A DIFFERENT MANIFESTATION OF NOSTALGIA FOR THE FIFTIES. Fortune's Marc Gunther gripes, "the explosion of choice has left us poorer." In particular, the end of concentration has been bad for journalism and politics.

I think the explosion of choice has left us poorer in at least two arenas. The first is journalism. (Yes, as a Fortune writer, I've got a stake in the health of the mainstream media, which bloggers call the MSM.) The network evening newscasts, big-city newspapers and the national news magazines once had the money, access, skills, commitment and power to deliver lots of original reporting and put important issues on the national agenda. Today, they are all diminished.

That rates a dissenting thesis on Newmark's Door.

Why do I suspect that the real complaint here is that yes, Conservatives more or less used to have to read the New York Times and the Washington Post and watch ABC, CBS, and NBC, but now--damn it all--we don't?

Or, as a commenter to the post suggests, Fifties nostalgia isn't just for conservative white folks. The "excessive choice" hypothesis must have been breakfast conversation at the Newmark house, as Betsy's Page is similarly unimpressed with the "excess choice" argument.

I always laugh at these people who moan and groan about how bad it is that we have more choice and competition in any market. Just go into any grocery store and note how many new products there are that weren't there 10 years ago. They might not be choices that you like and I'm sure Coke and Pepsi would prefer that we only had two major beverage suppliers, but the rest of us benefit. And if all the choices are paralyzing you, just go back to buying the same old stuff you always bought.

Economics, unfortunately, has not yet come up with robust welfare analyses of choice. The standard competitive model achieves Pareto efficiency with multiple sellers of interchangeable products serving multiple consumers. The most precise formulation of this problem has infitesimal producers of identical products serving a continuum of consumers. Product variety introduces efficiency losses. Concentrated industries (Coke and Pepsi, Westinghouse and G.E., three major networks, six flag-carrier airlines) can lessen competition, collude at Dirty Helen's, or share monopolies. But that hasn't stopped economists from contemplating the socially optimal level of product differentiation (Kelvin Lancaster, 1975) or optimum product diversity (Avinash Dixit and Joseph Stiglitz, 1977) or possible social inefficiencies in free-entry markets with standard products (N. Gregory Mankiw and Michael Whinston, 1986.) [Superintendent's note: texts of the articles require a JSTOR subscription.] That a diversity of models of product variety exist hints at the difficulty of characterizing allocative efficiency away from the limiting case of infinitesimals on a continuum. Reality is a bit more lumpy.

But economics might have something to say about Mr Gunther's second complaint.

The second arena where we are worse off is politics. This is related to journalism, as the moderate and responsible (okay, bland) voices of the MSM get drowned out by partisan, opinionated cableheads and bloggers.

Politics in America has become polarized for many reasons, but a big one is the fact that people can now filter the news and opinion they get to avoid exposure to ideas with which they disagree. Anderson suggests that this could well be a temporary problem, and that if the major parties continue to move to the extremes and the quality of debate continues to deteriorate, the Internet could well enable a new party or parties, to arise.

Not necessarily. The existence of new political media cannot by itself cause political parties to move to the extremes. The median voter theorem suggests that a party wins by catering to the median voter and all voters holding views ranging from slightly more extreme to the most extreme left or right of that voter, leading to minimum differentiation. In consequence, there's not a dime's worth of difference between two major parties. Governor Wallace recognized what Harold Hotelling and Anthony Downs made rigorous.

But the median voter theorem is the consequence of an undercutting problem inherent in simple preference mappings such as "prefer the party whose position is closest to mine." Make the voter's preference mapping one in which the distaste for a party increases with the square of the difference between the voter's position and the parties, and minimum differentiation is invalid but polarization is an equilibrium (C. d'Aspremont et. al., 1979). Consider more subtle specifications of the preference mapping and something other than polarization is the equilibrium, but minimum differentiation is still lost (Nicholas Economides, 1986.)

