THE ECONOMIC ILLUSION: False Choices Between Prosperity and Social Justice

Recasting the old equality vs. efficiency debate among economic policy-makers, Kuttner (Revolt of the Haves) argues that more equality can be made to yield greater efficiency than prevailing inegalitarian practices. His approach is the increasingly popular one of comparative economics. Kuttner compares the US with other industrialized nations as regards capital formation and investment, trade practices, wage and labor policies, taxes, and welfare--finding, in each instance, at least one country that shows the error of American ways. On capital formation, for example, Kuttner makes the point that US tax policies, which favor consumer borrowing and real estate investment, reduce the level of capital available for productive investment, while making first-time home ownership increasingly difficult. The Japanese and Germans subsidize home ownership and encourage savings by moderated-income families (in Japan, their savings are tax-exempt up to three times annual income), while discouraging consumer borrowing: the result is more equity, along with more capital for productive investment. Sweden has taken a different tack. Collectivized savings, in the form of a funded pension plan, enable the Stockholm government to subsidize employment through deficit spending without recourse to private capital markets to pay off the deficit. Jobs and capital formation are protected at once. The Swedish example is particularly important to Kuttner because he believes full employment to be the linchpin of an economy that is both productive and just. High wages encourage the introduction of new technology, but guaranteed employment forestalls union opposition to the technology, and allows the shifting of displaced jobs elsewhere in the economy. Such a system would require some form of protectionism (Kuttner considers free trade a dead letter in the absence of an economy able to dictate its terms worldwide, and a source of depressed wages); on the model of Sweden, Norway, West Germany, and Austria, it would also require some form of ""social bargaining"" between labor, employers, and the state. The policy as a whole can be seen as a kind of Keynesianism in one country, based on a model drawn from many countries. How well all the parts might fit together is not entirely clear, but Kuttner's main point--that these are political, not technical issues--is made forcefully and intelligibly. A coherent social democratic pitch.