Another alternative is that they're intentionally screwing up the government to force a reduction in its scope through the backdoor. Remember that Stockman bit about starving it through deficits?

Remember the internet-related comment 'they just don't get it', well I'm afraid that looking at the Bush administration line-up this comment immediately springs to mind, worn-out, tired, grey men and women. Krugman has made the point that the majority of America's wealth is generated in the coastal regions (where the imigrants and the technology are), leaving the centre of the US to be essentially subsidised. That's where the declining (in income share terms)industry and agriculture is. But that is also where a lot of the votes which support the Republican Party are located. The US also has a large population of European descent which is aging fast, again these votes matter, and this group is concerned about identity and about change.

If you take a long hard look at the special interest pleadings favoured by the present administration, it would be hard to find 'New Economy' groups among the beneficiaries.

All this confirms for me that the old right/left dichotomies don't explain very much today (if they ever did). Conservatism, Romanticism and Technological Illiteracy have as much in common with each other as do Risk, Early Adoption, Openness to Change, and Sharing (look eg at the hackers, and take another look at the history of the nineteenth century and the Corn Laws in the UK, or again consider Blairism).

It's a big mistake to think that the enemies of globalisation are principally on the left. No, I'm afraid they just don't get it.

Lovely to see these Harvard chaps have kept their sense of humor. The negotiations to create NAFTA began under Republican Administrations; Clinton inherited the (nearly complete) project and passed it relying on Republican votes. The ghastly budget wars of the 90's, if I recall, were often a battle about Newt and company cutting spending and reducing the deficit faster than Clinton would accept.

Interesting that he would forget this, yet remember Carter's role in deregulation. He is correct, but overlooks the hideous economic performance under Carter and seems to push to one side Carter's energy plan, which spawned the windfalls profit tax on oil, leading to Marc Rich, leading us back to Bill Clinton.

Of course, he was kind enough to skip past Mr. Free Market himself, Wage and Price Controls Nixon.

There are policies to be praised, and ridiculed, in both parties. We welcome the news that the Democrats have been freed from the grip of special interests, and wonder only when Big Labor, the NEA, Hollywood, and the trial lawyers will de-camp, leaving Washington for friendlier climes.

Regards,

It is perhaps a statement of the obvious that the political positioning of "rightist" and "leftist" greatly depend on the continental location of the beholder. The differences don't travel well now if they ever did.

Many Europeans regard Democrat economics as abhorrently "rightist" and would likely feel more disposed to identify with Republican economics as depicted here apart from the declared preference for a low tax regime. Least readers consider that a perverse judgement, consider the persistent fiscal deficits of some west European states and the associated huge national debt/GDP ratios. And again, some EU country governments are well-known in Europe for their traditional protectionist stance in trade relations together with enthusiasms for invoking anti-dumping restrictions at any opportunity, almost regardless of whichever party or coalition is in power in those countries.

"Dirigisme" in Europe has a long history extending back at least to the time of the Mercantilist System of Colbert in 17th century France and, later, Napoleon's Continental System. More examples would be open to accusations of xenophobia but among benign early motivations for European integration post-WW2 was the creation of a supranational context in which legacy national barriers to trade could be unwound with electoral support. However, I can mention a personal experience of some UK professional reactions to Paul Krugman's Peddling Prosperity (1995). Some evidently regarded that as distinctly "rightist" and "free-market" with the result that an antidote was soon produced by the Commission on Public Policy and British Business under the title of Promoting Prosperity (1997) to espouse what came to be regarded as Blairism. Official launch of Blair's commitment to the Third Way came later.

Curiously, the Third Way has a provenance in Europe extending back to Mussolini as shown in this passage from a book about Italy, written by an academic at Edinburgh University before the 1997 general election in the UK : Martin Clark: Modern Italy 1871-1995; Longman Higher Education; (2nd ed. 1996), p. 250, where the author writes about the policies of Mussolini's fascist government, "They seemed to offer 'a third way', between capitalism and Bolshevism, which looked attractive in the Depression. . ."

Nor is that the first indication of the influence of Mussolini's government on policy of Britain's Labour Party in government as in Geoffrey Foote: The Labour Party's Political Thought: A History; Palgrave (1997), p. 311: "However it was with the idea of a state planning agency that Holland [sometime an academic then a Labour MP] hoped to show the new possibilities open to a more just economy. He looked to the Italian example of the IRI (the Industrial Reconstruction Institute), set up by Mussolini and used by subsequent Italian governments to develop the economy. This had, of course, already been tried through the IRC (the Industrial Reorganization Corporation) set up as part of the National Plan in 1966, but the IRC had been too small to have much effect on the British economy. A revamped IRC in the form of a National Enterprise Board would, however, have a major effect in stimulating the private sector through an active policy of state intervention and direction."