FIFTIES NOSTALGIA TO THE RIGHT OF ME. I suspect that Robert Kuttner might have had Patrick Buchanan's Day of Reckoning in mind in his anticipation of the "know-nothings" gaining influence as globalization imposes adjustment costs on low-skill workers in a country with a comparative advantage in skill-intensive industries. (There's method in my madness, putting Mr Kuttner at Book Review N^o. 34 to set up Mr Buchanan for Book Review N^o. 35. ) I'll leave the trashing of the know-nothingisms to Ben Johnson, writing for Front Page, on the premise that the true believers can do a better job of policing their ranks. The Puritan in me finds amusement in the proudly Catholic, brawlingly Irish Mr Buchanan grumbling about the unassimilable habits of today's immigrants; the Volhynian draft resister in me cringes at his proposals to deny entry to today's equivalent of the mom with seven children in tow and five bucks in her pocket shipping out in steerage. (Clearly Mr Buchanan hasn't taken the time to read and understand my work, in collaboration with Eli Katz, on the optimality of immigration amnesties. Another paper in press! Yessss!!)

That noted, Mr Buchanan presents some of the same elements of nostalgia for the administered oligopolies of the 1950s and 1960s that Mr Kuttner misses, such as unionized blue-collar jobs, monopoly rents divided among shareholders, union members, and the tax collector, and no annoying hedge-fund managers who couldn't make a clean hole with a bit-and-brace looking for undervalued assets to strip, and no former peasants in exotic countries willing to do a better job bolting a car together for less money. And he persists in claiming that infant-industry protectionism made industrial development possible. Brink Lindsey illuminates the post-hoc nature of that argument.

Some of Mr Buchanan's arguments about imperial overstretch are more persuasive. He's never been a fan of intervention in the internal affairs of Moslem countries, and one of his earlier works is A Republic, Not an Empire. He also suggests that U.S., and by extension, the Atlantic Alliance's policy toward Russia has been unnecessarily harsh. What if, he asks, Mikhail Gorbachev had offered at the 1986 Reykjavik summit, to disarm, terminate the Warsaw Pact, and devolve the Soviet Union into fifteen countries in exchange for a promise that the Atlantic Alliance not be expanded to include Poland or the Captive Nations? I'm not qualified to evaluate the offer. Yes, the United States has done relatively little for the Russians, who got rid of Communism on their own initiative. On the other hand, Poland and the Baltic States have permanent interests that transcend Communism: before Stalin there was Alexander I, before Alexander I there was Peter the Great, before Peter the Great ... (where's the Russian history collection when I need it?) Day of Reckoning's observations on international affairs might merit further discussion. The industrial and immigration policy parts are unlikely to change many minds.

FIFTIES NOSTALGIA TO THE LEFT OF ME.

Not for saddle shoes or tail fins; rather, for broadly shared prosperity, which Robert Kuttner's The Squandering of America argues is the consequence of a coordination failure whereby the institutional restraints that at one time impeded the creation of wealth (unionized oligopolies, closed economies, and increasing marginal tax rates) were dismantled in such a way as to make the wealth creation easier and more readily appropriated by trading houses. That sentence doesn't quite stand by itself as Book Review No. 34. I note, however, that there are chapters titled "Wall Street Rules" (because a number of Depression-era laws were amended or repealed); "Financial Engineering and Systemic Risks" (where hedge funds are "a time bomb of risk"); "The Casino Continues" (referring to even more esoteric investment inventions); and "The Return of Speculative Global Finance." Mr. Kuttner may be right that trading markets have the potential to over- or under-correct, or to get caught up in rational expectations hyperinflations (more popularly known as "speculative bubbles"). It does not follow, however, that the Depression-era regulations will prevent such things. Complex adaptive systems do what they darn well please. That noted, Mr Kuttner makes his case for that Fifties-style welfare state consensus. See pages 272-73:

You can put the entire Republican ideology on a bumper sticker: Markets Work, Governments Don't. This easy-to-grasp economic philosophy is complemented by a simple social philosophy: Poor People Reflect Poor Values. ...

This dual credo may have elements of truth when it comes to a small minority of dissolute poor, but it offers nothing to a broad, well-behaved working and middle class that finds itself working harder for less, in an era when markets often reduce security and living standards.

Let us praise Franklin, Lyndon, and the Croly Ghost.

