Nothing to Argue About
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PAUL SOLMAN: Winter in San Francisco, a far cry from the snows that have paralyzed the East Coast for a week. No wonder some 6,000 economists held their annual convention here, though they spent most of the time indoors sitting through literally hundreds of academic papers, interviewing for university jobs, checking out the latest educational materials, and all the while debating, among other things, the economic paralysis back in Washington. We buttonholed Nobel Laureate Robert Solow of MIT to echo a question that kept getting asked about the people wrangling over the deficit in D.C..
PAUL SOLMAN: Are they wrangling over nothing, this deficit?
ROBERT SOLOW, Massachusetts Institute of Technology: In a way, they are. In two respects, they’re arguing about nothing: First of all, nothing can hang on whether the budget deficit reaches zero on one particular June 30th, or another particular June 30th. Secondly, we’re dealing with forecasts for seven years from now that everyone knows are nonsense. The notion that you can either look ahead for seven years without any kind of revision, any kind of mid-course corrections, is itself crazy. So this, this argument is more symbolic than real.
PAUL SOLMAN: Chicago’s Gary Becker, a more conservative Nobel winner, agrees that it’s not the deficit, itself, so much as what it represents, that really matters.
GARY BECKER, University of Chicago: I think the main issue is government spending, and I would be willing to take a deficit if we can reduce government spending. I’m afraid we’re going to mainly end the deficit by increasing taxes, rather than by cutting spending, and I think that will be a big mistake.
PAUL SOLMAN: Is it because the government does a worse job of spending money than the private sector does? I mean, is that__
GARY BECKER: No question it does worse, does it much worse. I much prefer people to spend their own money their way than have the government spend the money for them the way they think it should be spent. Who would you prefer to spend your dollars, a government bureaucrat or yourself?
PAUL SOLMAN: The most conservative Nobel of them all, Milton Friedman, went even further.
MILTON FRIEDMAN, Hoover Institution: What do you suppose government spending all levels, federal, state and local, relative to national income was in 1928?
PAUL SOLMAN: 1928, so if it’s somewhere around 40 now or something like that, 20 percent.
MILTON FRIEDMAN: 10 to 12. And it was that level throughout American history, except in time of great war, so we have made a tremendous change. In my opinion, that’s not a bad number. 10 to 12 would be about the ideal amount of government spending. It would cover the basic functions, but today we’re at 43.
PAUL SOLMAN: So the House Republicans aren’t tough enough for you?
MILTON FRIEDMAN: They certainly are not. They’re making a minor step, but I don’t blame them, because you’ve got to start with a small step.
PAUL SOLMAN: So to the true conservatives here, you balance the budget to cut government and return economic control to the people, themselves. But to many other economists, the costs of the strategy are simply too high. Northwestern’s Robert Eisner, a noted liberal economist, pointed to changes already proposed for welfare, for example.
ROBERT EISNER, Northwestern University: Just pushing people off and telling a teenage mother, a 21 year-old mother, no support for your kids, go out and get a job, is nonsense. It’s just going to put the kid in a worse situation. The mother will have no opportunity to get a job, if she hasn’t got any training to begin with and she doesn’t get some help in finding that job. We certainly have to get people to work, have to get them off welfare. Just throwing them out in the cold is going to give them pneumonia.
PAUL SOLMAN: You think there’s no sort of intellectual rationale behind this move to give people more responsibility and to break this so-called cycle of dependency?
ROBERT EISNER: Oh, there certainly is. We certainly should give them more responsibility and the opportunity to exercise that responsibility, but you can’t just chop off their legs and say stand up.
PAUL SOLMAN: All right. It was now on to a second question about the state of the economy, much on the minds of normal citizens and economists alike. We put the question to Northwestern’s Robert Gordon.
PAUL SOLMAN: AT&T announced massive layoffs. Christmas sales were not very good. Are we seeing a slowdown because there aren’t enough people in this economy in the middle, famous middle of it who have enough money to be keeping the economy going by buying what the economy produces?
ROBERT GORDON, Northwestern University: Well, things aren’t very different than they were a year ago, and a year ago, the economy was tremendously prosperous, so we’re still all here. We’re still all doing the same stuff. You can’t go from a boom to disaster, so I tend to discount the disaster scenario. We’ve had a- we have an economy in which the Federal Reserve by reducing interest rates can stimulate demand for houses and cars, and they probably haven’t done quite enough to, to stimulate the economy. A few more points down on the interest rate and things will come back, and we’ll be at some convention a year from now, and I’ll say, what were you worried about, Paul?
PAUL SOLMAN: You have actually said this to me in the past. Years ago, you said, what are you worried about, and I guess I’m- when I listen to a lot of these papers that are being given and so forth, I worry about the same things that I worried about then, which is dispersion between the well-to-do and the not-well-to-do. You and I are doing fine, but there are a lot- and a lot of people at the convention are doing okay, but out on the streets, there are an unbelievable number of beggars out there in San Francisco, I can tell you. So that’s what I worry about. I shouldn’t be worried about that?
ROBERT GORDON: We have a society in which the rich are getting better off and the poor are getting worse off. Then we need economic policies that are exactly the opposite of the direction the Republicans are trying to push us. We don’t need tax cuts for the rich. We don’t need lower capital gains taxes. There are a lot of people out there in Silicon Valley making millions and billions. Let’s have higher taxes on them.
PAUL SOLMAN: Now, while not everyone here bought Gordon’s cure of higher taxes, almost all agreed on the basic problem. There does seem to be a widening income gap caused in large part by technology replacing low-skilled labor. But will the gap continue to increase? We put that question to Harvard’s well-known economic historian Claudia Goldin.
