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Clintonomics: Figure The Merits Along With The Math


Economic Viewpoint

CLINTONOMICS: FIGURE THE MERITS ALONG WITH THE MATH

Uncle Herman, a lifelong Republican, called up just after the GOP convention last month. In a voice of pure sarcasm, he said: "I hear your man Clinton's economic program is going to cost us 2 million jobs."

"Who said that?" I asked, remembering that the Republicans had attacked the plan as short on deficit-reduction. But how, I wondered, could a plan that failed to reduce the deficit so devastate employment?

"Senator Phil Gramm," he answered.

"Oh," I said. "Was that the guy who said you only find socialists in Cuba, Vietnam, and the Democratic Party these days? And did Jerry Falwell and Pat Robertson concur?"

"Never mind that, wise guy," my uncle insisted. "Is Gramm right? He's an economist, isn't he?"

I shot back: "He was an economist. Now, he's a politician. And no, he's not right. The claim is ludicrous.

"Why?" Uncle Herman demanded. (He is not the sort to accept a simple dismissal.)

"O.K.," I said, and took a deep breath. "There are two fallacies in the reasoning. First, Gramm and other Republicans base these job-loss calculations on a false analogy: They treat a government mandate, such as requiring maternity leave or health insurance for employees, exactly like a tax. They start with a high estimate of how much it might cost businesses to provide them and then pretend that a tax hike of that size was levied. From there, calculating the alleged job loss is a mechanical exercise.

"What's wrong with that?" Herman inquired. "After all, it does cost me money to buy health insurance."

"It sure does," I replied. "But you spend the money to provide benefits to your workers. Here's a better analogy. Remember when Jimmy and Joey were little and they used to fight over the football?"

"How could I ever forget?" said Herman.

"Well, when you intervened by taking the football away, you imposed a kind of tax on the two of them. Taken together, they lost something. But when you made Jimmy give the ball to his little brother--perhaps because you thought Joey didn't have a fair chance--you didn't tax the pair. You simply took from one to give to the other."

"So what's your point?" he asked.

"When the government tells businesses to do something, it is not taking anything away from business and labor together. It is intervening to help one party get what it wants.

"Is that a good thing?" Herman inquired, suggesting that the answer was no.

"Not necessarily," I admitted. "People can and do disagree over the merits of particular cases. Jimmy didn't like it when you gave Joey the football. My point is not that mandates are always great ideas, only that it is terribly misleading to treat them as taxes.

"O.K., I see your point. But you said there were two fallacies. What's the other?"

"The other is far more fundamental," I continued, warming to the task. "It's that keeping score by counting short-run job losses is silly.

"Oh?" said my uncle. "Why's that?"

"Several reasons. First, it's shortsighted. If we, for example, force a highly polluting industry to clean up its act, that industry might have to contract. But that's part of what we want to happen. We want some of the labor and capital to migrate to other, less polluting industries. Right?"

"I guess so."

"So jobs aren't lost in the long run. They just move. Second, we should remember that the goal of an economic system is to produce greater material well-being. If people suddenly became less productive, so that more were needed to produce the same bill of goods, many new jobs would be created. But society would be worse off. Conversely, if some technological breakthrough allowed us to produce the same goods and services with fewer workers, would that be bad for the country?"

"I guess not," Uncle Herman muttered.

"Of course not," I insisted. "So mandates and regulations must be judged on their merits, not condemned on the basis of some silly calculation of 'job loss.' Some of them are, in fact, foolish. Others make sense."

"Like what, for example?" (My uncle, a small businessman, is deeply suspicious of government intervention.)

"How about child labor laws?" I asked. "I'm sure the Senator Gramms of the day opposed them vehemently. They do, after all, infringe on business freedom. Do you think we should repeal them?"

"Of course not," Uncle Herman replied without hesitation. "Anything else?"

"Well, how about Social Security? Would you like to abolish that?" (I knew that Uncle Herman is 64, so I went on without waiting for an answer.) "Social Security is like a mandated pension. It imposes a tax, which 'costs jobs.' But it also pays out benefits, which 'create jobs.' Social Security is, in fact, a very big mandate, and it has been around since 1935. Do you think it has decimated employment in the United States?"

"Well, no," my uncle answered.

"So don't believe everything you hear on tv," I concluded.

"I don't.ALAN S. BLINDER


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