David Brooks’ latest column has already been subjected to a lot of solid criticism, but I did want to highlight one thing he says which I think inadvertently illustrates why formal models are important and intuitive thinking about virtue won’t cut the mustard:

It all makes one doubt the wizardry of the economic surgeons and appreciate the old wisdom of common sense: simple regulations, low debt, high savings, hard work, few distortions. You don’t have to be a genius to come up with an economic policy like that.

Try to draw up a model—a simple one, but one where you do try to make sure that your numbers all add up—in which everyone has high savings rather than high debt. Households have high savings. Firms have high savings. The government has high savings. And the governments of your trading partners have high savings. But so do their citizens. And their firms, too. It’s the old wisdom of common sense! You’ll find that it doesn’t add up. Japanese people save by lending money to the Japanese government, which borrows. I borrow to buy a condo, and the money I’m borrowing is the money other people have saved in the bank. You put your money in the bank rather than leaving it under the mattress because the bank pays you interest. But they pay you interest because they can charge interest to other people—people who are in debt.

The old wisdom isn’t nutty or anything. Borrowing a ton of money so you can buy a fancy new car is probably a worse idea than buying a cheap used car and saving your money. But if you’re poor live in a city with bad mass transit and you borrow money to buy a cheap used car so you can make sure you’re on time for work every day, you’re making a prudent investment in your own future. Likewise, if you’ve got a successful store and you take out a loan to open a second location, you’re building the future of the American economy. Thriftiness is a good character trait because it tends to make people averse to accumulating debts for frivolous reasons. But if you try to build a systemic model, you’ll see that universal thrift doesn’t work at all.

Indeed, though thrifty people play an important role in making the economy function, they do so in part because their thrift creates resources that others can use to be venturesome and fuel innovation, entrepreneurship, and prosperity. Capitalist success stories are built on the ability and willingness of people to fail. For every hugely successful startup, you’ve got a dozen or more failures and behind those failures you’ve got bad loans. The willingness to issue those loans makes the world go ’round, and we need the savers because without them there’s no money to lend.

David Brooks, writing skeptically about the case for more fiscal stimulus, says:

But the overall message is: Don’t be arrogant. This year, don’t engage in reckless new borrowing or reckless new cutting. Focus on the fundamentals. Cut programs that don’t enhance productivity. Spend more on those that do.

So leaving aside the fact that it’s a bit difficult to know exactly which programs enhance productivity and which don’t (arrogant, even), obviously “do more productivity-enhancing stuff” is never terrible advice. But it just can’t be emphasized enough that even though the American economy is in fact sub-optimal on the supply side in many ways, this is also true of every other economy on earth at every other time on earth. When nations fall into a macroeconomic funk, it’s natural—and in some ways even a bit healthy—for people to start focusing on structural problems that they didn’t care about so much a few years ago in fatter times. But it can also get morbid. The United States is one of the most productive countries in the entirety of human history and according to the Bureau of Labor Statistics we’re more productive than ever:

Nonfarm business sector labor productivity increased at a 2.8 percent annual rate during the first quarter of 2010, the U.S. Bureau of Labor Statistics reported today, with output rising 4.0 percent and hours rising 1.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2009 to the first quarter of 2010, output increased 3.0 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.1 percent (tables A, and 2). This gain in productivity from the same quarter a year ago was the largest since output per hour increased 6.1 percent over the four-quarter period ending in the first quarter of 2002.

For a look at what that means in practice, take a gander at the CBO’s estimate of potential output:

Over the long-run, boosting our productivity growth rate will help us become more prosperous. But over the short-run, our potential to produce goods and services simply isn’t the issue. The issue is that because of demand shortfalls, that potential isn’t being used.

Having said all that, the really odd thing about Brooks’ column is that after bashing stimulus proponents for many grafs, he turns out to basically agree with stimulus proponents:

First, extend unemployment insurance; that’s a foolish place to begin budget-balancing. Second, you need to mitigate the pain caused by the state governments that are slashing spending.

Exactly. But if that’s what Brooks thinks, he should be complaining about conservative senators who don’t want to do those things, not about Paul Krugman.

David Brooks’ column drawing attention to the rise of an economic model that’s not Soviet-style Communism but also stands in contrast to the various forms of “democratic capitalism — ranging from the United States to Denmark to Japan” that exist around the world.

But positing this as a stark conflict between a US/Denmark/Japan “democratic capitalism” camp and a Russia/China/Saudi Arabia/Iran/Venezuela “state capitalism” camp seems very misleading. What about France? Clearly a democracy. Lots of private firms. Clearly impacted by neoliberalism. But less impacted than other western countries. Still lots of state ownership of enterprises. Or Norway with one of the world’s biggest sovereign wealth funds. Or for that matter Singapore, which isn’t a democracy but is often seem as one of the most free market countries in the world but with, again, two big sovereign wealth funds—Temasek Holdings and the Government of Singapore Investment Corporation. How does Hydro Québec fit into Brooks scheme?

