Monday, April 18, 2005

Fisking Friedman

This week the Hatcher takes on some prominent liberal op-ed columnists, starting with perhaps the giant among them, Thomas Friedman of the NYT. This is a guy who believes his own press clippings, but more importantly so do his editors. This article appeared in Friday’s NYT.

One of the things that I can't figure out about the Bush team is why an administration that is so focused on projecting U.S. military strength abroad has taken such little interest in America's economic competitiveness at home - the underlying engine of our strength.

Economic competitiveness? What is this, 1988, when we were worried about our country being purchased by Japan (not that foreign direct investment is ever a bad thing)? Stable money, sound fiscal policy, and restraining itself from excessive regulation – this is all you need your government to do to ensure economic competitiveness.

At a time when the global economic playing field is being flattened - enabling young Indians and Chinese to collaborate and compete with Americans more than ever before - this administration is off on an ideological jag. It is trying to take apart the New Deal by privatizing Social Security, when what we really need most today is a New New Deal to make more Americans employable in 21st-century jobs.

Yes, that’s right - what we need is a Ponzi scheme on top of a Ponzi scheme that has already run its course. There are legitimate arguments against privatizing Social Security, but the notion that we can do nothing and everything will be fine is flat out wrong. And what can government do to make more Americans employable in 21st century jobs? Here is an idea – how about compulsory education through high school – surely that doesn’t occur in China or India. We should try it here, see how it goes. The Hatcher can get behind such a plan.

We have a Treasury secretary from the railroad industry.

Factually true, but so what? Having a Silicon Valley Treasury secretary matters?

We have an administration that won't lift a finger to prevent the expensing of stock options, which is going to inhibit the ability of U.S. high-tech firms to attract talent - at a time when China encourages its start-ups to grant stock options to young innovators.

The problem with this argument is that it assumes investors are somehow fooled by the accounting treatment or non-treatment of stock options, which they aren’t. How it is reported is independent of its true impact on shareholder value. Therefore, it shouldn’t effect the ability of companies to raise capital, and if it is an efficient form of compensation (and there is a lot of reason to believe that it is not), companies will offer it. But still, Friedman is a smart guy, so maybe he sees us now experiencing a “brain drain” with our most talented scientists leaving the U.S. to work in China.

And we have movie theaters in certain U.S. towns afraid to show science films because they are based on evolution and not creationism.

New York Times Checklist for Op-Ed columns, Item 4: Make sure to take a gratuitous swipe at the religious right. Check. Evolution is an explanatory, non-laboratory science, and failure to believe that it explains the origins of life (and it is a belief), or even outright refusal to study it, doesn’t impede one’s ability to be a physicist, or a medical researcher, a computer programmer, a mathmetician, etc. The only occupation it would seem to entirely preclude would be an editorialist at the NYT, which is a grave loss, indeed.

The Bush team is proposing cutting the Pentagon's budget for basic science and technology research by 20 percent next year - after President Bush and the Republican Congress already slashed the 2005 budget of the National Science Foundation by $100 million.

This is cataclysmic news! Buy gold! The $100 million cut is a 1.9 percent decrease (slightly higher in real terms). Total proposed federal spending for 2006, taking into account the reduced Pentagon budget, is $132.3 billion, a growth of 0.1%. Fifty years from now, when we emerge from the post-industrial blight of a decades-long Depression, economists will harken back to the budget, and say, “if only Bush had spent $136 billion, we’d still be an economic juggernaut.”

When the National Innovation Initiative, a bipartisan study by the country's leading technologists and industrialists about how to re-energize U.S. competitiveness, was unveiled last December, it was virtually ignored by the White House. Did you hear about it? Probably not, because the president preferred to focus all attention on privatizing Social Security.

The National Innovation Initiative – did you hear about it? Probably not, because it is one of thousands of think tank documents churned out each year, and among those, this one is probably among the most platitudinous. But if it recommends something the Bush administration is ignoring, it must be gravely important (New York Times Checklist for Op-Ed columns, Item 7)!

It's as if we have an industrial-age presidency, catering to a pre-industrial ideological base, in a post-industrial era.

