In the book, Miller argues that the only intelligent course is to make government bigger but also smarter. The problem, he claims, is that reform and expansion are blocked by “old ways of thinking” on both Miller’s left and right. If that thinking can be overcome, then America can “unleash a new prosperity.”
So what are these “six dead ideas”? In a nutshell:
Rising Standard of Living? Miller contends that the age-old belief that each generation of Americans will enjoy a higher standard of living is no longer true. The reason for this, he says, is globalization. Global competition “puts an effective wage cap on large swaths of employment, even if jobs do not actually move offshore.” Therefore, he says, we must face the reality that there will be a huge gap between the relatively small percentage of Americans who earn very high incomes and the badly lagging middle and lower classes. Miller’s prescription is increasing income redistribution and government intervention in markets.
It is difficult to embrace Miller’s concern, given that just about every recent American generation has been told that “times have changed” and that their generation will be the first generation to not live as well as their parents did. To date, none of those gloomy pronouncements — often made by learned individuals citing all sorts of compelling reasons — have proved true. Who knows — perhaps Miller will be the first.
But if he is, then I have little confidence that his prescription of government intervention and redistribution will save us from such a decline. From milk marketing orders, to Regulation Q, to Essential Air Service, there are heaps of examples of government intervention that misallocates scarce resources away from high-value uses, not toward them. Likewise, redistribution can lead to misallocations of labor and lessened incentives for the accumulation of skills. There is good reason to worry that bigger government will perpetuate and expand such misallocations, which will not improve living standards, but will lower them.
Free Trade Is Always Good? The second “dead” idea that Miller decries is the notion that the United States should be an ardent supporter of free trade. He argues that the era of globalization changes the old calculus of specialization and gains from trade, because today each country’s productive capabilities are not fixed. Rapid changes in other countries result in too many American workers being hurt by trade and, again, the government needs to step in.
To be fair to Miller’s position, I stress that he is not a protectionist. He accepts the benefits of trade, but he wants government to ease the transition costs when domestic workers lose their jobs because of foreign competition (not, however, if technological change is the cause). I appreciate that point, but it seems that there are many programs already in place for this (e.g., unemployment insurance, retraining subsidies, welfare-to-work programs). I worry that, instead, Miller’s call will be a conduit for protectionism.
Employers Should Take Care of Employees? Miller claims that industrial capitalism’s “brutality and insecurity” in the 19th century led to the idea that workers should look to their employers for protection against life’s major risks. As a result, health insurance and retirement income are often provided by employers. The problem is that the cost of these benefits is (supposedly) becoming too onerous for business. Miller recommends putting government, not employers, in charge of overseeing workers’ health care and retirement income.
As we all know, it was an historical accident that health insurance came to be a fringe benefit of employment in the United States rather than something individuals bought on their own. Likewise, traditional pensions came about as a way for employers to defer some of their compensation to workers, and at the same time create a pension fund that could be used as an emergency fund by the employer if it found itself in dire financial straits.
Undoing the historical accident and removing any inappropriate incentives for traditional pensions would ultimately benefit public welfare. However, I am not so sure that shifting responsibility for health care and retirement income from employers to government is the best way to help workers.
Taxes Are Always Bad? The fourth “dead” idea is that high taxes are always economically harmful. Miller observes that, given the federal government’s high level of current debt plus the unfunded liabilities posed by Social Security and Medicare (not to mention similar liabilities on the state level for Medicaid and state employee pensions and benefits), there will need to be a considerable increase in government revenues if those obligations are to be fulfilled. Miller believes the economic drag produced by all these unfunded liabilities outweighs any short-term economic gains from lower taxes today, and he attacks Republicans and conservatives for using current tax rates as a political wedge issue.
I fully appreciate the significance of the unfunded liabilities that federal and state governments face over the coming decades. However, in simply embracing tax increases, Miller ignores the fact that higher revenues do not necessarily mean reduced unfunded liabilities. It seems likely to me that, after raising taxes, lawmakers will do what they always do: direct the new money toward new spending, which they will label “investment.” Neither starving the beast nor feeding it seems to make it go away.
Schools Should Be a Local Matter? I took special interest in Miller’s fifth “dead” idea, which is that K–12 public schools should remain under local control. He argues, not without reason, that local control allows special interest groups, especially teacher unions, to get away with low standards and enormous inefficiency. He wants to bury this idea because other nations, by centralizing control of their schools, are said to be racing ahead of us in educating the young.
Let us give Miller a gold star for saying things about public education that liberals are loath to say. At many schools, standards and performance (by students and teachers) are dismal. Unions run school systems for their benefit, squeezing out tremendous amounts of money from taxpayers in exchange for work that usually is mediocre at best.
However, I cannot see how this can be remedied by centralizing education policymaking in Washington. The more centralized political control is, the more easily it is affected by special interests and the more difficult it is for ordinary citizens (especially a citizenry as diverse as the United States) to get the schools they want. Federalization is a dubious cure for inefficiency in anything.
The underlying flaw in Miller’s thinking here is that he does not understand that many of the problems in education are the product of regulations and policies that are sacred to the education establishment. Consider, for instance, teacher certification. Certification typically requires would-be teachers to show mastery and utilization of a particular approach to pedagogy. Yet as all good teachers know, different children respond differently to different pedagogies, and different teachers are effective at some pedagogies but not others. Effective education is the matching of student to teacher to pedagogy — a matching that is difficult enough on the family and local levels, and increasingly impossible as education policymaking becomes more and more centralized. Hence, the certification requirement, in its current form, serves to shelter specific pedagogical theories, not to provide the best educational setting for different children — but the former is what the education establishment wants. We also have teacher job security rules that make it nearly impossible to fire a poor teacher — and again, that is what the education establishment wants. Why would the education establishment want something different — or be less effective at getting what it wants — if education decisions are shifted to Washington, DC instead of state capitals and local school boards?
