Liberals react to times of conservative ascendancy in economic policy by deriding the “trickle-down economy”; even in times such as these which are far from that, you can see this derision lurking behind liberal critiques of the Wall Street rescue package.  The irony of this is that, as Thomas Sowell has pointed out, the modern liberal approach to helping the poor is actually its own form of trickle-down economics—the only difference is that the substrate through which the money trickles is government rather than the private sector.  This might seem like a minor difference, but it really isn’t.  In the private sector, the people at the bottom are in the same system as the people in the middle levels; in the government sector, they aren’t.  Thus, in the private sector, as the money trickles down to the folks in the lowest-paying jobs, it helps create new higher-paying jobs, opening up opportunities for those folks to move up the ladder and make more money.  In the government sector, as the money trickles down to be paid out to clients, it also helps create new government jobs—which benefits people in government, but does not create opportunities for those on the bottom (in most cases, at least).Thus the key is that “trickle-down economy” is really a misnomer as applied to the private sector, because what really matters isn’t the movement downward but the opportunities it creates for movement upward as it opens cracks in the substrate.  It is, however, an accurate descriptor of the government-assistance economy—and thus it’s here that we really hit the reality that expecting money to trickle down to those in need is a highly inefficient way to distribute it.  As Michael Novak writes, citing Sowell, in the latest First Things (excerpted here—it’s not even up on the site yet),

if you add up all the money that Congress has designated for the relief of the poor, the total turns out to be more than would be required simply to give every poor family some $30,000 in cash per year. Another way to look at it: Most of the American poor already have significant income, if not quite enough to lift them above the poverty level. If one calculates the gap between the financial benefits they already enjoy and the full sum that would lift them above the poverty level, it turns out to be a much smaller amount than is currently designated to be spent for their benefit. As the economist Thomas Sowell writes, to try to feed the swallows by feeding the horses is an immensely inefficient way to get help to the swallows. The middlemen in poverty programs often fare far better than the poor. Direct cash grants might be far more efficient.

I think they would, especially since (as Barack Obama has already proposed, and George McGovern before him) the disbursement could be handled through the IRS; you’d want some sort of sliding scale at the top end so as not to provide people with a powerful incentive to remain officially poor, but a grant program like this that was funded by the complete abolition of the federal welfare bureaucracy would be, I suspect, both more efficient and more effective than the programs we have now.  It would also have the advantage of transparency, and thus intellectual honesty, about what the government is really doing here:  namely, taking money from some people to give to others.  Doing both in terms of the tax code would provide much greater clarity about how much, and to whom, and on what basis.  Given these advantages, I think this would be a proposal conservatives could gladly support.

comes from Jonathan Rauch, writing in National Journal; having spent considerable time recently around General Motors for a story on the Chevy Volt, Rauch has seen quite a lot of the company’s culture and internal processes, and his report suggests a strong possibility that a government loan might actually work—that the company (and, one hopes, also Ford and Chrysler) might be able to use the time the loan would buy them to finish making the changes they need to make to compete on an equal footing with the rest of the world’s auto manufacturers.  Rauch writes,

Today, GM’s factories are only about 6 percent less efficient than Toyota’s, according to Oliver Wyman, a consulting firm, and the remaining gap will shrink as new labor agreements kick in. The company’s cars are winning awards and critical plaudits. The 2008 Chevy Malibu, a hit with both buyers and analysts, represents a breakthrough: a midsize sedan that can go toe-to-toe with Toyota’s ubiquitous Camry without flinching. Whether GM can consistently replicate the Malibu and other recent successes remains to be seen, but the vehicles in the pipeline look promising. . . .What I found this year was a far cry from complacency. The ranks of line executives and engineers are thick with members of the Obama generation, who barely remember when GM was fat and happy. They are hungry to change the beleaguered company and prove its critics wrong. They are also piercingly critical of the old GM, candid to the point of eagerness in owning up to and analyzing the company’s mistakes and faults. The decades of denial are over.To succeed they will need a healthy balance sheet. Here, the problems are with legacy costs: uncompetitive pensions and benefits, rigid labor contracts, too many brands and dealers, and so on. The good news is that the company has succeeded at reducing its structural costs. It has shed more than 40 percent of its jobs and about 1,000 dealers since 2004; negotiated fully competitive wage scales for new hires; extinguished the Oldsmobile brand; and transferred retirement and health costs to its unions. The bad news is that those changes were sufficient only if everything went right economically.In its rescue proposal to Congress, GM practically begged for a strong federal overseer with the power to force unions, dealers, and creditors to accept further retrenchment. GM wants the stick of a bankruptcy-like arrangement without the stigma of the real thing. In principle, a federal bailout could give GM a hard push into the future by wrenching its balance sheet into alignment with reality.

