Rich Reporting and Thin Analysis in Adam Davidson’s Pop Economics

Adam Davidson is a co-founder of NPR’s Planet Money, a team of economics reporters that produces podcasts and segments for various NPR shows and the extraordinary weekly public radio show, This American Life. Davidson and his Planet Money team have produced some of the most penetrating and informative reporting on contemporary finance. Indeed, their reporting on finance is unrivalled, serving to demystify the murky world of derivatives, mortgage backed securities, credit default swaps and the like for a broad public audience – in the process playing a critical role for democratic debate.

And Davidson can really tell a good story. So good that he has recently been given a new platform for a news analysis, his It’s the Economy column for The New York Times Magazine. Unfortunately, since Davidson has turned from reporting on finance to news analysis focusing on the wider economy, he has increasingly traded the rich journalism that made his name – carefully and clearly explaining the esoteric workings of the financial world through first-rate investigative reporting – for commentaries on the broader economy that present embarrassingly thin analyses based on the oversimplified fantasy world of textbook economics and recycled tropes of American exceptionalism.

Davidson’s fascination with mainstream Economics got the better of him again in last weekend’s Magazine column, in which he praises the entrepreneurial efficiency of an alleged craft revival. Based on a couple of interviews with “successful entrepreneurs” making hand-crafted beef jerky or precision manufactured components,  Davidson argues that a new breed is following “what seems like an ancient business model: making things by hand,” rejecting “the high-volume, low-margin commodity business.”

But, we learn, “the craft approach is actually something new — a happy refinement of the excesses of our industrial era plus a return to the vision laid out by capitalism’s godfather, Adam Smith.” The craft revival is a further realization of the Smithean division of labor, a new round of efficiency improvements based on “hyperspecialization.” Indeed, so efficient is the American economy that “the average American leads a shockingly good life by any historical or international standard” and “Huge numbers of middle-class people are now able to make a living specializing in something they enjoy, including creating niche products for other middle-class people who have enough money to indulge in buying things like high-end beef jerky.”

Now, it is certainly the case that Americans tend to have a relatively high standard of living, but the median (much more meaningful than the average) individual income in 2010 was $26,197, which, as the Occupy movement has sought to remind Americans, is quite appalling when considered in the context of the wealth produced by the collective labor of the US economy. For instance, the income of the top 10% begins at $108,000 and the top 1% at $386,000. More important is the distribution of wealth, of which in 2007 the top 1% held 34.6%, the next 19% controlled 50.5%, with the bottom 80% of the entire population owning just 15% of the total wealth.

But Davidson did not include any statistics in his paean to American entrepreneurialism. He could not have, if he wished to make his argument that “Huge numbers of middle-class people are now able to make a living specializing in something they enjoy,” because one can only make that argument based on anecdotes. Fully 25% of the American workforce is in low-wage work.

So how big is the American middle class in the first place? And what would constitute a “huge number” of it? Davidson provides no such answers, only feel good anecdotes and rhetoric. He then builds on this questionable assertion to extend his feel-good-don’t-worry argument to even more tenuous grounds: the anecdotes teach us that “When it comes to profit and satisfaction, craft business is showing how American manufacturing can compete in the global economy.”

Here we go again. Davidson may not know it, but his hailing of the “craft-centered economy” as a model for 21^st century capitalism is a warmed over rehash of a widely influential argument that shaped much of the academic debates in comparative capitalism and the sociology of work for the 1980s: the argument of MIT economists Michael Piore and Charles Sabel that “flexible specialization” would get Western economies out of the long global crisis of the 1970s.

Davidson’s argument encapsulates the broader argument of flexible specialization: that giant mass production firms are too rigid to compete in the new global economy where increasingly affluent and discerning consumers have fickle tastes and demand a wide, ever-changing variety of high quality products, which could only be satisfied by highly flexible, “neo-craft” producers. This argument had wide-ranging appeal for obvious reasons, but neo-craft work and flexibly specialized firms never materialized in sufficient numbers to save the American economy. Don’t hold your breath for the new craft revival.

Davidson told the other side of his American exceptionalist story in a column last month, in which he again recycled an old argument that “Europe as a whole still can’t quite figure out how to be flexible enough to compete in the global economy.” In this case he differs from Piore and Sabel, in that they developed their model of flexible specialization from observations of the industrial districts in Italy and Germany, which were supposed to provide lessons for the rigid American mass producers. The difference is that Piore and Sabel are heterodox institutional economists who provided a broad, institutional analysis of production models, whereas Davidson is a devotee of mainstream economics, with its schematic analytical framework – businesses are input-output equations and labor markets are supply and demand curves – and singular focus on profit and efficiency.

Thus, Davidson repeats the standard arguments that “Western Europe played a remarkably small role in the computer and Internet revolutions,” and that:

“It’s a core view of U.S. business that success requires a degree of destruction. If workers can’t be fired, companies can’t drop unproductive businesses and invest in more promising new ones. If workers know they’ll get generous government benefits no matter what, so the theory goes, they’ll get lazy.”

Yawn. European welfare states and lazy workers. Here we are back to neoliberal ideology based on the pessimistic world of textbook economics, in which human beings are reduced to unidimensional creatures who care only about a single tradeoff between income and leisure. In this view, human beings couldn’t possibly, for instance, get any intrinsic fulfillment out of work, independent of income, and would gladly trade any long-term vision of improving their life through hard work for the sweet life on government benefits.

Turning from impoverished theory to data, left economists Dean Baker and David Rosnick have calculated a measure of “productivity that can actually be used to raise living standards,” which finds that  US productivity growth actually lagged behind Europe, even during the IT boom from 1995-2005. (Yves Smith, creator of the Naked Capitalism blog, also cites the Baker and Rosnick paper in her detailed critique of Davidson’s “Euro-Bashing” column.)

And, as labor economist Eileen Appelbaum has argued, the more protective labor market institutions of Western European countries allowed their labor markets to perform better in the aftermath of the financial crisis and Great Recession than the US did: whereas the US experienced the third largest increase in unemployment in the OECD (ahead, only, of Spain and Ireland), the rest of the Western Europe was able to better weather the recession by quickly adjusting labor input by redeploying workers within firms and using short-time work arrangements – what sociologists of work call functional flexibility, at which European countries are generally better than the US – while retaining high levels of employment protection.

Now, while European economies certainly have their fair share of problems, neoliberal finger pointing should not be allowed to distract from the major problems of the US economy. Indeed, while the US did have remarkable growth during the ICT boom of the 1990s, averaging 3.2% over the decade, its average growth rate for 2000-2009 was just 1.8%, and it has many problems that will continue to hamper its long-term growth, including rising income inequality and stagnating wages (which hamper effective demand), and rising household debt (which increases volatility).

Finally, Davidson fails to mention that the US poverty rate in the mid-2000s was 23.8%, compared with 14.7% for Germany, 13.1% for France and 11.4% for Sweden. Because what matters is profit. And efficiency. And flexibility. And that’s it.

A look at the institutional configuration of the US economy, at the deunionization, outsourcing and downsizing, collapsing of internal labor markets, and growth of low-wage, dead-end jobs, suggests a far direr view of the US economy, but that will have to wait for another post.