ON POLITICAL BOOKS

...This would also bring us closer to full employment, which Kuttner correctly notes throughout his book is the first essential step toward equality...

...Short-term protectionism—so far, it has taken the form of quotas on Japanese cars—may have been justified to help the industry get back on its feet...

...The trouble with "comparative advantage," Kuttner argues, is that it denies that government assistance, either through tax subsidies, trade restrictions, or direct investment, can help put an industry on its feet...

...Kuttner's engaging view of government as an endless experiment allows him to express sympathy for the left without having to defend everything that's ever been done in the name of democratic socialism...

...Curiously enough, the expensive machinery of the welfare state has never done a very good job of this...

...Kuttner's two basic premises here inspire further frustration with the left's pursuit of equality...

...But that said, the longterm future of American industry depends on the willingness of American workers to accept whatever wages—and for their managers to accept whatever reductions in their often-outrageous salaries—are necessary to make our prices competitive in world markets so that we can not only withstand the competition of imports but also export and grow...

...Instead, Kuttner focuses his interest on those whose concerns have increasingly supplanted those of the poor in the left's definition of equality: the middle class...

...Can we only help the poor by bribing ourselves...

...But if Kuttner is able to fight economic "realists" to a draw in defending equality as an affordable social goal, he is less successful in making the case for the kind of equality he wants...

...For a book that is supposed to be about .social justice, there is surprisingly little focus on those at the bottom of society, whose stake in equality is the greatest...

...This is precisely what happened to the auto industry in the 1970s...

...But he is basically prounion, favoring the broad-based but still adversarial labor movement of Sweden...

...That doesn't matter much, he suggests, because "most of the demands on the nation's organized capital markets are from stable, institutional customers—not rugged entrepreneurs ." But if there's a shortage of entrepreneurs—and there is—then the answer is not to shrug, but to think of ways we can encourage entrepreneurship...

...Along the way, Kuttner is honest enough to concede that egalitarian institutions have sometimes made a hash of things...

...Nor does protection necessarily translate into a better deal for the average consumer at home, whose wage may be well below what the protected worker earns...

...in addition to the example of West Germany, there's Japan, the nation every CEO is supposed to regard with envy, where corporations pay the world's highest effective tax rate on profits...

...Meanwhile, in Sweden, where pensions are far more heavily socialized than in America, the resulting available investment capital has been the equivalent of (yumpin' yiminy...

...In fact, Kuttner shows, high tax rates can exist in a healthy economy...

...Some experiments end well...

...But Kuttner argues that "targeting the 'truly needy' tends to isolate the poor in separate programs and erodes the political constituency for equality...

...The Economic Illusion sets out to prove that the pursuit of equality needn't conflict with economic growth, and can sometimes actually contribute to it...

...Kuttner seems to care more about the "haves" in the unions than the "have nots," who have yet to take the first step up the economic ladder...

...Robert Kuttner...

...What had equality ever done for the GNP...

...This is not to belittle the role that flat-out income redistribution must play in achieving equality...

...Instead of exploring the creative uses of capital, Kuttner chooses to promote one vehicle that can be used to allocate capital: the pension fund...

...Most of all, equality requires that the left refocus its attention on the underprivileged sector of our society and the means to help them...

...Kuttner proposes that we cap the tax subsidy, making sure that we keep it in place for the young family "looking at $1,000 monthly payments as the ticket of admission to their first house...

...Kuttner's second premise is that there is something inherently humiliating about a means test for welfare...

...The first is that the only way to achieve equality is to create a "constituency for equality...

...This approach in itself goes a long way toward making Kuttner's argument for him: it is difficult to make any damning generalizations about the pursuit of equality given the variety of government policies described in his book...

...Equality, as'it turns out, ends up being a fairly complex value...

...it both diverts funds from those most in need and increases the overall cost of the welfare state at a time when the deficit is out of control...