I don’t know if I’m convinced, but I think we all need to think about this very carefully.  The most important consideration here is that the automakers aren’t simply asking for money to prop up business as usual.  Rather, as Paul Hinderaker puts it,

GM is asking for the stick of a bankruptcy-like arrangement without the stigma of the real thing. The bailout issue boils down to whether it makes sense to grant this. Bankruptcy provides a bigger, more effective stick, but it is not without risk. GM might not survive the loss of confidence associated with a bankruptcy, and its failure could take down much of the supplier base, with severe consequences for the larger economy.

This is not a possibility to be taken lightly; there’s a real risk in giving the automakers the loan they’re asking for, but there’s a real risk in not doing so as well.  The core question here is the potential reward for each risk, and the likelihood of that reward materializing.  There seems to me to be no doubt that the best-case scenario is of GM, Ford and Chrysler solving their competitiveness problems to the point where they can build better cars than their competition at an equivalent cost; the issue is which path is most likely to get us to that point, and what the downsides are for each if it doesn’t.  There’s no way to be sure, but for his part, it’s clear which way Rauch leans:

Whether a bailout can save GM depends, then, on which GM you think you’re bailing out, the calcified shell of the old GM or the new-economy company struggling to emerge. Given the record, counting on GM to succeed would be rash. But consigning it to fail might be even more so.

No, I didn’t say “Why Barack Obama is doomed”; I don’t think his policy appointments and decisions will help the economic situation any, but I’m not suggesting that John McCain would have had the winning economic strategy. Rather, the point is that there isn’t a winning economic strategy at this point—the forces in play are just too big. Read Michael Lewis’ excellent piece in Condé Nast Portfolio to understand why. It’s long, but well worth it; remember, this is the guy who first identified the roots of the problem 20 years ago in his book Liar’s Poker, returning to autopsy the patient who died of the cancer he originally diagnosed. Trust me, read the whole thing—read it to the end; it will blow your mind. Then read the accompanying article on why there won’t be a recovery for a while yet, despite what the optimists say, and reflect on the fact that presidents always get blamed when bad things happen, whether it’s their fault or not. (George W. Bush can point to the mishandling of Katrina by Kathleen Blanco and Ray Nagin, for which he took pretty much all the blame outside of Louisiana; granted, Michael Brown and FEMA also did a very poor job, but the hit President Bush’s popularity took had far more to do with matters under their control than with things for which he was actually responsible. The only upside for Republicans is that this did lead the people of Louisiana to elect Bobby Jindal the next time around.) The Oval Office is going to be a rough place to be in 2010, and would be no matter who was sitting in it, for reasons which in large part will have nothing to do with its occupant. (At least on the economic side; when it comes to foreign policy, that’s another matter.)HT: Baseball Crank

Is it more important to help the poor in absolute terms, or in relative terms? Put another way, is it more important to improve the standard of living of those who are poor, or to reduce the difference between their standard of living and that of those who are rich? Which would be preferable: economic conditions in which the standard of living of the poorest 10% improves by 50% while that of the top 1% triples, or conditions in which the standard of living of the poorest 10% improves by 10% while that of the top 1% declines by 10%?It seems to me that conservatives lean towards the former answer, while liberals lean toward the latter; conservatives generally don’t believe that income inequality really matters if standards of living are improving for everyone, while liberals, on my observation, seem to view income inequality as the primary problem. (This isn’t the only difference between left and right on this issue, as conservatives also still maintain a greater stress on the role of social pathologies such as drug abuse and promiscuity, as well as mental illness, in poverty, while liberals emphasize the role of injustice on the part of the rich and powerful; I’m hopeful that on these issues, however, the two sides have learned at least a little from each other, as it seems to me that there are more people now taking both sets of issues into account.) The question of which we value more goes a long way to determining what sort of policy approaches to poverty we prefer.