Markets are useful engines of economic growth, but they are not reliable at providing employment security, much less decent wages, retirement, education, or health care. Nor can we trust markets to police the honesty of financial institutions, the cleanliness of air and water, the safety of workplaces, or the stability of the economy as a whole. So alongside markets, we need social investments financed with progressive taxation, as well as public regulation of the market's self-cannibalizing tendencies. A well-managed economy operated according to these principles can be at least as efficient as a laissez-faire one (which underinvests in people) -- and a lot fairer.

A now retired colleague would put the above in a bumper-sticker formulation: Liberals Protect People. The policy debate, however, must focus on the details. The deregulation and privatization of the 1970s and 1980s followed a painful coming to consciousness of the ability of a government to mismanage the economy -- thus stagflation and ever poorer performance of the common schools and ever-greater efficiency losses in the regulated industries. That "can be" is a claim; it is not a promise. Public policy, moreover, requires voters to consent to bundles of policies. As Mr Kuttner notes, Republicans bundle cultural populism with Friedmanian economics; Democrats bundle cultural idealism bundled unevenly with Pigouvian economics (the latter watered down in order to attract metrofexuals with trust funds.) He concludes with a warning.

[T]he failure to seriously engage with the downside of globalism has its own set of alarming political dynamics. As living standards fall for ordinary people, especially for socially conservative white male, blue-collar workers, the know-nothings gain more influence. We've already seen this in an anti-immigrant backlash. In the absence of a managed economy that offers balanced opportunity and security, vulnerable workers scapegoat foreigners and minorities. The elite, globalist Right is playing with social dynamite by not paying attention.

As, for some time, has been the elite, Europeanist Left. Mr Kuttner has just demonstrated the logic of Ronald Reagan's "I didn't leave the Democratic Party, the Party left me." We'll consider the influence of the "know-nothings" in a review yet to come. The book has much to offer for policy wonks of all persuasions. It is extensively researched, although the absence of explicit footnotes annoys me.

FIFTIES NOSTALGIA IN UNUSUAL PLACES. The further the Fifties recede into memory, the better the decade looks to the class of people who at the time were consumed by tearing down everything they though it represented. I've noted this phenomenon before. Now comes a Shepherd Express review of Capitalism: A Love Story (if this movie played DeKalb, it was in and out before I had a chance to see it.)

Using home movies from his own childhood, Moore illustrates a vision of American capitalism in better days. Back then, households needed only one wage earner and salaries kept pace with inflation, pensions were guaranteed and health care was affordable. The triumph of trade unions after World War II resulted in the largest middle class America had ever known, Moore reminds us.

I have provided an economics lesson, with illustrations, that deconstructs the one wage earner argument. The economic emancipation of women, combined with assortative mating, shifts the production possibility frontier and upsets that equilibrium, if in fact it was one.

Not at Shepherd Express.

But with the ascendance of corporate mouthpiece Ronald Reagan, unions were diminished, taxes slashed for the rich and the economy deregulated and placed in the paws of cunning rats who saw the world as a giant Monopoly board, spread across oceans and continents.

The result, even before the economic catastrophe of 2008, was unfathomable wealth for a few and precarious times for the majority.

Did anybody seriously believe that the recovery of other nations after World War II, combined with the applicability of Ford-Taylor-Gilbreth methods of production management, wouldn't offer other countries opportunities to produce the outputs of mature manufacturing industries as well, and perhaps more cheaply, than the unionized factories of the Northeast and Midwest?

Moore’s message is that Americans will need to fight for their right to jobs and security before the entire nation resembles the boarded-up, abandoned districts of Flint and Detroit.

Perhaps so, but that fight will be more effective once it becomes advocacy for incorporating lessons on the life management skills of the upper middle class into the elementary curriculum, and advocacy for elementary, secondary, and university education to admit, and to teach, up to those levels rather than pretending that access-assessment-remediation-retention somehow develops human capital.

It doesn't hurt, however, to see Mr Moore concede to an audience at George Mason University that one failing of what he calls capitalism is really the public-choice dynamic of large firms building storm shelters with the cooperation of government.