It’s as if we have a guy trained as a journalist, writing to people who aren’t smart enough to be journalists, about a topic that is over both their heads.

Thomas Bleha, a former U.S. Foreign Service officer in Japan, has a fascinating piece in the May-June issue of Foreign Affairs that begins like this: "In the first three years of the Bush administration, the United States dropped from 4th to 13th place in global rankings of broadband Internet usage. Today, most U.S. homes can access only 'basic' broadband, among the slowest, most expensive and least reliable in the developed world, and the United States has fallen even further behind in mobile-phone-based Internet access. The lag is arguably the result of the Bush administration's failure to make a priority of developing these networks. In fact, the United States is the only industrialized state without an explicit national policy for promoting broadband."

Translation: Teenage boys in 12 countries can access porn on the internet ten times faster than U.S. teens can.

Since it took over in 2001, the Bush team has made it clear that its priorities are tax cuts, missile defense and the war on terrorism - not keeping the U.S. at the forefront of Internet innovation. In the administration's first three years, President Bush barely uttered the word "broadband," Mr. Bleha notes, but when America "dropped the Internet leadership baton, Japan picked it up. In 2001, Japan was well behind the United States in the broadband race. But thanks to top-level political leadership and ambitious goals, it soon began to move ahead.

There is a broadband gap! It rivals in seriousness the mind-shaft gap that plagued General Turgeson in Dr. Strangelove.

"By May 2003, a higher percentage of homes in Japan than the United States had broadband. ...
"Today, nearly all Japanese have access to 'high-speed' broadband, with an average connection time 16 times faster than in the United States - for only about $22 a month. ... And that is to say nothing of Internet access through mobile phones, an area in which Japan is even further ahead of the United States. It is now clear that Japan and its neighbors will lead the charge in high-speed broadband over the next several years."

This is a travesty, after surfing my broadband web at work 8 hours a day, along with the rest of service sector America, I should be able to get the same speedy service at home for $20 per month.

South Korea, which has the world's greatest percentage of broadband users, and urban China, which last year surpassed the U.S. in the number of broadband users, are keeping pace with Japan - not us. By investing heavily in these new technologies, Mr. Bleha notes, these nations will be the first to reap their benefits - from increased productivity to stronger platforms for technological innovation; new kinds of jobs, services and content; and rising standards of living.

The notion that our being behind India or China in our information technology makes us less competitive as laborers is rather asinine. We could adapt cheap information technology at the same rate they have, and it would do nothing to favor American labor. This is because the info technology itself renders your physical location to be much less important to the performance of certain tasks. If I can choose two equally equipped workers, one in India for $30K a year versus one in the US for $120K a year, I'll choose the Indian. The information technology, even if equally spread to India and US employees, entirely erases the competitive advantage of the US employee. It makes sense for these countries to invest in these technologies for the spillover benefits such investments have in providing them the ability to develop a fairly sophisticated service economy quickly.

All of the arguments above say nothing about these countries making investments to advance these technologies; all are related to their efforts to use them. The brains behind these technologies will continue to come from the U.S.

Economics is not like war. It can be win-win. But you need to be at a certain level to be able to claim your share of a global pie that is both expanding and becoming more complex. Tax cuts can't solve every problem. This administration - which often seems more interested in indulging creationism than spurring creativity - is doing a very poor job of preparing the country for that next level.

Extra credit for 2 gratuitous swipes at the religious right! That should put you in the running for NYT Op-Ed Columnist of the Month and all the perqus that entails, but you are porbably 275 entries behind Maureen Dowd. Information technologies cannot clothe you, house you, or feed you, but they can make it cheaper for those things to happen. Part of the way they make it cheaper is by enabling educated people in third world countries to compete against American labor. You can triple the number of cell phones you provide to a U.S. worker, and it aint gonna erase what information technology does to his comparative value as an employee.


Blogger Professor Vic said...

Ok, I have the uneviable task of trying to defend Friedman, a columnist I generally find quite thought provoking, when Hatch has picked out an article where Friedman is simply muddle-headed in his thinking. I read this column on Friday and shook my head as well.

