.... Or so say a group of economics and government professors, as a New York Times columnist reports.
Thomas Edsall writes: "If the 'cutthroat leader' – the United States — were to switch to 'cuddly capitalism, this would reduce the growth rate of the entire
world economy,' the authors argue, by slowing the pace of innovation.
Acemoglu, Robinson and Verdier put their argument technically, but there is no mistaking the implications:
We consider a canonical dynamic model of endogenous
technological change at the world level with three basic features.
First, there is technological interdependence across countries, with
technological innovations by the most technologically advanced countries
contributing to the world technology frontier, on which in turn other
countries can build to innovate and grow. Second, we consider that
effort in innovative activities requires incentives which come as a
result of differential rewards to this effort. As a consequence, a
greater gap in income between successful and unsuccessful entrepreneurs
increases entrepreneurial effort and thus a country’s contribution to
the world technology frontier. Finally, we assume that in each country
the reward structure and the extent of social protection shaping work
and innovation incentives are determined by (forward-looking) national
social planners.
In a series of e-mail exchanges with the Times, Acemoglu said he
believes that safety net programs in the United States are inadequate.
But, if the thesis that he has put forth is correct, there is room for
only modest expansion:
The fact that the United States is the world technology
leader puts constraints and limits on redistribution at the top. The
global asymmetric equilibrium is at the root of the United States being
the world technology leader, but the mechanism through which this
matters for innovation and redistribution is the very fact that the
United States is such a leader.
Acemoglu elaborated:
In our model (which is just that, a model), U.S. citizens
would actually be worse off if they switched to a cuddly capitalism.
Why? Because this would reduce the world’s growth rate, given the U.S.’s
oversized contribution to the world technology frontier. In contrast,
when Sweden switches from cutthroat to cuddly capitalism (or vice
versa), this does not have an impact on the long-run growth rate of the
world economy, because the important work is being done by U.S.
innovation.
These findings, if substantiated, will disappoint those who long for a
Swedish-style mixed economy with universal health care, paid maternal
leave, child allowances, guaranteed pensions and other desirable social
benefits.
I think a substantial majority of Americans have had it up to here with "cutthroat leadership" and would like a nice mix, please, of well-tamed capitalism with social responsibility.
Enough with cutthroat masked by cuddly marketing. Why on earth do we need to continue to "maintain an economic system that provides great rewards to successful
innovators, which 'implies greater inequality and greater poverty (and a
weaker safety net) for a society encouraging innovation,'” which is what Acemoglu foresees? Do we want, as Edsall puts it, "formal government recognition of a two-class society, the innovators
living under one set of policies that allows them to practice by
cutthroat rules, the rest of America consigned to the relatively meager
support of a safety net"?
Edsall ends with this:
Despite its egalitarian tradition, America may have already become a two-class society, with an elite benefiting
from advantages in background, wealth, access to higher education and
skill sets passed from generation to generation (whether through
inheritance or cultural transmission). If that is the case, and there is
some evidence
that it is, the question is whether our rhetorical obeisance to
egalitarian tradition will prevent us from openly recognizing what we
have become – thus sapping our ability to do something about it.
And there are lots of charts and formulas to back it all up. Charming. America as hell on earth -- or aren't we almost there already?
I think Tim Newlin, an American who lives in Denmark, gets it right in his response to the above conjectures. For a start -- and contrary to our fondest belief that we are the leading country in innovation -- it's just not true.
I am not an economist, but I am an American who has lived in Scandinavia
for many years and travel home often and I can tell you that this
entire argument about arrested development due to cuddly capitalism is
nothing more than right wing propaganda of the worst kind disguised as
academic theory.
Scandinavia is far ahead of the US in terms of
innovation and personal technology. I have friends who are innovators
that have made vast fortunes and i see daily evidence here of people
from all walks of life applying innovative ideas to the economy. They
are free to do so because they are free from the constraints that keep
US innovators at bay - healthcare attached to workplace, cost of formal
education, and lack of a feeling of belonging to a community.
The
income disparity in the US is a disgrace. the right wants you to
believe it is necessary in order to maintain the US business innovation
lead when in fact it does no such thing - it simply serves to reduce
costs to corporations and keeps a cheap, almost enslaved workforce close
at hand. But that is not the kind of workforce innovative and
far-thinking new business ventures are looking for - they want what can
be found in Scandinavia. If you don't believe me check out the IMF and
Forbes Magazine comparisons of what countries are best for business.
Bingo. Or more to the point, bravo!
___
Here's Paul Krugman on earlier Acemoglu.
