Monday, December 20, 2010

FLG Gets Worried

The common explanation from people on the left, the ill-informed ones if you ask FLG, is that the financial crisis was caused when bankers got "too greedy." Well, FLG pretty much assumes businesses, including banks, are always as greedy as they can be. So, in effect, that's never an explanatory variable. Businesses are always as greedy as possible, so it must be something else that changed. (Which is where more informed people on the left point to deregulation, but are often still wrong; however, we'll leave that alone.)

Well, that brings FLG to today's E.J. Dionne column. He's writes that progressives need to change their thinking about business because, well, business creates jobs and progressives like people to have jobs, particularly "good" jobs. So, if you want people to have "good" jobs, then you need to work with business. Dionne then says that to create "good" jobs, we need work with, you guessed it, "good companies, although he doesn't call them "good":
It's also important to recognize that there is no single business class or corporate model. Obama doesn't need to coddle CEOs so they will say warm things about him at parties in the Hamptons. He should figure out which parts of the private sector share an interest in reducing the dreadful inequalities that have metastasized over nearly four decades and in creating an economy that produces well-paying jobs.

There have been moments in our history when important elements of business were "progressive" in the sense of recognizing that social reform was in capitalism's long-term interest.

In a seminal 1995 article in the American Prospect about business opposition to President Bill Clinton's health-care reform, the political writer John Judis recalled that during the Progressive Era, "business leaders and organizations played an indispensable role in developing and promoting the social legislation that first blunted the sharp edges of laissez-faire capitalism." Judis's conclusion still rings true: that "without a business community moderately supportive of social reform, little is possible in the present era."

While this should be appealing to FLG, you know long-term interest and all, something concerns FLG here. Let's agree that social legislation is in the long-term interests of any number of companies here in the United States. Moreover, let's agree that progressives could partner with them. What worries FLG is this -- these businesses aren't doing this out of the goodness of their heart; they're doing it to maximize profits. Now, FLG has no problem with profit-seeking; he's a big fan in fact. So, what's the problem? Well, what's in the long-term interests of these companies might not be in the long-term interests of other businesses, economic, or the nation.

FLG has already fleshed out this argument somewhere, but he is too lazy to find where and doesn't have time to regenerate the whole thing -- so here's the basic gist:
Large firms are far more amenable to government policy for a variety of reasons, but most importantly because 1) the people who work in large firms are, quite simply, bureaucrats are first cousins to government bureaucrats, which makes things easier, and 2) somewhat perversely, even though government imposed costs are the highest in nominal terms for these large firms, they have the economies of scale to turn them into relative advantages.

Just because some business leader is saying that government ought to do something for the good of the country doesn't mean it is. In fact, almost always the proposed policies just so happen to be in the long-term interest of their firm. Surprise, surprise. FLG isn't saying that these business leaders are stupid or evil. They have two major weaknesses when it comes to national policy discussions. First, they have an outsized sense of the importance of their industry and firm to the nation and the economy, not because they're egotistical jerks but because it's just natural and most people feel that way. Second, and most people seem surprised by this, they don't usually have a good grasp on economics. Business leaders seem to have pretty good handle on the economics that apply to their firm directly and in the short-term, but they almost lack a broader and longer term understanding. FLG can't even count the number of times CEOs have said stuff that sounds like an idiotic comment in Econ 101.

What's the takeway from all this? FLG thinks businesses are always as greedy as possible and he gets suspicious when they claiming to do the right thing when FLG can't see how it is in their own interest. Likewise, let's not think that just because some preferred national policy is in some company's or companies' interest that this means it is the business community's, economy's, or nation's interests. (Not that this was Dionne goal; he's just talking tactics. Although, FLG thinks Dionne thinks he's talking long-term national strategy.) Lastly, take economic analysis or policy recommendations from business leaders with a huge grain of salt. That last piece of advice actually goes to out more to conservatives more than progressives.

1 comment:

George Pal said...

"What kind of a society are we going to have if it consists of highly paid people doing high-value-added work - and masses of unemployed?" - Andy Grove

You’ll have a society that realizes it’s been sold out for cheap labor and instant constituency immigration by business and government. However that society reacts it will not be pretty. By all means create good jobs for Americans – but first, a definition of ‘American’ please.

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