...Houghton Mifflin, $19.95...

...Kuttner favors this approach even though he concedes that it is much less efficient in redistributing income...

...employees, it started laying workers off...

...Kuttner points out that in most western nations, distribution of private income in the late 1970s was basically what it had been in the late 1940s...

...Take the issue of trade, where Kuttner argues for protectionism in the name of equality for the American worker...

...Thus he finds, for example, that in West Germany, where overall taxation has been higher, so has economic growth, while inflation has been lower...

...It stopped growing...

...To some extent, it can be defined purely in terms of money—and we need to divert more of that money from the middle and upper classes to the poor...

...The union pension funds thus serve the interest of present and past workers...

...Kuttner points out that the United States tacitly violated its own professed free trade principles when it insisted on keeping agriculture out of the postwar General Agreement on Trade and Tariffs, and since then has moved to protect everything from textiles to motorcycles...

...They do not contribute to the expansion of opportunity, to the creation of new work for those who have none...

...Workers who own a significant share of a company can protect their own interests just as effectively as they could through a union...

...As Robert Kuttner puts it in his new book;' "inequality has regained ideological currency not as a morally attractive ideal but as necessary economics...

...Timothy Noah is an editor of The Washington Monthly...

...Exercised effectively, this power will create employment opportunity for other people...

...This all makes great sense, but what does it have to do with equality...

...So what is the source of our problems...

...Kuttner's method is to rummage through the evidence that has piled up in a variety of western nations, especially in Europe, and look for cases where egalitarian policies and economic efficiency are in harmony...

...British and American unions are said to be too decentralized...

...These are all intrinsically conservative questions, but most people have raised them less out of a commitment to the 1964 Republican party platform than out of an urgent sense that liberalism's laudable goal of spreading material reward throughout society has failed to keep the economic fires going...

...But because they are protecting the retirement income of their members, pension funds tend to be cautious...

...By the early 1980s, a number of ideas that had been taken for granted by liberals (and, to some extent, society as a whole) were undergoing a grilling...

...This is pure trickle-down theory, and like the more familiar conservative variety it is, in addition to being cynical, hopelessly impractical...

...One solution that would not only reduce this burden but also lessen the housing shortage that is largely responsible for that young family's problem in the first place would be to target housing subsidies to new construction...

...But it's no solution to make everybody a ward of the state in order to make those in need feel better...

...Yet the managers of today's pension funds tend to unload their investments in the face of short-term earning decline...

...In general, our economic policies, taxes included, should give special encouragement not to trading on existing assets, but to the creation of new housing, automobiles, computers—that is, to encourage new, job-creating plants and enterprises...

...For example, he notes that trade unions in Britain and America have made militant demands for wages far above the national average...

...Not, Kuttner suggests, the overall level of taxation and amount of available capital, but rather the way we've distributed them...

...One of these ideas was equality...

...Specifically, he takes on the theory of "comparative advantage," which says that allowing countries to produce what they're best at without trade restrictions will ultimately benefit everybody...

...Are we really as a nation incapable of behaving altruistically...

...Workerownership encourages a kind of equality that involves redistribution of not just money, but of power—with the risks that power inevitably brings...

...But it also has to do with an equal distribution of opportunity, as entrepreneurship provides, of power, as worker ownership provides, and of dignity, as a sensibly ordered welfare system could restore...

...Indeed, the game of denying that some are in need and others are not deprives people of their dignity at a deeper level...

...Wasn't it more important to focus on the creation of wealth...

...If we are going to have more jobs, we are going to need more risk-taking investments...

...If the left won't help the poor, who will...

...Indeed, it is important that prices not be pushed beyond the point where the company can no longer expand its market share...

...This means that the companies in which they invest are discouraged from taking steps that would produce long-term growth but would also involve reducing profits in the immediate future...

...to treat someone as incapable of recognizing his true circumstance is to treat him as a child...

