Captured Economy!

Photo credit: Janet Donovan

“I think the tax bill is illustrative of how Washington has for decades focused on tax policy as the end all and be all of growth policy,” Brink Lindsey, co-author of “The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality” told  Hollywood on the Potomac at a book party in his honor at the Kalorama home of Juleanna Glover and Christopher Reiter.  “So if republicans think we need to stimulate growth, their imagination is pretty much limited in thinking the tax cuts can get the economy moving again. In general, the evidence that those work is pretty paltry, so I’m afraid this bill we’re seeing now is mistimed and miscast. Instead, what Washington should be paying attention to is the vast and arcane regulatory code where all kinds of growth killing mischief is located.”

“In particular, what my co-author Steve Teles and I focus on in our book are areas of regulatory policy where special interests have captured or dominated the policy making process, twisting the rules for their own benefit and doing so in a way that slows down growth at the exact same time that it funnels income and wealth.  So right now, the US economy is suffering this double whammy of slow growth and high inequality and we’ve identified a bunch of policies that are actively contributing to both; which means the good news is we’ve identified ideas that could kill two birds with one stone. The tax bill does very well in my opinion for the people at the top. We’ll see how his base reacts to policy. Some of them seem to not be interested in policy one way or another: They’re interested in the show where a culture warrior is standing up against the people they don’t like and who they feel despise them,” he added referring to the President.

Brink Lindsey

Book synopsis: “For years, America has been plagued by slow economic growth and increasing inequality. Yet, economists have long taught that there is a trade-off between equity and efficiency  – that is, between making a bigger pie and dividing it more fairly. That is why our current predicament is so puzzling. Today, we are faced with both a stagnating economy and sky-high inequality. In The Captured Economy, Brink Lindsey and Steven M. Teles identify a common factor behind these twin ills; breakdowns in democratic governance that allow wealthy special interests to capture the policy-making process for their own benefit. They document the proliferation of regressive regulations that redistribute wealth and income up the economic scale while stifling entrepreneurship and innovation. When the state entrenches privilege by subverting market competition, the trade-off between equity and efficiency no longer holds. Over the past four decades, new regulatory barriers have worked to shield the powerful from the rigors of competition, thereby inflating their incomes – sometimes to an extravagant degree. Lindsey and Teles detail four of the most important cases: subsidies for the financial sector’s excessive risk taking, over protection of copyrights and patents, favoritism toward incumbent businesses through occupational licensing schemes, and the NIMBY-led escalation of land use controls that drive up rents for everyone else. Freeing the economy from regressive regulatory capture will be difficult. Lindsey and Teles are realistic about the chances for reform, but they offer a set of promising strategies to improve democratic deliberation and open pathways for meaningful policy change. An original and counter-intuitive interpretation of the forces driving inequality and stagnation, The Captured Economy will be necessary reading for anyone concerned about America’s mounting economic problems and the social tensions they are sparking.” Courtesy of Oxford University Press

Brink Lindsey, Juleanna Glover and Steve Teles

“So policy is something that isn’t really absorbing a lot of attention, but it’s real and it matters and if we get it wrong we suffer. Part of what we suffer is very disappointed, frustrated people who look around for outsiders to make things better and end up making them worse. So to get out of this vicious circle of bad governance leading to bad politics, we need to somehow or another to stumble upon improving policies that can actually trigger growth and broadly share prosperity and perhaps get our politics on a healthier track. In 2016, people on the left and the right both had this sense the system is rigged, that ordinary people weren’t doing well, the people at the top were dealing themselves pretty sweet deals. I think in both cases they were lashing out at the wrong ideas. Trump told people it was all about foreigners, Muslim terrorists and Mexican immigrants, Chinese imports. Bernie Sanders told it’s all the fault of campaign finance. We have identified what we think are real problems where insiders use their power and their resources to dominate the policy process and to make rules that basically are money machines for themselves rather than in the public interest. So we want to take that real frustration which has a reason for existing and divert it towards an appropriate target. The tax bill will pass and we’ve passed lots of tax legislation over the years and we’ll see what happens, how long this particular piece of legislation lasts. If we have a political change in a couple of years then the pendulum might swing back the other way. We seem to be in a period of big oscillations, big swings in politics and big swings in policy. Until we can calm down and find something that seems to work and satisfy people I’m afraid we’ll be having this sort of fevered oscillation back and forth,” Lindsey stressed to Hollywood on the Potomac.

Steve Teles and Brink Lindsey

Steve continued our economics education. “The thing that’s interesting about the book,” Teles told us, “is we basically finished all of it before the election; so in some way I think of this book as an agenda not for today, but for in two or four years.  I think the book’s gotten a lot of attention so far partially because people are exhausted about simply having the same argument over and over again. I think people in Washington feel that way. People outside of Washington feel like we’ve just been arguing the same thing, the same set of issues with the same partisan dynamics, and they are looking for some way to think about reshuffling the deck of the things that we think are important and the things that are really going to be significant for the economy and for politics over the next five or ten years. I do think the voters, at least a significant number of voters who voted for Trump, thought ‘look, you thought you were voting for somebody who was going to end this and all ended up doing was doing the same Republican thing, only on steroids.’  I think certainly Trump was smart enough to say he was going to be doing something different and I think until people start seeing their tax bill, and they start doing their taxes, and they realize that nothing particularly helpful happened to them or they actually saw their taxes go up, I think at some point reality does catch up to spin.”

“There’s no question that Democrats, when they come in, are going to try and reverse especially the estate tax stuff, which really is incredibly brazen, and the corporate tax stuff. I think there’s a possibility that this pushes the Democrats to actually do comprehensive tax reform of their own,” Teles concluded. “They’re not just going to come in and say, ‘Oh, let’s just undo what the Republicans did.’  I think there’s some significant possibility that they’re going to go and start thinking about from the ground up what the tax code should look like.”

Gloria Dittus, Christopher Reiter and Beth Solomon

We were curious as to why the government or corporations don’t train people to learn new skills to replace jobs that will inevitably be gone such as coal mining instead of trying to preserve it.  Perhaps, we thought, it would be more profitable for workers to train for new jobs that will keep them in the work force. “We actually address this in the book,” Teles responded. “Our economy used to be better at moving the people to where opportunity was – that’s the story of America. That’s one area where I do think there’s actually a lot of opportunity for conservative and liberal cooperation to figure out how do we solve the housing market so that those people in more depressed areas can actually move to where the economic opportunity is. Nobody’s really figured out how to bring economic opportunity to depressed places. People have tried it for over 100 years and nobody’s really ever succeeded at solving that. The only thing we know how to do is to move people to where opportunity is.”

The final vote on the Republican tax bill is coming up in December.  If you’re not wealthy or a corporation, brace yourself!