Any parallels with the US Sematech semiconductor research consortium launched in 1987 with federal funding or the later Display consortium formed in 1993 which also benefited from federal support?

Dear (Prof.?) Briant,

"Official launch of Blair's commitment to the Third Way came later."

I remember a paper, called the "Schröder-Blair"-Thesis for renewing Europe's Social Demoncracy. From the continental point of view, even this position was very "rightist".

What many observers here in Germany fear is indeed the "Anglo-Saxon" approach to economic policy. Even the conservative candidate Edmund Stoiber is known for his interventionist industrial policy.

A mere decade ago Rudi Dornbusch statet that in the global competition, the european welfare states are "cooked up". Perhaps he was too fast with his judgement.

Germany, like France, tries to lessen the pressure to its welfare standart by going the "harmonization-of-european-economic-policy"- way.

So on the continent, US-liberal policy wouldn't be just "rightist" but even more; it would be considered as Anglo-Saxon.

Best regards,

Mu-Jeung Yang

Have we all forgotten the 1992 Presidential debate where Bill Clinton declared his devotion to the ideas of Lester Thurow, and specifically the German Way?

Or the hilarious 1996 Dole campaign ad skewering Clinton for his contradictory statements on the deficit: "That would be in seven years...ten years...five years....?

Bill Clinton was probably the luckiest SOB ever to be President. Inheriting a recovering economy from GHW Bush, and bequeathing a declining one to GW Bush. Not to forget his party losing congress to the Republicans, which effectively shut out Clinton's worst instincts. I.e. Triangulation.

As to the claim that the majority of wealth being produced is in the coastal areas, well yes. Everywhere that is the case, as Thomas Sowell has famously pointed out water transport is cheap. The major reason for Europe's comparative prosperity is its irregular coastline with numerous harbors, as well as the navigable rivers.

However, that doesn't keep special interests from rent seeking, ever hear stories about the longshore union thuggery?

And as to: "If you take a long hard look at the special interest pleadings favoured by the present administration, it would be hard to find 'New Economy' groups among the beneficiaries". Right, those groups got theirs from the Clinton Administration in the form U.S. v. Microsoft.

Frankel's theme is not new. He does get high marks against Pope's measure of poetry - "oft said, but ne'er so well expressed." The comments on Frankel's piece show clearly enough that, with a bit of careful selection, either party can be made to seem feckless and irresponsible. (A bit of sniping can move the argument backwards for a while, too. Come on, now, rotten economic performance, in and of itself, doesn't make Carter's deregulatory efforts any less free-market.) Frankel's thesis, though, is not defeated by pointing out that Democrats can be protectionist, profligate and political. The point that the mix of policies between the two parties has shifted, that Democrats have moved toward fiscal and market rectitude while Republicans have moved away, is undiminished by the comments. The line was once clear. Now, it is at best unclear and at worst, Republicans are no longer on their traditional side of that line. The very fact that the argument can be made and backed up, even unconvincingly (to some), pretty much proves the point.

Let us not forget that the transition took place right in front of us. Bob Dole was the last really powerful member of the "fiscal rectitude before tax cuts" wing of the GOP. The GOP is now dominated by "tax cuts first" wing. This is part and parcel of the general drift toward the wings on most issues. President, particularly Democrat presidents, have had to be the exception, just to get elected. The unpopularity of Bush and Gore during the last election was in part because they were further from the mainstream than Clinton.

By the way, does Frankel's article suggest to anybody else that there is more than one kind of moral strength - one keeps you from nailing interns, another allows you to stand up to interest groups? Clinton had one. Few in Washington (especially among his most ardent accusers) seem to have the other.

If anything, the last 20 or so years has taught us: Raising taxes improves the US economy. Every major tax increase (1982, 1990, 1993) was followed by a period of expansion.

Why don't the Republicans get it? Why do they have to dig themselves into deeper and deeper rhetorical holes to trying to justify their irresponsible positions? My basic theory about the differences in economics of the two parties:

Republicans operate on the only partially mistaken notion that altering who's in power will affect overall philosophy.

Democrats operate on the only partially mistaken notion that altering structure will affect resources.

