Growth and Lamborghinis

Of all the ways in which American political and cultural life has become stridently polarized, perhaps the most damaging is the language surrounding the economy. Since he got elected, Obama has been portrayed by Republicans as a socialist, a vulgar form of red-baiting that would be laughable if the president didn't allow himself the occasional foray, rhetorically anyway, into class warfare.

The most recent example of this was Obama's attack on Bain Capital. And so, right on cue, comes a new book entitled Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong, by Romney's former Bain Capital partner Edward Conard. 

I haven't read the book, but if a recent review in Business Week is to be believed, Conard's thesis is tricklenomics hitched to Archie comics: Imagine if Veronica Lodge's father was a market theorist, and you might get something like Conard's book. (According to the review, Conard dislikes charity because it isn't investment, and blames liberal arts majors for America's skills shortage). But the most telling passage from the review is this one:

Conard plainly cares about investment. He also cares about yachts. Where some conservatives suggest taxing consumption rather than income, Conard rejoins: “A heavy tax on consumption will discourage increased investment by making it harder to display status.” And since, as he elsewhere argues, “the thirst for … impressive homes, sleek boats, and exotic vacations” is what largely motivates people, such trinkets of affluence must be protected.

Set aside for now the obvious rejoinder that for many investors and capitalists, the accumulation of wealth, succeeding at building something that lasts and that people like, and basically being a river to your people is deeply satisfying; Conard's focus on status is usefully flawed.

He's certainly right, that the desire for status is a huge motivator (that's pretty much the driving thesis of both The Rebel Sell and The Authenticity Hoax). But what this ignores is that all status is relative. The argument behind the tax-consumption-not-income movement, especially the faction led by the economist Robert Frank, is that a steeply progressive consumption tax would serve as a sort of arms-limitation treaty on status consumption. So instead of the hyper-rich being able to buy 200 foot yachts, they'll only have 100-foot yachts. But because status is a positional good, (i.e., relative) it wouldn't matter because those would still be the biggest yachts around.

I actually saw evidence for this during my visit to Denmark. My friend Markus took me on a tour of Hellerup, the ritzy suburb just north of  Copenhagen. Some of the biggest celebrities in Denmark have homes there, including Lars von Trier,  Mads Mikkelsen, and some internet billionaire whose ex-wife took him to the cleaners and now lives next door.  And it was certainly a nice area, with wide streets, big homes, and a great view of the ocean. But the homes were not that nice -- not much nicer than you'd see on a decent stretch of upper Westmount or Forest Hill. 

At any rate, Hellerup represents nothing like the "out-of-sight" wealth that keeps the richest Americans on a separate plane of existence from the rest of the country -- Markus and I drove around, peered over fences and wandered the streets of Hellerup completely unmolested. If von Trier had walked by with his groceries I wouldn't have been remotely surprised. The thing is, taxes are so high in Denmark (the VAT alone is 25 percent), the richest people simply don't have the cash to compete in the manner that the 0.001 percenter Americans do. But in the pond that is Denmark, they're by far the biggest fish. 

How far you can push this argument depends in part on how much the ultra-rich in places like Copenhagen compare themselves to their counterparts in places like London or New York, feel envy at their inability to compete, and look for an exit strategy for their wealth. It also depends on whether the effect of all of this taxation, especially on consumption, leads to a shortage of investment capital. 

I don't have the figures handy, and I'm not a good enough economist anyway, to answer these sorts of questions. But if we start with the end goal, namely, a prosperous high-trust society governed by and through a healthy democratic system, then Denmark is already at the finish line. 

The American President

“What’s good for General Motors is good for the country” contains at least a partial truth. “What’s good for the Presidency is good for the country”, however, contains more truth. Ask any reasonably informed group of Americans to the identify the five best presidents and the five worst presidents. Then ask them to identify the five strongest presidents and the five weakest presidents. If the identification of strength with goodness and weakness with badness is not 100 per cent, it will almost certainly not be less than 80 per cent.

Those presidents – Jefferson, Lincoln, the Roosevelts, Wilson – who expanded the powers of their office are hailed as the beneficent promoters of the public welfare and national interest. Those presidents, such as Buchanan, Grant, Harding, who failed the defend the power of their institution against other groups are also thought to have done less good for the country. Institutional interest coincides with public interest. The power of the presidency is identified with the good of the polity.

-- Samuel Huntington, "Political Development and Decay"

Who *really* cost Obama the election? I blame the kids

If the recent mid-terms were a referendum on Obama, why did he do so badly? He's too left-wing, say some. No, he's too right-wing, say others. He's too cool. He's too muslim. He spent too much. He didn't spend enough. And on it went, for every pundit an opinion.

Me? I blame the kids. It's a bit late to the party (one of the hazards of weekly magazine journalism), but my latest column for Maclean's magazine has been posted. The argument is that no one bailed as pathetically on the president as youth voters. Here's the key graph:

Retail politics everywhere is messy, slow, dirty, and dull. But it is all the more so in the United States, where parties are weak and the entire system is designed to make sure that even a president who controls both houses of Congress is forced into endless horse-trading to get anything done. Progressives in America have a choice: they can either do as Obama suggests, and fundamentally change how things actually work, or they can accept the need for a great deal of patience. The first is never going to happen. And neither, if the kids have any say in the matter, will the second. As one college student put it in a piece about the absent youth vote published in the New York Times, “It’s not the fad anymore to be politically knowledgeable and active.” Or as another student put it in the same Times article, “He made young people feel important, and then he got into office and there was no one talking to us.”

President B-Rock: A pitch-perfect parody

Obama's authenticity trap

One of the more pointless aspects of the whole BP spill fiasco is the ongoing debate about whether Obama’s reaction to the whole thing has been appropriate. Has he shown enough anger? Too much anger? Has he been too cerebral? Too dispassionate?Too uncaring?

Please.  The assumption that what is required, more than anything else, is authenticity is one of the most pernicious aspects of our political discourse. Of course Obama had it coming, to some extent, since his whole brand is “authenticity”. But now he, and the public, are facing the double-edged nature of authenticity as the litmus of leadership: we think we want authenticity only until we see it:

An article by Julia Kirby in the HBR does a good job of highlighting just what is wrong with this whole approach to leadership. Here’s the problem:

In the current criticism of Obama, we’re seeing another form of double bind, at least as difficult to navigate. Today Show’s Matt Lauer found him frustratingly cerebral, but how would the general public have felt if he’d been visibly enraged? As one writer, William Jelani Cobb, told CNN: “It would have fed deeply into a pre-existing set of narratives about the angry black man.”

Of course, to see the trap in action, you don’t even have to play the race card: