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Jeff Madrick

Jeff Madrick

Posted: June 20, 2008 09:53 AM

Karl Rove: Economic Illiterate


Why bother rebutting Karl Rove, you might ask? He is basically a partisan name caller, not an analyst. But every once in a while you've got to give them their own medicine.

In the Wall Street Journal he wrote a piece calling John McCain and Barack Obama economic illiterates. Again, I wouldn't bother to respond except that it was the most emailed piece on the WSJ web site.

What's galling to this observer about Rove's name calling -- I consider 'illiterate' a four letter word -- is that he is far more ignorant of economics than those he criticizes. That wouldn't stop him, of course. He goes on to pull his old political trick, exaggerating beyond any recognition what the two candidates say.

Barack wants a windfall profits tax on oil companies. Rove wonders whether he wants to tax anyone with a fat profit margin? Barack has contempt for profits, Rove then asserts. This isn't even good debating tactics, not to mention unfair.

McCain, he charges, comes close to advocating an "industrial policy" because he said he is angry at the oil companies for not investing adequately in alternative energies. He, too, has contempt for profits.

Here's Rove's central message. "Do we really want the government deciding how profits should be invested?"

In fact, neither candidate is arguing they will do anything of the sort on any broad scale. They are talking about creating incentives to invest in alternative energies, not new ways of making hamburgers or computer chips. Does Rove believe the market has solved the energy problem on its own?

The kicker is when he tells us with the great assurance of the well-read expert that, "Most dramatic change comes from new businesses, not old ones." Don't provide incentives to big existing companies, like the oil producers. Big business cant' do it. Just let the markets work and new entrepreneurs will come out of the woodwork.

Here is ignorance of the first order. The premise is dead wrong. Big companies have been remarkably inventive. What about Boeing's 707? What about Toyota's hybrid car? In fact, Toyota created just-in-time inventory methods which transformed manufacturing when it was already a giant in the 1960s. And what about Sony's Trinitron and Matsushita's VCR?

What about all the remarkable new drugs created by big pharma like Merck? What about the almost endless list of creative new products from 3M, Johnson & Johnson, Rubbermaid, and GE's medical supply subsidiaries? What about the on-line reservations system created by the existing airlines? What about Time Inc.'s HBO, coiming from a magazine company? What about the commercial communications satellites first put up by RCA, which gave us Ted Turner's Superstation and later CNN?

Of course, we cherish our start-ups but big business has other advantages that lead to remarkable technological advance. Today, in particular, substantial funding and expertise is needed to do the best technological research.

This doesn't mean that we shouldn't cherish our start-ups. Every company was once a start up. And there are lots of downsides with big companies. But they are critical to capitalist development, as has been government regulations and investment.

Karl Rove should do a little more reading and a little less writing -- and rely on knowledge and pragmatic solutions rather than knee-jerk ideology. He should start his reading with the works of the business historian Alfred Chandler, who was hardly a political progressive.

Above all he, the illiterate pot, should stop calling far more literate kettles black.

Tax and other incentives can be vital to economic growth -- just as they have worked in the National Institutes of Health, in public sanitation, in military (the internet) and space R&D (satellites) that became commercial, in all kinds of advances in statistics and other academic areas, and on.

Such policies help both big companies and start-ups, and innovation arises from both. Sorry the world isn't as simple as you'd like it to be, Karl.