Team Billionaire is Winning
Photograph Source: Everjean – CC BY 2.0
There is an iconic image from The Simpsons. It is a picture of Grandpa Simpson shaking his fist at the sky, under the headline “Old Man Yells at Clouds.” This aptly describes the state of intellectual thinking among progressives in the United States.
We see endless diatribes against market-oriented policies, as though the problems of inequality, poverty, and environmental destruction somehow came from the market. As I have argued endlessly, and largely pointlessly, this view is ridiculous.
There is no market sitting out there to do these horrible things to society. The market can be structured in thousands of different ways. The billionaires have been very clever in structuring the market to give themselves and their millionaire allies more money. The left, on the other hand, has been yelling about the market, rather than devoting serious thought to how it can be structured differently to produce better outcomes.
The fact that so many of our problems stem from ways we have structured the market, when it could be structured differently, should be pretty obvious. Bill Gates is not one of the richest people in the world because of the market. He is one of the richest people in the world because the government gives Microsoft patent and copyright monopolies on software, and threatens to arrest people who make copies without Gates’ permission.
In the financial crisis in 2008-2009, virtually all of the country’s major banks would have been tossed into the dustbin of history if we had just let the market work its magic. Somehow, saving Citigroup and Robert Rubin, and all the rest is just described as leaving things to the market – by progressives.
There are of course a million and one other ways that we structure the financial sector to benefit the rich: government deposit insurance, exemption from the sort of sales taxes that apply to almost everything else we buy, and nonsensical tax preferences like the carried interest deduction that fuel private equity and hedge funds. Yet, somehow progressive intellectuals look at all the rich and super-rich in finance and just see the market being left to itself.
And, for two of our super-billionaires, Elon Musk and Mark Zuckerberg, we have Section 230 protection. This means that their Internet platforms are not subject to the same rules on defamation as print and broadcast outlets. Yeah, this is just the market, telling us to give special privileges to online platforms.
Progressives call trade agreements, that were designed to place downward pressure on the pay of manufacturing workers by putting them in competition with low-paid workers in the developing world, “free trade.” These deals had nothing to do with free trade.
They did nothing to remove the protectionist barriers that allow for the high pay of U.S. doctors, dentists, and other highly paid professionals. And, these deals quite explicitly increased protectionist barriers in the form of patent and copyright protections. Yet, somehow, progressive intellectuals think it is clever to call these deals “free trade agreements.”
This is not just semantics, although I would argue the semantics are important. We need to have a clear understanding of the factors that led to the massive upward redistribution over the last four decades, if we are going to reverse it. Imagining that we are fighting the market, and we just need government intervention to come to the rescue, is not going to do it for us. The government has been there the whole time, for some reason, progressives have just decided not to see it.
Industrial Policy Is Not a Mantra
This comes up big-time with the newfound love for “industrial policy.” Industrial policy, the idea of the government steering resources to specific areas is great, and we have been doing if forever.
The most obvious example is homeownership where we structured the tax code explicitly to favor homeownership and also set up a set of massive financing institutions, Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System, to support homeownership. We also set up the Federal Housing Authority explicitly to make affordable mortgages available to moderate-income households. It’s hard to see how this does not qualify as industrial policy.
To take another important example, we spend over $50 billion a year on biomedical research, mostly through the National Institutes of Health. This research is the basis for a biomedical industry that has revenue of more than $500 billion annually for prescription drugs, more than $100 billion for non-prescription drugs, and more than $200 billion for medical equipment. Again, if this is not industrial policy, it is hard to imagine what would be.
It’s great that the Biden administration has decided to increase support for the shift to electric cars and clean energy. It’s also good that it is putting up funding for developing cutting-edge semiconductors and producing them domestically, but these are changes in direction, not a qualitative break from some imagined free market world.
Whether or not these changes in direction lead to less inequality will depend on how we structure the policy. We can have truly wonderful industrial policy, in terms of directing resources to important areas, that leads to more inequality.
The government’s contract with Moderna to develop a Covid vaccine is the poster child in this category. It was very important for the United States, and the world, to develop Covid vaccines as quickly as possible. But, in the case of Moderna, we paid it over $900 million to develop and test a vaccine, and then gave it control over it. The result was that the stock price of Moderna increased by tens of billions and we created at least five Moderna billionaires by the summer of 2021.
If we just celebrate the industrial policy – paying for the development of a vaccine – and don’t pay attention to how the rules are structured, then we get Moderna billionaires. And, if we do the same with our industrial policy for electric cars, wind and solar energy, and semiconductors, then we will end up with many more billionaires.
That might be great news for the anti-billionaire industry, since there will be many more billionaires to complain about, but it will not be good news for people who are genuinely concerned about inequality. The point here is we have to understand how the rules we are making can lead to more or less inequality. If we just have the illusion that the question is simply the government or the market, we are not even playing the game.
And, the semantics here do matter. Market outcomes have a good reputation in general. People like markets, with some real cause. It has generated an enormous amount of wealth over the last two centuries, making it possible to lift billions of people out of poverty.
By contrast, people can point to many bad outcomes from heavy-handed government interventions. The extreme case is Soviet central planning, which did not have much to recommend it by the last days of the Soviet Union. There is also no shortage of instances where overly rigid bureaucratic rules have obstructed progress in important areas.
For this reason, it really is self-defeating and unnecessary to argue that we want the government to override the market. The issue is not whether the government will override the market, the issue is how the government will structure the market.
The right wants to structure the market so all the money goes to its billionaire backers. Progressives want to structure the market so that the benefits of growth are broadly shared.
That is the choice we are posing, the market is simply a tool, we are fighting over how we want to use it. Why on earth should we ever tell people that the market is the enemy?
Let Grandpa Simpson yell at the clouds, progressives should be focused on real enemies.
This first appeared on Dean Baker’s Beat the Press blog.