...Far too much capital, for example, has been gobbled up in the various tax subsidies given to the housing industry, including the most popular tax deduction of all, the mortgage interest deduction...

...Indeed, the further one reads into Kuttner's book, the more one is struck by the numbers of deserving people left out of his definition of equality...

...Auto workers have every right to seek to raise their standard of living as high as they can...

...As for capital, Kuttner notes that almost any way you define "savings," the supply has tended to remain uniform in the United States throughout the postwar period...

...protectionism for workers in America means lower wages or no wages at all for the worker in the Perus and Ghanas and Malaysias of the world, meaning, by the way, that over the long term he will be less able to buy the goods that we want to export...

...others end badly...

...Certainly it has nothing to do with equality across national boundaries...

...The Economic Illusion: False Choices Between Prosperity and Social Justice...

...But here we begin to see the trouble with Kuttner's brand of "equality": in his eagerness to empathize with that young family, he fails to consider those who can't afford to pay the $1,000 monthly admission fee, even when subsidized...

...The further such subsidies can be restricted, the less burden left on the poor...

...With the economy sagging, could we really afford to tinker with the distribution of wealth...

...Unlike many on the left, Kuttner does not pretend there's nothing wrong with the unions that can't be blamed on the corporations...

...that's only natural...

...Otherwise, the company will not be able to grow and provide the additional jobs that the interests of both a healthy economy and equality demand...

...Indeed, in a capitalist society, where everyone wants to be richer than his neighbor, isn't the name of the game inequality...

...two trillion American dollars as a percentage of GNP...

...We shouldn't be so pious about free trade that we're willing to destroy an entire industry for its past sins...

...Yet again, as with his position on the pension funds, he sides with people in the union against those who haven't made it yet...

...The poor are notoriously incapable of organizing themselves into such a constituency, and so we must figure out a way to rejigger our definition of "equality" in order to siphon some money to the rich and the middle class, who make better lobbyists...

...But as often as not he argues that the reason is not too much equality, but too little...

...A pension fund, he notes approvingly, "enhances capital accumulation and broadens the distribution of wealth at the same time!' He observes with relish that this particular brand of collectivism has flourished on Wall Street: pension funds now account for somewhere between a third to a half of investment in the New York Stock Exchange...

...Although offered as a simple recitation of political reality, this is really an admission of a political crisis...

...It creates a welfare-state culture that is not just means-tested, but meanspirited ." The only solution to this dilemma, he writes, is to allow rich and poor equal access to welfare programs...

...In fact, it not only stopped hiring U.S...

...That is the path to the jobs that can produce the equality Kuttner seeks...

...Kuttner's practical case for equality consists largely of an attack on the supply-side idea that the economy is in trouble because taxes are too high and, consequently, the amount of capital available to invest in the private sector—where jobs must be created, plants must be retooled, and research must ensure prosperity for the future—is too low...

...But they also have a stake in thinking responsibly about their company's future, and thinking about what needs to be done so that the company and the value of their stock will grow...

...It is the taxes of poor renters that must to some extent make up the revenue lost to the middle and upper classes through housing subsidies...

...To redistribute income, he argues, the government must make sure it pays out only to the poor...

...And certainly, as Jonathan Rowe points out elsewhere in this issue, something must be done about the unfairness of having our economy compete with those countries whose defense we subsidize...

...Because he wants to see unions grow, he ignores another avenue to worker power—worker-ownership...

...But they should not pursue that right to the point where their company must raise its prices beyond the ability of the car buyer to pay...

...Kuttner's answer to this is that bank trust departments investing the fortunes of rich widows are cautious, too...

...Economic growth also requires greater concern for long-term results...

...But Kuttner is more willing to say where capital shouldn't go than he is to propose where it should go...

...This should enrage egalitarians, but when Kuttner finally turns to the subject of welfare, he justifies his preoccupation with the middle class by arguing that true redistribution is an impossible dream...