NOT QUITE FIFTIES NOSTALGIA. Robert Reich's Supercapitalism has a simple cover with an Ayn Randian sign of the dollar that upon closer inspection includes a serpent's tongue. That pretty well sets the tone for what is to follow. This Book Review N^o. 36 notes that Secretary Reich makes an effort to be evenhanded, although sometimes he stops a bit short of reaching the conclusion he is leading up to. Consider the passage that opens the first chapter.

Roughly between 1945 and 1975, America struck a remarkable accommodation between capitalism and democracy. It combined a hugely productive economic system with a broadly responsive and widely admired political system. America in those years achieved its highest degree of income equality (since measurements have been available). It generated a larger proportion of good-paying jobs than before or since, and more economic security than ever for more of its people. Perhaps not coincidentally, in those years Americans also expressed high confidence in democracy and trust in government, both of which sharply declined in subsequent years. That singular success and that powerful promise extended the moral authority of the American system throughout the world. In contrast to Soviet communism, America became an exemplar of both political freedom and suburban middle-class affluence.

The economy was based on mass production. Mass production was profitable because a large middle class had enough money to purchase what could be mass-produced. The middle class had the money because the profits from mass production were divided up between the giant corporations and their suppliers, retailers, and employees. The bargaining power of these latter groups was enhanced and enforced by government action. Almost a third of the workforce belonged to a labor union. Economic benefits were also spread across the nation -- to farmers, veterans, smaller towns, and small business -- through regulation (of railroads, telephones, utilities, and energy supplies) and subsidy (price supports, highways, federal loans). Thus did democracy offset the economic power of large-scale production and widely disperse its benefits.

But it was not quite a golden age. Women and minorities still struggled for political equality and economic opportunity. Much of the nation's poverty was hidden away in rural hollows or black ghettos. Foreign policy, ostensibly shaped by the perceived threat of Soviet communism, all too frequently pandered to the needs of large American firms for cheap resources abroad, such as bananas, tin, and oil. Civil liberties were imperiled during Senator Joe McCarthy's anti-communist witch hunt. Much of American life was monotonous, conformist, and deadly dull. And yet for all its shortcomings, democratic capitalism seemed to be working remarkably well, and on the way to working even better.

No, it wasn't undone by the hippies or the feminists or the civil rights movement, all of whom addressed the rigidities alluded to in that last paragraph. The rigidities implicit in the first two paragraphs offered incentives for enterprising people, both in the United States and in a world rebuilt after World War II, to compete away the inefficiencies that followed from those managed oligopolies. Secretary Reich understands that (p. 48).

Efficiencies were sacrificed, to be sure. Consumers did not receive the lowest possible price or best quality. They abided cars that became obsolete a few years after purchase and telephone repairmen who showed up two days late. Investors were similarly docile. Economist John Kenneth Galbraith described the typical stockholder as a "passive and functionless figure." Average daily volume of traded shares was only 3 million by the early 1960s; it did not rise above 10 million until 1970, and only thereafter took off -- as did share prices. Across the economy, many assets failed to be put to their most productive uses. Innovation lagged. As we have seen, few major new companies were founded during this period.

But most people enjoyed more security and stability, and a larger share of the nation's income, than they ever had before or ever would again. The average real wages of hourly worker continued to rise until the early 1970s. Social tranquility was preserved and protected. Something approximating the common good was achieved.

Tranquility? Common good? That's really material for a different book review. The focus of Supercapitalism is supercapitalism. Enter deregulation (to address the inefficiencies). Enter the corporate raider (to address the inefficiencies). Enter exports from the Pacific Rim (to address the inefficiencies). Secretary Reich's thesis is that deregulation has made businesses more responsive to shareholders (or else some raider will find underemployed assets to redeploy) and to consumers (a Wal-Mart, or internet shopping, make searching for the lowest price easier). That competition has not, however, worked out to the advantage of workers, particularly workers in mature-technology, low-skill-compatible industries. (The aftermath of World War II masked the traditional comparative advantage of the United States in high-technology, skill-intensive goods and services. An increase in the price of such goods -- which most emphatically do not include automobiles, primary metals, or food products -- can lead to a proportionately greater increase in the real return to the skill that is intensively used in the production of that good. Accordingly, there is no necessary vast conspiracy of the plutocracy raising the incomes of software developers, hedge-fund managers, real-estate hustlers, and producers of racy movies and lowering the incomes of automobile assemblers, farmers, and retail clerks. Secretary Reich gets this (p. 89). "As consumers and investors we want the great deals. As citizens we don't like many of the social consequences that flow from them." Thus -- new public policies. Here, however, he's on less firm ground. He dismisses (p. 140) a public-choice argument offered by former Speaker of the House Newt Gingrich by noting that in absolute terms, government's outlays as a share of national output peaked in 1983, after growing from 1947 to 1973. He then goes on to suggest that, in fact, the public policy we get is a public policy influenced by corporate lobbying. Perhaps property rights and liabilities are more difficult to define today than was the case when Adam Smith penned

