Okun econmic plan blends capitalism and democracy

By Scott Benjamin

Analysis

“Instead of compromising, we are polarizing,” Arthur Okun wrote more than a generation ago about how the federal government addressed America’s economy

Okun, the esteemed Yale economics professor who had served as chairman of former President Lyndon Johnson’s Council of Economic Advisors., wrote those words in a 1977 research paper related to his 1975 classic: “Equality and Efficiency: The Big Trade Off” ((156 Pages, Brookings Institution Press), which analyzes how capitalism has its place, but it needs to be kept in place.

In a foreword to the 2015 edition, former U.S. Treasury Secretary Lawrence Summers wrote, “Okun emphasized the dangers of economic interference with markets while simultaneously stressing that markets without public action are unlikely to produce distributional outcomes that are sustainable in a democracy.”

Okun stated that “institutions in a capitalist democracy prod us to get ahead of our neighbors economically after telling us to stay in line socially. This double standard professes and pursues an egalitarian political and social system while simultaneously generating gaping disparities in economic well-being.”

Nationally, the two major parties are operating at opposite extremes with little compromise.

Washington Post economics columnist Robert Samuelson wrote on June 9 that that proposals by Democratic presidential candidates for Medicare For All, free college tuition at state schools, subsidies for child care, infrastructure expansion and salary increases for school teachers are “fairy tales.”

He stated that the costs would be enormous when spending needs to be curtailed. He noted that the Congressional Budget Office projects $11 billion in deficit spending between now and 2029.

Related to that, Okun wrote in “Equality and Efficiency” about the leaky bucket in which there is inefficiency when money is taken in taxes from one group and redistributed through the federal bureaucracy to another group.

He stated that when you go from the top taxpayers to the bottom rung he would accept up to a 60 percent leakage. He added that when you go from one tier of the middle class to a lower tier of the middle class he would stop the leakage at 15 percent.

Therefore, there will be some money lost in the tax-transfer shuffle if any of the proposals from the Democratic presidential hopefuls are enacted.

Also, as Wall Street Journal Pulitzer Prize winner David Wessel, a New Haven native, has stated, Okun “argued that redistributing income from the rich to the poor takes a toll on economic growth.”

Critics acknowledge that the American economy is now growing in leaps in bounds, but at what price.

Republican President Donald Trump’s 2017 massive across-the-board tax cut has helped bring unemployment is at a 50-year low. The country has just reached the longest economic expansion in its 243-year history, although a vast majority of that occurred under former Democratic President Barack Obama.

However, Chuck Jones, a senior contributor for Forbes, has stated that the deficit for fiscal 2019 was at 4.6 percent of gross domestic product, the largest in the 243-year history of the United States during a non-recession year.

In his foreword, Summers wrote that circumstances have changed drastically since Okun’s book was published, noting that CEO pay, which was 20:1 more than the average worker in the 1960s had risen to 331:1 by 2015.

Washington Post Pulitzer Prize winner Steven Pearlstein, a Trinity College graduate, wrote in his 2018 book, “Can American Capitalism Survive?” (344 Pages, St. Martin’s Press) that in the last 30 years there has been too much focus on supply side economics, maximizing shareholder value and market justice.

Summers wrote that he believes that Okun, who died in 1980 at age 51, would have been “disturbed by the rapid growth of incomes at the top of the distribution” and would have been “urging reform to make taxes more progressive.”

Summers stated that Okun’s principles helped generate the economic program during former Democratic President Bill Clinton’s administration that produced four successive federal budget surpluses – the first in 29 years and what was then the longest expansion in the history of the United States.

Summers, who was an economic advisor to both Clinton and Obama, noted that former British Prime Minister Tony Blair enacted similar policies in the United Kingdom.

Jason Linde, who managed three campaigns for former U.S. Rep. Jim Maloney (D-5) of Danbury ,said in a 2002 interview that Blair had the “people making the luxury cars thinking that they had something in common with the people who bought the luxury cars. When there is so much polarization in politics, you can’t offer enough praise when something like that happens.”

Some observers think that the major parties should follow the economic practices of the George Herbert Walker Bush and Clinton presidencies.

Bush went against the grain of the Republican Party and increased taxes in 1990 on the condition that Congress enact the Pay As You Go budget controls in which spending increases had to be offset by additional taxes or reductions in spending in other line items.

Clinton increased taxes in 1993 and then after the Republicans took control of Congress in the 1994 elections, the two sides addressed deficit reduction and welfare reform and, along with a peace dividend and the first stage of an Internet boom, in 1998 there was a federal budget surplus for the first time in 29 years. That was followed by three years of successive surpluses.

Regarding the assault on capitalism, Pearlstein wrote last year that only 60 percent of Americans think the free market is the best economic system, which is even lower than China.

George Mason economist Tyler Cowen wrote in his 2019 book, "Big Business" (249 Pages, St. Martin's Press), that is not just the progressive Democrats who regularly criticize big business , but also Trump. The president is resistant to free trade even though the United States ranks first in the world in exports. He also has taken a hard line on immigration.

Samuelson has stated that one of overlooked issues during the 2016 presidential election was the need for more high-end immigrants being added to the American economy.

In 1977, Okun wrote, “The nation needs a serious dialogue and a major educational undertaking to develop the enlightened attitudes of compromise, and I hope that this conference will help meet the urgent national need.”

“Instead of blending the values of democracy and capitalism, legislators pit them against each other,” he added.

Those words appear to be even more prophetic today.