The problem for the Dems is that too much structure can get unweildy, and the problem for the Goppies is that placing too much trust and power in an individual leads to corruption and inherenly anti-capitalist actions.

In general, the Dems notion of public debate and continuing oversight works better than the Goppies notion of "trust me, because you don't know how to do it and I do". Quite simply: I don't trust the Republicans. I don't particularly trust the Democrats either, but at least they have the guts to put their plans up to public scrutiny.

There is an abiding bias in (especially USian) economics in favor of treating all actors as
(a) rational, and
(b) competent.

This very much prettifies the analysis ... but it leaves nearly the entire sweep of interesting real-world phenomena in pre-Copernican eclipse.

The Music of the Spheres is all well and good in its place, but it hasn't got a beat, you can't dance to it. I give it a 57.

Dear Mu-Jeung Yang,

You are absolutely correct about use of the derogatory tag, "Anglo-Saxon", in mainland Europe to denote what are taken to be the relatively "free" or "under-regulated" markets of the US and UK. Perhaps strangely, the tag is seldom applied in popular political debate in the UK from where it supposedly derives but then an eminent professor of English Constitutional History observed (accurately, in my view) that the English, "are both indifferent and ignorant as far as history is concerned."

A revealing instance of the derogatory use is in a quote attributed to the then Belgian Finance Minister in 1996 when he said European monetary union was "about preventing the encroachment of Anglo-Saxon values." [Bernard Connolly: The Rotten Heart of Europe; Faber (1996), p. viii. BTW there's a long and fascinating story about the author of this book who was sacked from a senior post in the EU Commission for making critical comments about the monetary union project. In his acknowledgements he cited Rudi Dornbusch and Olivier Blanchard.]

The SEMATECH and Display technology support programmes in the US - mentioned above - don't accord with claims that New Economy industries in the US were altogether averse to accepting state aids. However, I followed from afar part of the public debate in the US leading up to the 1996 Presidential about whether it was opportune to adopt a "national industrial strategy" for the New Economy industries. An editorial in one of specialist periodicals for the industry summed up the notion as "snake oil." That about said it all. Despite the rhetoric of proponents no public national strategy materialised.

An interesting and eloquent argument. But it still needs to be marked to market:

"Given where the Democrats' funding and campaign foot-soldiers come from, and given the AFL-CIO's beliefs, you are as likely these days to get large numbers of House Democrats voting for freer trade as you are likely to get them voting to restrict opportunities for trial lawyers, or to put all media productions in the public domain five years after their creation." -- Prof. Bradford DeLong, 6/16/02.

Politicians must play to their constituencies, still I'll take the constituencies of the Democrats on nearly every contemporary issue.

Republicans play to the rich however they may pretend otherwise.

Dear Bob Briant,

economic policy is largely influenced by cultural values. Many critiques of the monetary union, especially here in Germany, claimed, that France for instance, didn't want national currencies, which were pegged to the "DM". So they accepted the Euro, instead of a E-Mark.

The point of subsidies for special indutries is certainty a political regularity, even among very different nations. But the degree of realisation differs. The German policy and parts of economic theory, for example the "Ordoliberalist" School of Walter Eucken, supports a variety of different regulations and public interventions. German capitalism is called the "Rheinischer Kapitalismus" contrary to the Anglo-Saxon model.

I would be very interested in your opinion on whether the (new) British approach to economic policy fits into the continental model of large and strong labor unions, interventionist welfare states and central regulative public actions on EU level.

http://www.nytimes.com/2001/08/25/politics/25BUSH.html

"President Bush said today that there was a benefit to the government's fast-dwindling surplus, declaring that it will create "a fiscal straitjacket for Congress." He said that was "incredibly positive news" because it would halt the growth of the federal government."

Brad DeLong:

"The Federal Reserve appears to believe that the NAIRU--the unemployment rate at which inflation is constant--is somewhere near 5.5 percent (rather than the 4.5 to 5.5 percent I would estimate), and that the rate of growth of potential output--which is the rate at which real GDP has to grow to keep the unemployment rate constant--is only a shade above 2 percent per year (rather than the 3.5 percent per year that I would estimate)."

If Brad is right, then we are headed for even more serious budget problems than I thought. At least, I hoped, high GDP growth might lessen the impact of the coming tax cuts.

Dear Mu-Jeung Yang,

Very true and the political cultures, economies and social characteristics of Western European countries are more heterogeneous than distant observers may appreciate or perhaps Europeans dedicated to European integration will admit to. The "European model" is something of a convenient fiction devised to differentiate America from Europe, often by implication to defend some national policy or institution against criticism.

