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Home Publications Blogs CEPR Blog Potshot at Progressive Economics Misses the Mark

Potshot at Progressive Economics Misses the Mark

Written by Dean Baker   
Monday, 27 June 2011 19:47
In his diatribe against progressive economics Rob Atkinson included the Center for Economic and Policy Research (CEPR) in the list of institutions who he is attacking. I will let my friends at the Economic Policy Institute, the Levy Institute, Demos, and Center for American Progress argue their own cases, but Atkinson makes a number of mistakes that should be corrected.

First, his basic economic story is more than a bit confused. He is anxious to tout Germany and Japan as successes to contrast with the United States failure. While CEPR has put out numerous papers and articles over the years touting aspects of Germany's labor market policy along with that of other European welfare states (for example here, here, and here), and in particular its short work policy which has allowed Germany to actual lower its unemployment rate in this downturn, it's not clear that Germany and Japan have actually been successes in the way that Atkinson claims. Germany and Japan's productivity growth has consistently trailed that of the U.S. over the last 15 years. The gap is not huge, but it goes the wrong way for Atkinson's argument.

Germany and Japan do have large trade surpluses, as opposed to a trade deficit in the U.S., but this has a lot to do with informal protectionist barriers that presumably Atkinson does not want to see adopted in the U.S. The other major factor hurting U.S. trade is a dollar that is seriously over-valued, making U.S. goods uncompetitive. CEPR has written a great deal on this issue, arguing in numerous papers that the trade deficit will not be brought down to a manageable level until the dollar declines to a point where U.S. goods can be competitive in international markets.

Atkinson also seems not to like a vast body of research that indicates that growth is demand driven. Atkinson is right that this argument is getting old, but so is the theory of evolution. When he has some evidence showing that this research is wrong, I'm sure that he will have no problem getting an audience.

However, it is most bizarre to see Atkinson say that CEPR is not concerned about the supply conditions that foster growth. It would be almost impossible to look at our website without realizing that we deal with supply conditions all the time.

For example, we have written on alternatives to the incredibly inefficient patent system for supporting prescription drug research. In a free market drugs are cheap. As a result of patent protection, the U.S. Is projected to spend $3.7 trillion over the next decade on drugs. We could save close to 90 percent of this money ($3.3 trillion) if drugs were sold in a free market. Replacing the research currently supported by patents would cost us at most one-fourth this amount.

We have also proposed alternatives to copyright support for recorded music and videos, software, and even textbooks. The potential savings from ending copyright monopolies in these areas could easily exceed $100 billion a year.

We have also proposed a financial speculation tax which could raise close to $150 billion a year, while making the financial sector more efficient by eliminating tens of billions in transactions that serve no productive purpose.

We have also proposed expanding trade to subject highly paid professionals, like doctors, engineers, and lawyers to the same of international competition as autoworkers and steelworkers currently face. Patients could save themselves tens of thousands of dollars by getting major medical procedure in countries with more efficient health care systems. The government could save itself trillions of dollars if it let Medicare beneficiaries buy into the more efficient health care systems of countries like Canada and Germany. Unfortunately, when it comes to highly paid professional services Atkinson is an old-fashioned protectionist.

Atkinson would know that his caricature of progressive economists does not fit CEPR if he had ever looked at our website. Of course, anyone reading Atkinson's article would know there is a lot of material that he has not read.

One final point: it really is entertaining to be lectured about economics by someone who completely missed the stock and housing bubbles, the two largest asset bubbles in the history of the world.

Comments (1)Add Comment
i wouldnt call it a "potshot"
written by Rob Atkinson, June 29, 2011 10:15
Dean, it's nice to have the article noticed. But I wouldn't call it a diatribe or a potshot. Believe it or not, it was a sincere attempt to provide helpful (although perhaps not wanted, and certainly not asked for) advice.

With regard to your point about my point about Japan/Germany. Surely you are familiar with the dual economy story - compared to the US Japan/Germany have low performing domestic sectors, but high performing traded sectors. I was referring to the later. By the way we both agree re the dollar -see my forthcoming post at New America on this.

Re evidence for why demand doesn't drive productivity, I would refer you to my book "Supply Side Follies" which has a chapter on this (mostly its a critique of conservative economics).

with regard to your "growth" policies, I beg to differ. these are largely distributionist policies that take share from corporations and/or professionals and give to consumers. You can argue for or against these policies on their merits (although i generally oppose them) but they are not policies that grow the pie.

btw, I actually do regularly review the CEPR web site.

RE your final point, I and ITIF don't do macro-economic forecasting. It's not our expertise so we don't write about it. For what it's worth, I am clearly on record in conversations with lots of folks in DC where i stated in 06 and 07 that I thought housing was a bubble and that efficient market theory is largely a myth. Likewise, I was saying the same thing as early as 98 re the dot.com stock bubble.

In any case, Dean, while you critiqued my article, I really didn't see your response to my points. Do you really think CEPR in specific and progressive economics in general is fully supportive of productivity growth and the policies to drive it. Likewise, innovation?

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