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NRO’s domestic-policy blog, by Reihan Salam.

What Did David Brooks Actually Say About the Two Economies?



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As I read Ryan Avent’s characterization of David Brooks’ latest column, I found myself a bit surprised and confused. Ryan and I have both written about the Michael Spence and Sandile Hlatshwayo’s report on the evolving structure of the U.S. economy and its likely impact on our future growth prospects. (Apart from several blog posts, I wrote a short article for NR on the potential implications of the Spence-Hlatshwayo findings for policymakers.) To Ryan’s credit, he places the growing productivity gap between the tradable and nontradable sectors of the economy in the context of land use regulations, a subject of particular interest to me as a former student of Edward Glaeser and an admirer of William Fischel. As the author of The Gated City, Ryan has done very valuable work drawing attention to how restrictive land use regulations have undermined the productive potential of the U.S. by undermining the productive potential of our most dense and affluent metropolitan areas. 

So what did I find surprising and confusing? Ryan writes the following:

Mr Brooks spins a strange, evidence-free, partisan narrative concerning the nature of this dichotomy. Republicans, he says, live in and love export-oriented, productive industries and want to set them free, while Democrats live in and love protected, non-tradable sectors and want to use the profits from productive industries to subsidise unproductive ones. That’s an absurd caricature.

It seemed implausible to me that David would offer an absurd caricature. So I revisited the original column:

In politics, we are beginning to see conflicts between those who live in Economy I and those who live in Economy II. Republicans often live in and love the efficient globalized sector and believe it should be a model for the entire society. They want to use private health care markets and choice-oriented education reforms to make society as dynamic, creative and efficient as Economy I.

This seems like a modest claim, and a defensible one. Those readers who are familiar with Baumol’s cost disease might see why there might be a conflict between workers in low-productivity nontradable industries who nevertheless hope to secure wages comparable to those enjoyed by workers in high-productivity tradable sectors, particularly if the two groups are competing for housing and other positional goods. Many recent conflicts over renegotiating the terms of public employment in U.S. cities and states arguably reflect this dynamic, most strikingly in cities like New York city that are polarized between workers in knowledge-intensive service industries, many of which have an export orientation or are in highly competitive sectors, and public employees and less-skilled workers in the health sector.  (Given the underlying productivity dynamics, it makes intuitive sense that workers in low-productivity nontradable sectors would be more inclined to see the value of increasing their leverage relative to employers through collective bargaining while workers in industries defined by a “war for talent” and an emphasis on organizational innovation would be less amenable.) In a similar vein, we might see the rise of occupational licensing as an attempt to shield workers across the skill spectrum from competition. It is certainly true that David is drawing in broad brush strokes. But this hardly seems absurd. 

As for Republicans, David is careful to say that they “often live in and love the efficient globalized sector and believe it should be a model for the entire society,” presumably in recognition of the fact that there are, of course, Republicans who do not — who advocate protectionism or who support strong collective bargaining rights for public employees, etc. This is a subjective assessment, but it doesn’t seem entirely unreasonable. 

Consider the following observation from “Income inequality and partisan voting in the United States” by Andrew Gelman, Lane Kenworthy, and Yu-Sung Su, all of whom are respected social scientists:

The Republicans are traditionally the party of the business establishment, while the Democrats represent labor. Even to the extent the Democratic Party represents established interests—for example, government employees, teachers, and others on the public payroll—they tend to be lower income than comparable Republican-leaning business groups.

Is this an absurd caricature or is it a reasonable inference from the fragmented, imperfect data that we have at hand? And while the “business establishment” is certainly not a perfect proxy for the tradable sector, government employees, teachers, and others on the public payroll are indeed in the nontradable sector as a general rule. So if David is painting absurd caricatures, he is not alone. He continues:

Democrats are more likely to live in and respect the values of the second sector. They emphasize the destructive side of Economy I streamlining — the huge profits at the top and the stagnant wages at the middle. They want to tamp down some of the streamlining in the global economy sector and protect health care, education and government from its remorseless logic.

It is important to acknowledge that there are some Democrats who found recent attacks on, say, the private equity sector misleading and distasteful; some of those who did were financial sector professionals, many of whom are Democrats. Yet this also seems like a fair characterization. There are indeed many Democrats who find the idea of bringing market competition to the education and health sectors deeply distasteful. I am particularly aware of this because one of my best friends is a public school teacher who is about to become the principal of a high school, and I’d say that public school educators tend to be somewhat skeptical of what we might call “market values.” 

Republicans believe the globalized sector is racing far out in front of government, adapting in ways inevitable and proper. If given enough freedom, Economy I entrepreneurs will create the future jobs we need. Government should prepare people to enter that sector but get out of its way as much as possible.

The notion that Republicans, or rather people on the political right, tend to celebrate — to a perhaps excessive degree — the virtues of the private sector and competition more broadly strikes me as an entirely banal observation, the truth of which I had assumed to be beyond dispute. 

Democrats are more optimistic that government can enhance the productivity of the global sectors of the economy while redirecting their benefits. They want to use Economy I to subsidize Economy II. 

If we think of Economy I as the tradable sector, this makes a good deal of sense. The tradable sector has experienced a more dramatic dispersion of incomes than the nontradable sector, and in particular the public sector component of the nontradable sector. I think it is fair to say that many Democrats believe that higher taxes on high-earners should be used to increase public investment levels. Public investment is generally devoted to the nontradable sector, e.g., public schools, colleges and universities, etc. 

Far from an absurd caricature, I think David was offering a carefully worded and not ungenerous description of how people on different sides of the political divide tend to see the evolving U.S. economy. It is possible that David’s description is a better description of Republican elites and of the Democratic rank-and-file, thus creating an awkward asymmetry. But I’m not even sure that’s true. The view that higher taxes on high-earners (who tend to be drawn from the tradable sector) should be used to increase public investment (in the nontradable sector) is, in my admittedly limited experience, a not entirely uncommon view among Democratic policymakers and college-educated Democrats more broadly while a fetishization of the private sector (to take an ungenerous view) is pretty pervasive on the right (indeed, I’m guilty of it myself). 

But yes, if we put aside David’s explicit caveats, we can make his characterization seem overdrawn. 

While I might disagree with Ryan’s take on David’s column, I should stress that his central observation — that land use regulations don’t follow this partisan script — is entirely correct and important. Like Fischel, I am sorely disappointed that the courts haven’t taken the idea of zoning as a regulatory taking seriously, particularly since it strikes me as an unambiguous case of a regulatory taking. For that we can blame the Supreme Court. The following is drawn from Fischel’s brilliant and provocative 2001 book The Homevoter Hypothesis, about which I intend to write more:

Some state courts initially resisted zoning’s novel restraints on the use of private property. This induced a short-lived attempt by some cities to compensate owners for zoning restrictions by invoking eminent domain (William Anderson 1927). Most state courts fell in line after the U.S. Supreme Court’s 1926 decision in Euclid v. Ambler, which upheld zoning against the charge that it had unconstitutionally restricted the property rights of development-minded landowners. That the Court’s most conservative member, Justice George Sutherland, wrote the Euclid opinion undermined almost all state-court opposition to zoning. 

It’s cases like Euclid that make me somewhat more sympathetic to the (largely mythical) “constitution-in-exile” view than I might be otherwise.



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