A case in point is Britain's National Health Service (NHS). For the past 40 years and more I have listened to political rhetoric and read academic papers defending the NHS by contrasting it favourably with healthcare provision in America. Comparison with heathcare systems in other European countries was never made until very recently, just with America to establish a seemingly compelling conclusion that the NHS is the better way. The implicit assumption was that the American model is the only feasible alternative. Within just the last few years it has emerged that not only do national healthcare systems in Europe differ widely but in quality rankings by the World Health Organisation the NHS comes out poorly compared with healthcare in many other W European countries.

One response of Europeans dedicated to ever closer European integration as they come to better recognise the differences in Europe is to press for greater "harmonisation" according to some European template. Now there are situations where harmonisation certainly matters. If each country had persisted in retaining national type-approval for, say, motor vehicles that would have made a complete nonsense of trade liberalisation in the customs union. However, it is certainly not obvious why tax rates and burdens, social security systems and healthcare provision need to be harmonised across Europe.

The short answer is that for all the rhetoric the new British approach is not generally coherent and there is no uniform continental model either.
One early response to Blair's Third Way in the serious UK broadsheet press and periodicals like The Economist was to describe it as vacuous. Chancellor Schroeder in Germany initially took to the Third Way and then dropped it. Jospin, prime minister in the previous Socialist government in France, remained discretely hostile throughout. He regarded a reduction in the statutory maximum working weeek to 35 hours as the way to cut France's high level of unemployment, arguably a reversion to archaic notions of the Lump of Labour theory of employment - and Jospin was at one time an academic economist. Blair himself has to all appearances very cordial relations with the prime ministers of Spain and Italy, neither of whom make any claim to being "leftist".
A recurring problem with "central regulative public actions on EU level" is that some EU member states have notoriously agreed to a series of EU Directives on market liberalisation measures and then defaulted on implementation. Hence, publicly-owned energy utilities in France have been free to buy into electricity distributor companies in Britain while British companies are blocked from buying into electricity distribution in France.
The fact that the Eurozone has both significantly higher rates of inflation and unemployment than Britain does not seem to be much of a recommendation for extending the scope and scale of continental market regulations to include Eurozone members like Ireland, let alone to all EU member countries. "While Western Europe reported no net new jobs from 1973 to 1994, the United States generated 38 million net new jobs." [Lester Thurow: The Future of Capitalism (1996), p. 37, citing the Economic Report of the US President 1995.]
From 1973 to 1994 is a long time, covering many different governments and administrations in Europe and America. For Western Europe to have sustained such a poor record in creating new jobs over the period suggests that the business environment in W Europe was not conducive to enterprise. On the other hand, following the UK's exit in 1992 from the European Exchange Rate Mechanism, by 1995 the UK's standardised unemployment rate was lower than in the other major European economies and the employment rate higher. Over the past two decades, Britain has consistently been far more successful at attracting inward investment than any other European country. France, the next most successful, attracted about half as much.

Well, the U.S. creating 38 million new jobs is all very well and good, and absolutely necessary for the U.S. given that if it didn't, it would have over 20% unemployment, but isn't it a bit odd to talk about the comparative succss and failure of Europe and the U.S. (or by extension Canada) at creating jobs without looking at labor force growth? ('course, taking that into account, one might as well look at the unemployment rate, in which case the U.S. also performs a lot better than Europe. For some reason, didn't many European countries have one or two percent unemployment until the 70s or something? I never understood that.)

Julian Elson

Sure, neo-classical growth theory can explain through inward migration the huge growth in employment in America 1973-94 but not in Europe. What that doesn't explain, however, are the significantly lower employment rates of working-age people in Europe or the persisting high standardised unemployment rates in the major mainland European economies or the inferior rates of productivity growth and higher inflation rates. It seems that many European countries have significantly higher NAIRUs than America and we might ask why that is so.

On an earlier point by Mu-Jeung about European Union employment legislation, there is a relating article in the latest issue of The Economist (14 September). When Europe evidently has problems with new job generation rates, piling on additional employment rights, which add to employment costs, is not helping to resolve the problems. The obvious question is whether there is a link between the new employment legislation and the higher NAIRUs in Europe.

Dear Bob Briant,

Sorry to bring you the bad news, but total productivity growth grew faster in Germany and France than in the US-UK during the nineties.