CLAUDIA GOLDIN, Harvard University: What do we think is going to happen from the perspective of history is that we have a pretty good sense that we can be optimistic that there are ways of ameliorating these differences, and education is one large way of ameliorating these differences, and that there’s no reason why technology, that increases in technology always have to increase the wage structure; that we have had periods of time when we have increases in technology that do just the opposite.
PAUL SOLMAN: And where it narrows the gap?
CLAUDIA GOLDIN: Where it narrows the gap, that’s right.
PAUL SOLMAN: Now in general, the economists here seem more upbeat than the folks in their immediate vicinity, in the microcosmic economy round and about the convention, itself, for example, the workers, middle income or better, selling merchandise on the convention floor.
PAUL SOLMAN: Are you more nervous than you were five years ago?
TOM SCHMIEDER: Well, I think every company is more nervous. Hey, AT&T is laying off 40,000. The government is going to be putting a few people out of work, so I guess everybody is, is concerned in one vein or another.
PAUL SOLMAN: Are you worried actually about you finding a good job? I mean, you’re obviously-
TOM SCHMIEDER: No, not finding__
PAUL SOLMAN: __I mean, you’re smart.
TOM SCHMIEDER: Right. I am a very educated person. I’ve had years of management experience with Britannica in sales. I should be able to find something that’s very comfortable. Whether I could find it and still live in Marin County and not have to move or live in a comfort of which I’ve become accustomed, that’s the question.
MARC BRESLOW: I never feel confident that I’m going to know what’s going to happen next year, or certainly five or ten years, if I’m going to have a job, if there’s going to be any jobs doing what I’m doing. And many of our professions are shrinking, so that the insecurity that in some ways used to be more, more people in manufacturing jobs, or with lower-skilled jobs is spreading rapidly.
PAUL SOLMAN: Of course, not everyone feels insecure. How you see the economy may simply depend on where you sit or stand in this case. Outside the San Francisco Hilton, where the convention was headquartered, two lower-income doormen, both immigrants. Compared to their economy of origin, our looks pretty rosy.
ESTIFANOS WOLDE: I do really great here. I can pay my rent. I can pay my telephone bills. I can pay, you know, for my laundry and everything, but I used to depend on my family back in Ethiopia, but now my family depends on me.
PAUL SOLMAN: For you, how good a job is this? I mean, do you feel it’s a secure job? Do you feel you could move up to a higher level or something?
JACOV AWOK: It’s a very good job for me. I like working with different people and share ideas.
PAUL SOLMAN: And this is a better job than you’d have in Ethiopia?
JACOV AWOK: Yes, it is.
PAUL SOLMAN: College-educated American-born Rich Kachmar, however, was recently laid off from a well-paid job as a design engineer in aerospace.
PAUL SOLMAN: This is your first day as a cab driver?
RICH KACHMAR: Yes. PAUL SOLMAN: So you were actually- as we came over, you were actually giving a handout to a guy there?
RICH KACHMAR: Yes, yes. I was almost doing the same, asking for handouts.
PAUL SOLMAN: Kachmar is divorced and told us that without the help of a friend, he might have been living on the streets of San Francisco.
RICH KACHMAR: “Street Sheet News,” helping the homeless now.
PAUL SOLMAN: Gregory Brown actually has been for five months. He survives by hawking “Street Sheet,” a monthly newspaper by and for the homeless.
PAUL SOLMAN: When’s the last time you had a job, and what were you doing?
GREGORY BROWN: Well, the last job I had I drove a school bus, and that was about five months ago.
PAUL SOLMAN: Here in__
GREGORY BROWN: In San Francisco. I was born and raised here.
PAUL SOLMAN: And, and how did you lose that job, or__
GREGORY BROWN: The seniority didn’t hold up, you know. I was hired late and the first laid off.
PAUL SOLMAN: Do you buy the argument that there, you know, rich are getting richer, poor are getting poorer sort of, and that that’s simply happening throughout the economy, and people like yourself, I guess, are victims of that larger trend?
GREGORY BROWN: I think- I think what we see is that there won’t be any more middle class. I think there will be rich and the poor.
PAUL SOLMAN: Now, interestingly, similar to the microcosm of an economy outside the convention was the microcosm within it. The economy of the economics profession, itself, which is also dividing between the haves and have-nots. Larry Katz is both interviewing prospective faculty for Harvard next year and trying to help new Harvard Ph.D.’s get jobs at other schools.
LAWRENCE KATZ, Harvard University: The top superstars get high salaries, light teaching loads, nice research budgets. The middle group has to do a lot more extra things in their job, and their salaries are not going up as much, and the bottom end is having difficulty being placed in the types of job Ph.D. economists get.
PAUL SOLMAN: But economists don’t really have it that bad compared to their counterparts in say history, according to conservative Gary Becker.
GARY BECKER: There are difficulties in getting jobs for some people, but overall, it’s still a field that I recommend people going into, it’s still a field that compared to other professional fields is doing extremely well and for which there are many job opportunities.
PAUL SOLMAN: So why are economists complaining?
GARY BECKER: Did you ever hear an economist who didn’t complain? That’s part of, you know, we’re the dismal science. Our role is to complain not only about ourselves but about everything else.
PAUL SOLMAN: But for all their complaining, the economists finished the weekend with better jobs than most Americans have, forecasts of continued economic growth in the near future, although with continuing disparity of income, and finally, the continuing debate so many of us seem to be having over the role of government in the economy.