Norway, Where Oil-Based State Capitalism and Democracy Are Great Tastes That Taste Great Together

I think he’s raising important questions here, but precisely because people aren’t accustomed to thinking about the implications of this kind of state capitalism it’s important to try to think clearly about what’s happening and not rush to proclaim a new form of Cold War.

Statue of Charles Sumner, Cambridge, MA (my photo, available under cc license)

David Brooks’ latest column contains an aside about how “There’s about to be a backlash against the Ivy League lock on the court.”

I sort of doubt it. But obviously at any given time there’s a certain level of anti-Ivy League sentiment about. My experience with this, however, is that it’s a bit self-deluded. The people you hear participating in this backlash are almost invariably graduates of excellent non-Ivy colleges featuring highly competitive admissions—Michigan, University of California, Texas, Brooks’ own University of Chicago, etc. And obviously there’s nothing wrong with a little good-natured rivalry among alumni of different institutions. But the tendency is for this lumpenelite to treat the battle between famous, high-quality, highly competitive non-Ivy schools and famous, high-quality, highly competitive Ivies as some kind of yawning class divide in which the non-Ivies are the populists.

Realistically, this is just a particularly silly instantiation of Michael Kinsley’s reverse snobbery. The fact of the matter is that over seventy percent of Americans don’t have bachelor’s degrees at all. That’s a substantial class divide that tracks onto some very real gaps in social and economic status and has real political and cultural meaning, including lots of potential for backlash, though I doubt we’ll see a backlash against the idea that judges should have gone to law school. What’s more, even among the minority of Americans who have bachelor’s degrees, most of those people go to relatively uncompetitive schools (e.g.).

At any rate, as far as Elena Kagan’s concerned its not a big deal. But many graduates of fancy, hard-to-get-into colleges suffer from serious misperceptions about the state of higher education in the United States. This kind of view whereby Ivy League vs non-Ivy is a salient divide is a big part of that. The main splits are college/no-college and competitive/non-competitive admissions, not Chicago versus Penn.

(cc photo by Lars Ploughman)

David Brooks has a Moynihanish column in which he says people overrate policy and underestimate the role of culture in determining outcomes. “The influence of politics and policy,” he writes “is usually swamped by the influence of culture, ethnicity, psychology and a dozen other factors.” In the course of making the case he writes:

If you combine the influence of ethnicity and region, you get astounding lifestyle gaps. The average Asian-American in New Jersey lives an amazing 26 years longer and is 11 times more likely to have a graduate degree than the average American Indian in South Dakota.

Brad DeLong replies:

If you wanted to find a stupider example to try to support the claim that “differences in policy really do not matter very much” than comparing American Indians in South Dakota and Asian-Americans in New Jersey, I suppose you probably could.

But it would take a really long time to find one, and you would have to work really hard to do so.

I think that’s an unfair reading of Brooks’ point. Consider his example of the kind of policies that do make a difference later in the column:

Therefore, the first rule of policy-making should be, don’t promulgate a policy that will destroy social bonds. If you take tribes of people, exile them from their homelands and ship them to strange, arid lands, you’re going to produce bad outcomes for generations.

I’m not certain that’s the right analysis of poor outcomes among South Dakotan Native Americans, but it seems like a credible account.

My problem with Brooks’ argument is something else. He notes that Asians do well not only in rich states like New Jersey, but also in economically distressed areas. But obviously Asians living in South Korea and Japan (or New Jersey) do much better than Asians living in North Korea. That’s policy. Chinese people living in San Francisco or Hong King or Singapore do much better than Chinese people living in Jiangxi. That’s policy. And the China disparity is much smaller in 2010 than it was in 1980, which is also policy.

Brooks counters by noting that Swedish-Americans and people in Sweden have similar outcomes, which he characterizes as “two groups with similar historical backgrounds living in entirely different political systems.” I think the real lesson here is that Sweden and the US (especially the parts of the US where Swedes tended to settle) actually don’t have entirely different political systems. North Korea and South Korea have entirely different political systems. Sweden and Zimbabwe have entirely different political systems. The United States and Uzbekistan have entirely different political systems. The United States and Sweden are both stable democracies with market economies, substantial welfare states, and relatively low levels of public corruption. I think the real lesson of Brooks’ story is that the policy differences between stable market/welfare democracies are not that large and especially that controversies about tax levels are overblown in terms of their consequences.