Mancur Olson | The Economist

Mancur Olson’s 1998 obituary from The Economist sums up his beliefs as to why Germany and Japan made such startling recoveries after WWII while Britain, one of the victors, floundered.

The conclusion was striking. Narrow, self-serving groups had an inherent, though not insuperable, advantage over broad ones that worry about the well-being of society as a whole. How might that insight explain the fate of nations? In 1982, in “The Rise and Decline of Nations”, [Mancur Olson] offered an answer.

In any human society, he said, parochial cartels and lobbies tend to accumulate over time, until they begin to sap a country’s economic vitality. A war or some other catastrophe sweeps away the choking undergrowth of pressure groups. This had happened in Germany and Japan, but not in Britain, which, although physically damaged in the war, had retained many of its old institutions. Surely there was some less cataclysmic route to renewal? Yes, said Mr Olson, a nation’s people could beat back the armies of parochialism, but only if the danger were recognised and reforms embraced.

Read more at Mancur Olson | The Economist.

Jack Kemp Showed GOP How to Appeal to Minorities

Bruce Bartlett writes that late senator Jack Kemp is a role model for how Republicans should engage with minorities:

Although Kemp pushed for a cut in tax rates for the wealthy, he was adamant that all workers must share in the benefits of lower taxes. He also focused heavily on the idea that saving, investment, technological advancement and capital formation were the essential goals of economic and tax policy, because they raised productivity, which would raise the wages of workers. Today, Republicans just blithely assume that tax cuts for the wealthy will automatically help the economy without ever explaining how or why.

The key to a thriving capitalist system is a successful partnership between capitalists and labor. Capitalists benefited hugely over the last half-century from jobs the private sector created — and from rising wage levels — through growing consumption. Without consumption they would fail. Workers on the other side of the bargain have also benefited from job creation and rising wage levels. Without them they would suffer unemployment and genuine hardship. Neither side can afford to focus on their own needs without recognizing the importance of the other’s.

Mancur Olson argued that specialized unions with narrow membership will attempt to optimize benefits to their members, be it airline pilots or sanitation workers, even if this achieves a sub-optimal outcome for the economy as a whole. In other words, they will advance their own interests at the expense of others. But he also argued that broad-based unions will not, recognizing that they cannot advance their own members’ interests if the economy as a whole suffers.

I believe the same applies to capitalists. Monopolies or cartels who attempt to maximize their own profits will damage the economy, while broader-based groups will recognize that they can only maximize profits by advancing the economy as a whole — creating new jobs and lifting wage levels.

You also cannot focus solely on lifting wage levels — as Herbert Hoover attempted in the early 1930s — in the hope that this will support the broader economy. Higher wages will slow job creation and retard the recovery. The focus has to be on maximizing the total wage bill — and consumption. At times, during a recession, this requires lower wages and more jobs. But as the economy approaches full employment, wages will rise while job creation slows.

Exporting jobs offshore may serve the narrow interests of some manufacturers but is ultimately not in their long-term interest. They may gain from cheaper labor costs but they are also exporting consumption, which will directly or indirectly hurt sales.

That Kemp was an extraordinary man is also borne out by his views on immigrants, emphasizing integration rather than exclusion:

I also know that Kemp had a far different attitude toward immigrants than virtually all Republicans today. He welcomed them, seeing immigration as one of the economy’s lifebloods. He would be extremely critical of efforts to demagogue Latino immigrants who come here, legally or illegally, just looking to earn an honest living and enjoy the American way of life.

Read more here: Jack Kemp Showed GOP How to Appeal to Minorities | The Fiscal Times.