The Great Merit Debate: OK, OK…mea culpa re the ambiguity of “merit.” I’m not trying to be elusive. I’m just trying to find words that work for lots of different readers from different walks of like.

Let me be, I hope, totally clear: for Brad, Alan, and any other economist, merit=marginal product. Thus, principle one is very simply arguing that while a central tenet of economics is that your income is equal to the marginal value you add to the economy, reality is otherwise. Your bargaining power—your ability to claim more than your marginal product or get stuck with less—is an ever-increasing determinant of economic outcomes.

The litany of “I see this here and there in today’s economy” in the earlier post responding to Alan was supposed to provide a bunch of examples, ones I don’t think Alan has addressed, but let me be more precise and try to draw Brad deeper into this too.

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Now that we’ve debated the principles of Crunch economics for a few days, I wanted to post one of the questions and answers that make up the core of the book. This one’s about globalization. It’s longer than most of the book’s Q&A discussions, but it’s not a simple topic and I try to add some nuance. See what you think.

Q: What’s so right and/or wrong about globalization? Am I really hurting American workers if I buy cheap imports? Should I feel lousy about this? Am I supposed to oppose trade deals? Isn’t our loss the gain of some poor person “over there” who probably needs the money even more than we do?

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Thanks to Alan Viard for a provocative analysis of the principles of Crunchian economics. Not surprisingly, we disagree on many fundamental points.

Alan found principle #1 ambiguous, and since it’s central to a) the book, and b) my understanding of the economy, let me repeat the principle and try to clarify.

#1: Economic outcomes are generally thought to be fair, in the sense that market forces dole out rewards to those who merit them. But that’s not always the case. Power, whether it’s based on political clout, wealth, class, race, or gender, is also a key determinant of who gets what.

This seems crystal clear to me, but maybe that’s because I view many of the economy’s outcomes through this lens. Simply put, I see evidence of large and growing gap between overall economic growth and the living standards of working families. And I see disproportionate power—not merit, not marginal product, not efficient resource allocation—as one driving force behind it.

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It’s great to have you here, Barbara, as you are always a voice of sanity in the wilderness. And thanks for getting us started—your entry raises great questions.

“Crunch” really does purport to be more about how the economy should work than about how it is working. And that’s important, because it’s pretty clear that it’s not working and has been broken for awhile. It has, as you say, “fallen down on the job.”

Right now, we see that through the lens of the housing meltdown, its spillovers into credit, financial, and now labor markets, and the resultant recession. But the distributional failure—the failure of growth to reach so many of those that helped to generate that growth—has been with us for most of the past few decades.

Of course, you’ve been writing about this market failure with great resonance for years.

I think there are two important questions to ponder: how did we get here and how do we get “back to the garden,” as we said in the ‘60s (that’s the 1960s, not the 1860s—we’re old, not ancient). I’ll address the how we got here question in this post and save the “where to from here” for a later one. But I’d love to hear your thoughts, Barbara, on both of these questions too.

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First, I want to thank TPM’s Andrew Golis for setting up this book club. Second, I want to thank Brad DeLong, Barbara Ehrenreich, and Alan Viard for agreeing to post along with me on “Crunch” over the next few days (Tyler Cowan is a “maybe”—I’m hoping he will post some responses too).

A bunch of “Crunch” is me answering real people’s questions about the economy—not wonk’s questions, but actual questions gathered from folks who are interested in matters economic but not necessarily schooled in them. The questions range from the definitional: “What’s GDP; how’s unemployment defined,” and “What does the Federal Reserve do, anyway?” and the timely: “What are bubbles and what is a recession?” There are behavioral questions, like “Should I give money to a homeless person or hire an undocumented worker?” as well as policy questions and solutions, like “Do other countries really spend less than we do on health care with better results?” or “Are budget deficits really a problem?”

And, of course, “Why do I feel so squeezed?”

Crunch is not Wikipedia, and the answers I provide are not simply descriptive or economic but are infused with “political economy,” which I describe as the intersection of economic rules and power. As you’ll see below, power plays a much more important role in my economic analysis than it did in my—or anyone else’s— economics education. And the reason for that is its dominant role in economic outcomes, especially those in recent years (and even in recent weeks).

In future postings, I’ll present questions and answers from the book, and I look forward to the posts from both my respondents and my follow cafe’ dwellers. But to get things started, I wanted to share an abridged version of the book’s introduction. Here, I lay out the paradigm within which I analyze the questions, problems, and solutions to the “Crunch.”

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