David R. Henderson  

Better Mixed Economy: Henderson on Litan and Schramm

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What should be done to increase the growth rate of the sluggish U.S. economy? This is the main issue that economists Robert Litan and Carl Schramm address in their book, Better Capitalism. The book is mistitled. As valuable as many of the authors' proposals are and as tight as a good deal of their reasoning is, they are not proposing better capitalism. While they advocate some deregulation--especially of the entrepreneurial sectors of the economy, including the labor market--they also advocate extensive regulation of energy and transportation. What we currently have is not capitalism, but what the 1950s to 1970s economics textbooks accurately called "the mixed economy." The authors don't propose making it less mixed; rather, they want what they regard as a better mix. A more accurate title, therefore, would have been the admittedly less-catchy title, Better Mixed Economy.

The book is uneven. Some chapters offer provocative ideas that got me thinking in new ways but did not necessarily persuade me. Some chapters, especially the one on immigration policy, are excellent. The chapter on energy policy is weak on economic analysis and proposes new regulations, one of which could, ironically, make the United States even more susceptible to the international oil cartel, OPEC.


This is from hot-off-the-press review of Litan's and Schramm's Better Capitalism: Renewing the Entrepreneurial Strength of the American Economy, that appears in Regulation, Summer 2013.

Highlight on immigration:

In their chapter on immigration policy, titled "Importing Entrepreneurs," Litan and Schramm point out that between 1995 and 2005, immigrants started or co-founded about one quarter of "successful firms engaged in technology and engineering," even though immigrants make up only one eighth of the population. Not surprisingly, therefore, they want to make it easier for entrepreneurial foreigners to immigrate to the United States and stay. On the way to their policy recommendations, the authors give a nice, terse history of U.S. immigration policy. As a U.S. immigrant who had a tough tangle with the Immigration and Naturalization "Service," I thought I understood the ins and outs of immigration law. But the law has changed since I became a permanent resident in 1977, and almost entirely for the worst. The authors note that the number of H-1B visas--visas granted for only six years to high-skilled workers--that Congress allows has fallen from 195,000 a year in 2001-2003 to only 65,000 a year today. Also, to get an EB-5 visa, which is for "immigrant investors," one typically must invest at least $1 million in a business. When I immigrated in 1977, the number was $10,000.

The authors highlight a 2011 proposal by former senators John Kerry and Richard Lugar for a new EB-6 visa for immigrants who want to start a business. Had the law passed, the visas would have been granted to those who invested a minimum amount--well under $1 million--in a business, to those on H-1B visas, or to those who graduated with a science, technology, education, or mathematics degree and met minimum income ($30,000) or asset ($60,000) thresholds. This would have been a major improvement over current law. People who qualified could have gotten permanent-resident status if they had generated three to five jobs for nonfamily members within two years. Litan and Schramm argue that, with these criteria, there should be no quota on the amounts of these visas issued because immigrants who meet the standards would be creating jobs, not reducing them.


And part of the section on energy:
Litan and Schramm's weakest chapter is their one on energy. First, their history of the energy industry is weak. They claim that John D. Rockefeller's Standard Oil Company engaged in "price-fixing schemes and other anticompetitive practices." In fact, the way Standard Oil was able to capture "upwards of 85 percent" of the oil market was by cutting prices, not raising them. And while they are correct that the Japanese government's "quest for oil security led Japan on an expansionist drive throughout the Pacific that ultimately led to its attack on Pearl Harbor," they leave out the fact that President Franklin D. Roosevelt had tried to cut off Japan's oil supply. While that doesn't make their history wrong, it does make it incomplete and misleading. Also, whereas they correctly date the formation of OPEC to 1960, they don't mention that OPEC's formation was an unintended consequence of President Dwight Eisenhower's discrimination against the Middle East in his assigning of oil import quotas.

Also, the authors don't seem to understand the nature of the world oil market. They write that the "United States is importing oil and will continue to do so, mostly from countries that are autocratically ruled, unfriendly to the United States, or at best, unreliable allies." They see this as a problem. Put aside the fact that between 2006 and 2011, imports from Canada, whose residents are not that unfriendly, grew from 17 percent to 24 percent of total imports. More important, wherever our imports come from, people sell us oil not because they like us, but because they want to make money. We don't really need to worry much about which tyrant controls Iraq, Iran, or Saudi Arabia--they all want to make money. And notice, by the way, that the U.S. and European governments, not the Iranian government, are the ones that restrict oil imports from Iran.



COMMENTS (4 to date)
Thomas E. Snyder writes:

Mises called the mixed economy "interventionism." So maybe a better title would be "Better Interventionism--Better Lipstick."

Glen Smith writes:

Government is a better enforcer of price-fixing and other anti-competitive schemes anyway. Problem is exit from a cartel where you use government as your enforcer is hard. Your thug is willing and able to reduce your cut of the "benefits" of hiring them as your enforcer and will do its best to keep your from leaving the cartel (the ability to keep you "loyal" to the cartel is part of why it is so good at enforcement of cartel strategy).

guthrie writes:

Re: Immigration.

I would imagine that even Bryan Caplan would regard that policy as 'a good start'!

guthrie writes:

Re: Immigration.

I would imagine that even Bryan Caplan would regard that policy as 'a good start'!

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