them an election. When they are too obvious in their weather-vane spinning, we reject them, as Republican voters rejected Mitt Romney...

But right now, that isn't happening to Barack Obama, which is either a sign that voters believe he's sincere, or that he is just superlatively good at electioneering. ...

Barack Obama is playing to win. This may dismay some economists. Maybe they should try winning an election in the American Midwest in 2008.

    Posted by on Wednesday, February 27, 2008 at 02:45 AM in Economics, International Trade, Policy | Permalink  TrackBack (0)  Comments (69)

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