Thursday, February 02, 2006

Don't you hate it when...

I'm currently reading The Moral Consequences of Economic Growth by Benjamin Friedman. In short, he's arguing economic growth is responsible for the success/ extension of the liberal project (i.e. democracy, personal freedom, a more open society, the other good social justice stuff). More precisely, stagnation and decline lead to a retrenchment of these social goods. If you believe Friedman and you want democracy- then you want growth (not a high income level, but growth). Not the world's most mind bending idea, but a serious challenge to the stability of modernity.

But do we believe Friedman? At this point, I'm not sure.

To support his case, he is highlighting periods of stagnation and retrenchment as well as those that featured growth and the expansion of rights. Too many of his examples feel as though he is painting with too broad of a brush. A certain degree of oversimplification is to be expected, if a bit unsettling in total. Blatantly misleading simplifications, however, are a different case entirely.

Take, for instance, page 144:
In the new era of rising incomes [post-1896, especially the Progressive period],the country also took its first step toward more explicit redistribution via taxes. The constitutional amendment that authorized... an income tax provides yet another instance of the difference that follows with economic growth. Before the free silver issue so completely preempted their agenda, the populists too had favored introducing an income tax... In the midst of the economic stagnation of the late nineteenth century, however, the idea had failed to come to fruition. By contrast, after more than a decade of sustained growth, Congress overwhelmingly approved the Sixteenth Amendment in 1909... and by 1913 the necessary three-fourths of the states had ratified it.

For the moment, take it from me- that's not exactly accurate. Fortunately, there's a footnote:
In 1894 Congress passed the populist-supported Wilson-Gorman tariff Act, which also instituted a graduated income tax, but the Supreme Court ruled the measure unconstitutional before it took effect; Pollock v. Farmer's Loan Trust

Now that's more like it. Maybe I'm naive here, but I've never understood footnotes to be the place you undermine your main text. Support, gritty details, acknowledge debates- sure. But contradict yourself- no.

Here's the deal. The income tax was passed in 1894, ruled unconstitutional in 1895 (and only the income tax portion of the tariff Act was struck). This would have been the nation's second federal income tax- the first was on the books between the 1860s and 1872 or so. After losing before the Court, the movement was deflated - they couldn't change the Court and re-passing the tax (i.e. ignoring/ challenging the Court) was considered too transgressive an act (especially given the tensions in the country at that time).

Moving forward to 1909, growth had not been peachy (I'm sure we've all heard of the Panic of 1907). More importantly, the strife over the previous tariff bill (Wilson' Gorman) had been so deep, no one wanted to revisit tariffs until they had to. One of the key cleavages of support for the income tax was sectional (the East had money income and opposed; the Midwest, well, didn't have income and supported). Come 1909, the Midwest has enough power (numbers in Congress; number of States) to force the Establishment's hand. In the truce that was negotiated, the income tax would be put up as an amendment and the rest of the tariff would be passed. The Establishment thought they had a sweet (and sweetly poisoned) deal in trading a bill (the tariffs were the pork of their day, oh, and the primary source of revenue) for a longshot at an amendment. However, the states (several of whom had long had income taxes of their own) didn't have any real problem with a federal income tax.

The details aren't quite as neat as Friedman's initial statement would lead you to believe. The details, in fact, tell a story which doesn't mesh particularly well with his overarching claims about growth and society's moral goods. This is more a story about who has political power and who doesn't. Yes, the growth angle can fit in, but requires more finesse than he cares to attempt.

Do we believe Friedman's, big picture? To a degree, but not as far as he'd have us. Since he goes a bit too far sometimes, that's probably a good thing. (As a side note, he's not attentive enough to issues of distribution, if you ask me).


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