Extreme or Not Extreme?

That is the question.

A friend of mine pointed me to Thomas Friedman’s latest effort in the New York Times. It’s too long for me to copy over en masse, so let me highlight a few things.

Set aside the silly column title: “Up With Extremism”, I assume Friedman had nothing to do with that choice. The thrust of the article seems to be that we are in need of some radical policies if we are truly to deal with our various problems. Let’s assume we can all agree on what these problems are, although it isn’t evident to me, at least, that such a consensus exists anywhere. Which, perhaps, is more than half our problem. In any case Friedman certainly thinks the problems are obvious because he then goes on to advocate a series of policies that he considers extreme, but also necessary.

Here’s his first proposal:

“A single-payer universal health care system. If it can work for Canada, Australia and Sweden and provide generally better health outcomes at lower prices, it can work for us, and get U.S. companies out of the health care business.”

My question is this: what on earth is ‘extreme’ about this? Universal health care is the norm throughout the civilized industrial world. Not having it is the exception. Given this reality I consider it extreme not to have universal health. The proposal to provide universal health care is therefore an attempt to move to the moderate, centrist, and more normal position. It is not extreme.

Likewise Friedman’s proposals on tighter gun control, limitations of money in politics, centrally established educational standards, increased infrastructure spending and so on.

Where I do side with Friedman in using the word ‘extreme’ to describe a policy is when he gets to taxation:

“To pay for all this, a phased-in innovation and tax agenda that incentivizes start-ups and hiring. That means: Slash all corporate taxes, income taxes, personal deductions and corporate subsidies and replace them with a carbon tax, a value-added consumption tax (except on groceries and other necessities), a tax on bullets and a tax on all sugary drinks — with offsets for the lowest-income earners.”

Really, this is extreme. It is simple supply side stuff, but plops the burden of taxation on consumption, rather than incomes, which will increase inequality even further, and is very regressive. This is a radical departure from the last century’s general acceptance of a progressive tax schedule.

Then he adds this:

 “An independent commission appointed to review Dodd-Frank and Sarbanes-Oxley to determine which, if any, of their provisions are needlessly making it harder for entrepreneurs to raise capital or start businesses. We need to be sure we’re preventing recklessness — not risk-taking.”

Presumably the American Association of Bankers must have written that proposal. Dodd-Frank is an abomination of a law, not because it imposes capital constraints on the banks, which it does rightly, but because it is almost 11,000 pages of incomprehensible legalese written by bank and regulatory lawyers whose livelihoods depend on interpreting obscure laws. Glass-Steagall, the law that prevented major bank calamities in America for the best part of seventy years before it was gutted and then trashed in the 1990’s took up about 40 pages. Dodd-Frank is an archetype of why we need political reform: the industry has its hands all over the law. Yet it bleats about the “anti-business” nature of it, and apparently has been able to convince people like Friedman that the banks have a good case.

The big banks caused the last crisis, they need to be broken up and reduced in scale so they cannot repeat that level of damage. Ensuring there is no such thing as a “too big to fail bank” would be a radical departure from current policy. It would earn the right to be called extreme – with respect to the industry friendly regime we currently have. So if we are going to review Dodd-Frank it is to strengthen and extend it, not to cast aspersions on its possible effect on high risk lending.

One final thing: the banking industry became a leach on the economy when it shifted from being a provider of credit and began to absorb capital for its own profit padding. Bank regulation needs to get banking back to the boring old days when bankers acted as allocators of capital to the real economy and not as end points for investment.

I won’t respond here to the usual suspects who believe all that is ill in the world flows from rotten private banks – having been a banker myself I just won’t get involved in that debate. But I will argue that banks need much tighter regulation than they’ve been subject to in the past two decades.

Back to Friedman: unfortunately his list has the hallmark of elitist centrist ‘sensibility’. He includes a pile of things that are extreme nowhere but in America, that are sensible and much needed – thus hardly extreme – and then in order to achieve a political balance he tosses in a few pro-business supply side giveaways of the kind that have failed to produce any positive economic value over the last few decades. This may be politically astute in an era of so-called extreme politics, but that can only be the case if our political environment has shifted so radically such that erstwhile sensible policies are now viewed as ‘extreme’.

Instead of calling it what it is, and arguing that our political ‘center’ is actually quite a bit to the right, he is reduced to calling some sensible and centrist things extreme. Which, I suppose, is useful in its own right.

But that’s my point, not his.

 

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