Don’t blame our values for the economy
TEXT OF COMMENTARY
Kai Ryssdal: Here’s why any given economic indicator — from A-listers like gross domestic product on down to the bottom of the statistical barrel — ought to be taken with a grain of salt.
Today the National Association of Home Builders announced that its homebuilder confidence index was up. The first increase in five months. It’s at 16 now.
‘Course, anything below 50 is bad. So 16’s actually downright lousy.
Commentator Dan Drezner says the general economic conversation is a little bit like that the headline on that confidence index, too. It kind of misses the point.
Dan Drezner: America is not in a good place financially right now. You know the problems: Americans don’t make things anymore. We consume too much and don’t save enough. The financial sector takes up an ever-growing slice of profits and economic activity.
The apparent reason for these problems? American values have gone down the drain. Tom Friedman recently wrote that “we had a values breakdown.” He’s far from the only commentator to make this point. According to these analysts, individuals in the United States have neglected virtues like thrift and industry in favor of the quick and easy payoff that comes from working in finance.
To which I say — give me a break. We are confusing values with incentives. There is little evidence that individuals look down on either thrift or hard work. Instead, what I see is people responding rationally to market prices. A broad spectrum of Americans saved less over the past decade because they were responding rationally to the massive appreciation of their most prized asset — their homes.
Once the housing bubble burst, we started saving more. Also, high-skilled individuals went into the financial sector because the salaries were highest there. One can certainly question the virtues of capital markets, but the idea that financiers don’t work hard or put in long hours is absurd. In fact, Americans worked more hours per year than every other G-8 country — that’s according to the most recent economic data. Labor productivity figures also suggest that Americans have not fallen down on their jobs.
This is good news, by the way — incentives are much easier to change than values. If we want people to save more and work in different jobs, then we should worry less about morals and more about tax law. Increasing sales taxes would reduce overconsumption. Harmonizing the tax rates on capital gains and personal income would dull the allure of finance for skilled workers. Ending the interest rate deduction on mortgages would slim down the number of McMansions.
If commentators want Americans to put their effort into different endeavors, then the incentives should be set up appropriately. Claiming that American values are eroding, is, well, lazy.
Ryssdal: Daniel Drezner is a professor of international politics at Tufts University. As always, drop us a line, tell us what you think.
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