Economics are not where Friedman is at his best (much like screaming about the Iraq War doesn't show off the skills and training of Paul Krugman), and I would encourage people not to condemn Friedman on such a small sample of his work. Hatch and I would probably find quite a bit of common ground in Friedman's collection of columns published around 9/11 ("Longitudes and Attitudes") for which he won the Pulitzer Prize for commentary.

That being said, there are a couple of important nuggets in his column. Hatch mentions that all you need from government is "stable money, sound fiscal policy, and restraining itself from excessive regulation."

One might certainly question whether a presidency that has gone from a $250 billion surplus to a $400 billion deficit is engaging in sound fiscal policy. You'll never here me complain about the huge deficits of 2001 and 2002 as deficits are a good remedy for recession, but there is no such economic stimulus rationale for today's large deficits.

Secondly, there are many places where you want government regulation to make an economy work better. One is obviously to prevent externalities like crime or pollution. Another is to promote the provision of public goods like parks, highways, and education. Basic research is an example of such of good. The government has traditionally funded basic research because such discoveries lead to economic progress, but those making the discoveries cannot fully benefit from their discoveries. Thus, a free market underprovides for such research, and one should be worried whether an optimal amount is being spent in this area.

Finally, while I understand the concern about gratuitous swipes at the religious right, in an article aruging for increased government spending on science, I think a jab or two is in order. When a religion wants to require public schools to teach creation science, there is serious problem. The problem is that you cannot be a creationist and a scientist at the same time. A Christian and a scientist, absolutely, but not a creationist and a scientist.

2:40 PM  
Blogger pbryon said...

Granted I'm no economist, but the point I took from Friedman's column on Friday was that our current administration ought to put some emphasis on technology and keeping our competetive advantage via said technology.

As I understand it, companies get numerous tax advantages--the percent of US tax income from business is way down. Should they have to do something in return for those tax advantages? Like spend them on technology or contribute to the nation's technological future?

(Rereading this, I know it sounds much more liberal than I mean it to be. I'm setting myself up on a tee for Hatcher.)

This could be a completely bad analogy, but could this be akin to the baseball luxury tax? In return for getting something from the big spenders, the small spenders have to do something and can't just pocket the money.

I'm probably out of my league here, but I like the points that Friedman makes--staying ahead of those nipping at our heels is vital to our continued economic dominance.

3:07 PM  
Anonymous Jim O said...

The way I see it, worrying about the spread of existing broadband technology is like worrying about what the spread of telegraph technology would have been like in the mid 1850s. This isn't a technlogy that is difficult to master, like refining uranium or designing ICBMs, although you could probably FIND that info on the broadband internet.
Worrying about the percentage of people in other countries who are able to double-click on a stylized lower-case "e" and get high-speed access to the internet doesn't seem to be a good use of time. How about we worry about what they search for, like the process for refining uranium and designing ICBMs? Maybe if they all get IT sector jobs with their high-spped internte access, they won't have the time or inclination to blow themselves up. I say we do what we can to get MORE people in China and India connected to the internet, and FREE WIFI FOR THE MIDEAST.
How attractive is 72 virgins compared to I know what I would pick...

9:27 AM  
Blogger Hatcher said...

Can't say I read Friedman often. That particular article was recommened to me by PBryon. Can't account for whether it is representitive. As for the "important nuggets" in "his" column, you must be referring to mine. Friedman says nothing on fiscal policy, and presumably current deficits can't concern him too much if the overall theme of the article implies that deficits should be bigger. No arguments with Professor Vic's points - I agree prudent regulation is good and funding basic R&D is good.

I always twinge a bit with the creationists cannot be scientists: it seems to me there are scientists who have made scientific arguments about intelligent design using the strict methods of scientific inquiry. Maybe they aren't creationists in your view. I think some blue staters cling to the view that creationists are guys who believe the fossils were all planted; no doubt some do, but my guess is that others embrace things like intelligent design to make their case. In either event, I hardly think creationists are large enough a force to reduce the crop of future scientists. And it's still a swipe at Bush at least when Friedman says the administration is indulging creationists - i.e. allowing them freedom is indulging. He should presumably burn them at the stake.

10:12 AM  

Post a Comment

<< Home

Sign up for my Notify List and get email when I update!

powered by