Money Follows Merit? The last of Miller’s “dead” ideas is that modern capitalism is a meritocracy where the level of one’s income reflects his economic contributions. That idea must be tossed aside, Miller says, so we can tax those who make gargantuan incomes and restore a semblance of social justice.
As is the case throughout the book, there is a nugget of truth in what Miller writes. Over the past two decades, some individuals have pocketed prodigious amounts of money. More than a few of them have received this money not because of some feat of value addition, but because they knew how to game the system and had the right connections.
Miller claims to sense a brewing class revolt against the super-rich that will result in higher taxes. I think this is wishful thinking. But assuming he is right, will the revolt benefit the public? It seems likely that such a revolt would be against all richies, not just those who gained their wealth through mischief. But if all of the wealthy are attacked, that would weaken beneficial incentives for hard work and innovation, which would certainly not leave the public better off.
In his calls for bigger government, Miller writes as if Beltway inhabitants are paragons of virtue and knowledge.
New Ideas In the second part of the book, Miller describes some of the new ideas that he wants to succeed the “dead” ones that he has trashed. Let us consider two of them.
First, Miller believes that government and business must work hand-in-hand in order for the nation to have a vibrant economy, declaring, “Only government can save business.” He is eager to justify his “new” idea that the state can and should take care of workers and claims that American businesses cannot compete internationally if they have to bear the health care costs for their workers.
“Legacy costs” such as retiree pensions and benefits, as well as benefits for current workers, have proven a heavy burden for some U.S. employers — but not nearly as many as Miller seems to believe. General Motors and the major airlines of the pre-deregulation era are examples of such troubled employers (though some of those airlines also exemplify how such burdens can be reduced), but my sense is that the overwhelming majority of firms are not in such dire straits. This is not to say that firms do not want to reduce their costs, but instead that they have managed their obligations prudently and been able to navigate difficult tradeoffs in their compensation packages. If suddenly the federal government were to relieve them of these burdens (in exchange for increased taxes, of course), wouldn’t those employers then have to make difficult decisions about other forms of compensation?
Second, Miller believes that it is a “destined idea” that the United States will significantly raise taxes and thus “save the economy (and the planet).” He wants Americans to act “like adults” and accept the necessity of higher taxes so as to fund more government services. He calls for a “smarter” tax system with lower rates on business — thereby leaving them with more money to hire and invest in their operations — but higher taxes on individuals through the adoption of a Value Added Tax and carbon taxes. (The latter, of course, is premised on the idea that lowering carbon dioxide emissions is crucial.) Miller believes that this change, coupled with substantially higher tax burdens, will do little economic harm, pointing to European nations like Denmark that seem to be decent and fairly prosperous places despite their high tax burdens.
In this discussion, Miller gives no thought to inefficiency and opportunity cost, and the likelihood that government expansion would increase them. The more of GDP the government takes and spends according to the preferences of politicians, the less is left for individuals and private organizations (profit and nonprofit) to use as they would like. Miller, in his calls for bigger, more centralized government, writes as if Beltway inhabitants are paragons of virtue and knowledge, when in fact the political process is dominated by short-term thinking focused on electoral popularity and bureaucratic self-preservation. Under such conditions, waste and inefficiency can continue indefinitely. In contrast, private decision-making has more incentive to consider long-term tradeoffs and to stomp out waste and inefficiency. This is not to say that private decision making is infallible or that there is little need for a public sector, but instead that policymakers who are concerned with public welfare should be reluctant to transfer private decisions to the public sector. By increasing the government’s take, we diminish the sector of the economy that is especially adept at producing and innovating. That is a bad tradeoff.
Miller points to Denmark in order to dismiss concerns that higher taxes and bigger government could prove economically harmful. But I can point to similarly heavily taxed, heavily politicized nations like Argentina that ultimately descended into economic oblivion. Perhaps Denmark and a bigger-government United States would ultimately not suffer decline, but I am skeptical. I think we would be much better served to find ways to cut the burden of government.
Conclusion In short, Miller wants us to believe that it is possible for the United States to significantly increase taxes; federal control of education, health care, and retirement; further redistribute income — and simultaneously become more prosperous. I am not optimistic that policymakers can be such careful architects. Everywhere I look, I see political meddling contributing to our present and looming future woes: the housing bubble and resulting financial implosion; the avalanche of unfunded federal and state liabilities; high unemployment; low national savings; misallocated investment; an inefficient educational system, and so forth. Yet Miller’s book proposes still more politicization as the cure for problems that have roots in politics.
To be sure, Miller prescribes all sorts of limits to the government expansion he advocates, in order to protect us from what he acknowledges are problems of big government. But there is no reason to think that real-world politics would play out anything like Miller’s ideal. The wealth and power that would be created by such centralization and expansion would provide enormous incentives for mischief for even the most benevolent-minded political leaders. Instead of the benign results he envisions, we would get a considerable increase in rent seeking by special interests. The result would not be the unleashing of “a new prosperity,” but the unleashing of more lobbyists.
