Misreading Economic History

Greg Clark had an essay, "Tax and Spend, or Face the Consequences," in yesterday's Washington Post. The point he makes will be agreeable to many progressives. His argument for that point is appalling. The brief argument is that technological progress will rendered low skill workers redundant. Since these individuals will no longer be capable of earning incomes through supplying labor, massive transfer programs will be needed to spread the fruits of technological advance and economic growth to the masses. This argument reflects discreditably on the excellent economic historian whom I know Dr. Clark to be.

He frankly labels his vision "dystopian" and that was precisely my first reaction to the piece. I was reminded of science fiction stories that were common in the 1960s and 70s where society was divided between a class of welfare dependent "proles" and a productive class of "taxpayers." This particular vision was particularly prevalent among the more conservative/libertarian authors. The further text was that the "proles" were manipulated by left-wing politicians while the responsible "center" looked out for the interests of the "taxpayers." The literature was a response to the widely circulated view the "technological unemployment" caused by mechanization of factories was the wave of the future.

There is no doubt the low skill workers, particularly those in long developed economies have had a hard time recently. This is a consequence of the growth of international trade and the entry of a billion low skill workers into the world economy (i.e. China and India have abandoned autarky and joined the world trading system.) However, there is no big pool of labor left to enter the world economy, thus the negative impact on low skill wages will be slowly dying out in the future.

Clark is particularly negative about the prospects of education for raising the skill levels and thus the employability of the traditionally low skilled. (Consumer Alert: I am a college professor, so have a vested interest in education.) It is also undeniable that American public education has collapsed over the past 40 years. However, this is not a consequence of any sort of "Bell Curve" unequal distribution of intellectual abilities. It is a consequence of declining support for public education because of desegregation. To imply that education cannot be a part of resolving employability issues is to suggest that individuals won't respond to incentives. I don't think Professor Clark had this in mind. If education and the attendant skill enhancements which are concurrent with education manifestly improve productivity and lifetime income, we should expect to see education having exactly this positive effect.

Beyond this, any economic historian should appreciate (to a degree greater than any other flavor of economist) that human creativity should never be taken for granted. The reason economists are merely indifferent forecasters is that when stresses are placed upon members of a market economy, new creative responses arise which invalidate most projections from past behavior. And creativity is a resource that even sophisticated artificial intelligence programs and voice mail protocols cannot produce. Since knowledge, however acquired, is the lever of creativity, I suspect that Professor Clark's pessimism is misplaced.

The idea that taxes should be more progressive, and that active redistribution is necessary for the long run well-being of society is incontestable. But that redistribution should take that form of widening and deepening the opportunities for education precisely to unlock the creativity of the American populace.