Hubbard’s Naïveté

What astonished me in the interview with Glenn Hubbard in the Wall Street Journal was how naïve he is. Take this passage, for example:

China, for example, “is not following the rule of law in intellectual-property protection. I don’t think there’s any question about that.” But he says there are ways to “get at that multilaterally, that don’t involve this kind of bilateral trade-bashing that the president has done.”

That’s naïve on all sorts of counts. First, there is no way for us to “get at that multilaterally”. What the Chinese are doing is working for them. We have no practical way of imposing our will on China.

But worse China does not have a robust system of civil law. There’s no way for a U. S. individual or company to seek redress through the courts there. They’ve got to take whatever the Chinese dish out and like it. That a company might agree to transfer their intellectual property to their Chinese partner in exchange for access to the Chinese market might help the company a bit. I doubt it will. But it does nothing for the rest of the United States. The U. S. is bearing the cost of development and the Chinese are reaping the benefits.

But I think that this is about right:

He invokes the Scottish Enlightenment, whose thinkers were “all very inclusive in their definition of what success is. It wasn’t just average measures of output. It was broad inclusion and prosperity.” The point is that modern economists need to talk in these terms, too. “One reason we lost some of the policy arguments in recent years—arguments that we shouldn’t have lost—is because we pointed out that policy X or Y would raise GDP on average by some amount,” Mr. Hubbard says. “It wasn’t that we were wrong, necessarily, but ‘average’ isn’t terribly useful.”

How much do we really care if Jeff Bezos gains another trillion of net worth while income and wealth for the median family doesn’t change at all? That’s where I think that Mr. Hubbard and economists have a major problem. In conditions of great income inequality it is quite possible for GDP to decrease but for median income to increase or at least remain the same.

As I’ve said before our present situation is not just of the haves and have-nots but of the protected and the unprotected. The protected, naturally enough, argue vehemently for continuing their gravy train.