To widen the market and to narrow the competition is always the interest of the dealers … The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

The outcome is still the same, and the stakes may be higher. Secretary Reich is on record in Supercapitalism in favor of higher taxes, and government provision of additional social services, particularly health care, which he argues helps make labor markets a bit more fluid. That same fluidity has the potential to address the absence of competitive forces to protect workers. The difficulty many employers report finding and retaining qualified workers might be another source of protection, although it's likely to appear at the top end of the pay scale first. The Secretary also proposes additional funding for the common schools. Fine, but can we mandate that they teach the Habits of Highly Effective People?

FIFTIES NOSTALGIA.  Michael Barone sees it in contemporary economic liberals.

Still, liberals pine for what I call America’s Midcentury Moment. It was the product of World War II, lasting from 1940 until the mid-1960s when the wartime experience wore off and the emerging baby boomers led culture and politics in another direction. For those of us who grew up in those years, the Midcentury Moment seemed the norm in American experience. But in fact it was the result of a unique time in U.S. history, when a united nation was mobilized for total war and Americans were, literally or figuratively, put into uniform.

And, having won that war, without serious damage to the physical capital of the country, in a position where monopoly industries could make a lot of money to buy labor peace with the unions without fear that consumers could find cheaper, and sometimes better, products from overseas.

This massive mobilization reshaped our national mores for a generation in ways that we find hard to comprehend. At one time or another 16 million Americans served in the military. The equivalent proportion of today’s population would be 38 million Americans serving in the military over the next three and a half years—something none of us can imagine. Nor can we envision ourselves paying taxes at World War II rates, accepting rationing of butter and meat and rubber, doing without new cars, or putting most of our wage and salary increases into low-interest government bonds.

In that last sentence is the germ of a new Victory Program, by the way. It's called Defund the Chinese.  Instead of spending $100 on a new gadget that will fall apart within a year, buy a Series EE bond.

Victory in World War II conferred enormous prestige on the leaders of the big units—big government, big business, big labor—who had led the war effort at home. No wonder that levels of confidence in the big units and their leaders remained high for a generation—higher, I suspect, than they had ever been before the Midcentury Moment and higher, certainly, than they have been since.

No wonder, also, that Americans in the Midcentury Moment were unusually conformist, content to be very small cogs in very large machines: They married and bore children at record rates for an advanced society; they worked as organization men and flocked to mass-produced suburbs; they worshipped in seemingly interchangeable churches. This was an America that celebrated the average, the normal, the regular.

The liberals who long to return to the Midcentury Moment seem to forget that it was a time of enormous cultural uniformity that stigmatized being unmarried or unchurched or gay. The huge menu of lifestyle choices from which we can choose today was a very short menu with very few choices then.

Now imagine the economic liberals making common cause with the Moral Majority ...

THAT FIFTIES NOSTALGIA, AGAIN. Not for tail fins or ducktail haircuts, rather for unionized concentrated industries in a world rebuilding from war. It's a long-time theme at Cold Spring Shops, and news of the end of Local 1111, United Electrical, Radio, and Machine Workers, once representing thousands of Allen-Bradley production workers, latterly representing 130 plant service workers, once again invokes that old industrial organization.

It was in the decades after World War II that a predictable pattern developed. Local 1111 and Allen-Bradley's management sat down every three years to hammer out a contract, meeting dozens of times in a typical cycle. Strikes were infrequent but serious, and the general movement was upward: in wages, benefits and working conditions. Adding 15 cents an hour and a week's vacation in one round of negotiations, 30 cents and paid health insurance in the next, the union pushed wages and benefits to levels unimagined in the '20s, and salaried office workers always received what management called "a corresponding increase."

The company was quite willing to reward its employees for their labor. Demand for Allen-Bradley's industrial controls went through the roof after World War II, and by 1968 the payroll had swelled to nearly 7,000 workers, most of them union members. The 2nd St. plant was filled with people 24 hours a day, creating some memorable traffic jams at shift changes. Factories elsewhere in Milwaukee and across the country were experiencing the same prosperity. For many years, in fact, Allen-Bradley's contracts were patterned after those negotiated at General Electric, a much larger competitor.

General Electric and Allen Bradley and the other major electrical equipment manufacturers also patterned their prices after each other, guided by the phases of the moon, and organized at Dirty Helen's bar. When analyses of the rise and eclipse of an industrial middle class become reflective, it's useful to think about the distorting effect of unionization and concentration in closed markets.

The rising tide lifted an entire fleet of blue-collar boats. Simply put,
America's working class became its middle class in a single generation. Factory workers without even a high school diploma could afford houses, cars, cabins and college tuition for their children. It was economic prosperity and the unyielding pressure of labor unions that made it all possible.

That pressure, of course, made American workers among the highest-paid in the world, and a countertrend eventually asserted itself. As global competition intensified, Allen-Bradley, like all of its peers, began to cut costs by shifting work to lower-wage locales in rural Wisconsin, the southern United States, Mexico and ultimately Asia.

The United States's comparative advantage has long been in knowledge-intensive, high-technology goods, not routine production, and profits have a way of attracting entry.

The union itself was unusual. Them and Us: struggles of a rank-and-file union tells its early story. At one time, union by-laws strictly limited the pay of union officials (I believe to a multiple less than five of the highest pay grade in a contract) such that one could not achieve the lifestyle of a capitalist by claiming to represent the workers.

FIFTIES NOSTALGIA. Regional scientist turned columnist Paul Krugman misses the old days of three major networks and the Fairness Doctrine. He has already drawn fire from Misha and Eleven Day Empire and Atlantic Blog.

I too, wish to disagree with the Professor. I wish to remind him that the Fairness Doctrine is a consequence of decisions taken years ago. "It was the intention of Congress that the [broadcast] industry should be competitive and that every region in the country should be served. But these objectives were in conflict. If the power permitted were low, the number of stations could be large, but listeners in remote and sparsely settled regions would not be reached by broadcasts. If the power were high, every region could be reached, but the number of stations would be small. Broadcasting, moreover, would tend to be concentrated in a few large cities." So wrote Clair Wilcox in 1971 (Public Policies toward Business, 4th edition, Irwin (1971): 442.) The compromise Congress reached set up some clear-channel radio stations, in such a way that only three major networks emerged. Congress compounded the error by allocating twelve VHF television channels, again in such a way that only three major networks would emerge. (The 1964 legislation requiring installation of UHF capability on all televisions was one attempt to fix that problem.) The Fairness Doctrine arose as a way of coping with the resulting triopoly. Was the programming back then all that great? Federal Communications Commission Chairman Newton Minow didn't think so. Nor is it easy to envision an easy market solution to triopoly, Professor Krugman is no doubt familiar with Avner Shaked, "Non-Existence of Equilibrium for the Two-Dimensional Three Firms Location Problem," Review of Economic Studies 42, 1 (January 1957): 51-56. (It's not just physics where three-body problems get messy). Deregulation of cable allows the introduction of new information providers, and the value of a radio station is now determined in something resembling a market, rather than allocated, notionally in the public interest (let us all honor that broadcast pioneer, Lady Bird Johnson). And that market allocation offers a way around the bias Professor Krugman claims to see. Thom Hartmann offers some suggestions along those lines.

MORE NOSTALGIA FOR THE FIFTIES.

Last night, I caught a snippet of a Senator Sanders speech, possibly before this audience, in which he told the youngsters about a vanished time when one middle-class income could support a family.  That does seem to appeal to his voters.

Political economy, however, is about trade-offs.  You can have a family wage.  Or you can have widespread labor force participation by married women (and the tradeoffs that come with.)

But you can't have both.