Eduardo Porter

The Price of Everything

VTR Date: January 5, 2013

Economist Eduardo Porter discusses money in electoral politics.


GUEST: Eduardo Porter
AIR DATE: 01/05/2013
VTR: 11/08/2012

I’m Richard Heffner, your host on The Open Mind. And perhaps particularly because I’m myself such an admitted economic illiterate, it pleases me no end that Eduardo Porter, who writes the Economic Scene column for the New York Times joins me here today.

Now, formerly, my guest was a member of the Times’ Editorial Board, where he wrote about business, economics, and a mix of other matters related to the “dismal science” that intrigue me, but often surpass my pay grade in just plain comprehension, though surely not in interest.

He is the author, too, of Penguin’s The Price of Everything.

Now, we record this conversation just two days after the 2012 Presidential election and but a week after my guest titled a New York Times piece, “At the Polls, Choose Your Capitalism”, and I want to ask him both what he meant by that …and, without interfering with his electoral choice, what choice he would make.

PORTER: Laughter.

HEFFNER: Thanks for joining me, but I, I have to ask you that question.

PORTER: Well, thanks for having me. Well, first what I meant … the United States has chosen a particular form of engaging in capitalism and with the war, with globalization, with technology … that is fairly unique, fairly different from that of many other developed countries in Europe, Japan, Australia, Canada.

And this is a choice that I think came up in this election in kind of like a condensed, very specific form, because you had one candidate that was proposing perhaps something more like what I would characterize a road that we have taken over the past 30 years which was a Republican Mitt Romney, who was proposing a, a … less government in our society, a smaller government that did fewer things, and therefore lower taxes and more, you know, private initiative.

At least that was the way that I think he couched much of his, his proposition as a President, in terms of the economy.

And on the other hand, President Obama was suggesting more of what … you know …and his critics would say this actually …with more of the choices that other social democracies have, have made. Which is where the government had … is, is believe to have a substantial role to play in addressing … you know … many of our social ills and dysfunctions … you know from beating it … from offering universal health care to more extended unemployment insurance.

I mean so this, this kind of like proposition came forth in this election but it’s, it, it is representative of the kind of different paths that we have taken compared to a bunch of other countries.

HEFFNER: But it seems to me so strange that no one, or few people, that’s why I picked on your column because I was so impressed with it. I thought back to FDR …

PORTER: MmmHmmm.

HEFFNER: And thought back to his great Commonwealth Club speech and he was talking about saving capitalism …


HEFFNER: … that the New Deal actually did save it. But not many politicos this year, or in recent years have made the point that you make so well.

PORTER: Well, but I, I think in, in, in a way that FDR was right. In fact, yesterday an economist from the University of Oregon … Mark Thoma wrote this great piece, this one was about Hurricane Sandy, but the point that he was trying to make was the same point that you’re eluding to. That you need to save capitalism from its excesses and that, you know, these … the idea that government can play a role there is crucial to understand.

If, you know, the kind of inequities that build up if there is no, kind of like countervailing force, could ultimately destroy support for, for, for capitalism.

It could destroy the kind of trust that you need for capitalism to function.

HEFFNER: Do you think there was purpose in President Obama’s reluctance to pursue this point of view? Because it wasn’t really pursued.

PORTER: (Sigh) Yes, I think, I think you’re right. Yes ands it’s, it’s because, you know, this road that we’ve taken was not just a … did not just come up in, in this election. This choice … this is a choice that we’ve been making over decades.

I mean I would put it back to, roughly, 1980 where the, the idea that government should be smaller starting taking hold in the, in the political discussion in this country. And, you know, so for a very, very long time the main thrust of, of, you know, the political discourse had moved toward smaller government, fewer taxes, less regulation, all these things have been proposed as a good thing, conducive to more economic growth, to more creativity, to more innovation and that’s pretty much the road that we’ve followed, at least compared to other countries.

HEFFNER: As an economist, you don’t agree with that point of view, do you?

PORTER: Well, it’s, it’s a road that we chose to take as democratic society. We could have chosen others. Maybe I would choose another. But it, it … there … the fact is that I think that the road that we have taken, the, the empirical fact has, I think produced a bunch of social dysfunctions, that had we given government a larger role would not be so dire. I’m talking about, you know, child mortality rates that are very, very high compared to other rich countries. Infant mortality rates, maternal mortality rates, teen obesity, birth to teenagers.

I mean we are at the … kind of like at the bad end of many, many kind of like social indicators. And it’s surprising for a country as rich as ours … as, you know, as ultimately a very prosperous country in … on, on average … to, to, to show these kinds of dysfunctions.

HEFFNER: Do you think that the President will now, now that he’s not a candidate for anything. He’s won, after all, the Nobel Peace Prize. So that in his post-Presidential years, that’s not a possibility or a likelihood. Do you think that the President will push that point of view, that level of understanding?

PORTER: I mean I would say that the proposals for health reform …


PORTER: … effort was a big … a very substantial push in this direction. I mean there’s lots of people that are unhappy at how it ended up … there are people who wanted the government to be the single provider of health care and would have preferred, you know, a solution more like that in, in Britain and other European countries where the government provides health care.

This was more of a hybrid. But it was a very big push in the direction of government provision of kind of like basic social services.

And, you know, I would expect that that would be the thrust of his second term. In terms of the kind of … the rhetoric he will use to deliver it … maybe it will be more forceful. But that’s kind of like more of a political analysis that I’m not really very qualified to do. But I do hear that, that maybe the gloves are off and the, you know, the attempt at, at, at being as bi-partisan as possible is no longer going to be … ah, ahh … part of the mix in, in the second Administration.

HEFFNER: But, of course, all of the things that you mention, and you do go through them in a couple of these articles … where we lag behind other capitalist countries, although that’s such a difficult term to define now.

Would you define countries with many more social responsibilities acted upon by government … capitalist?

PORTER: Yes, of course. I mean these are all market economies. Most economic activities in France or Japan or Canada is in the market between, you know, private individuals and corporations.

I mean the difference between the United States and France is the taxes are about 10% of GDP higher there. I mean that’s really not a really fundamental difference. It’s just a question … they raise some … a little bit more money or, you know, a lot more money if you will … and use it to provide a bunch more services.

But, fundamentally, these are all capitalist economies. I know … I, I think that the argument whether this is socialism or what-not is more a kind of like a, a political … ahh, ahh … tool that’s …

HEFFNER: But it is, indeed, a political tool that’s used …


HEFFNER: … and a rather effective one.

PORTER: Oh, indeed it is, indeed it is. Because, you know, again these are countries that we have tried to define ourselves often in opposition to many of these countries …right?

You know this is a country of individual freedoms, as opposed to a country where the state has more of a say over your life.

And this isn’t, like said with a kind of nuance that you need understand … and because in a country like Canada … people also have lots of individual freedom. Right? They just have slightly more government say or pay slightly more in taxes.

HEFFNER: Well I was thinking, too, of another piece that you wrote, I have so many of these which I have so many questions about because they’re so provocative.

The one titled “Get What You Pay For … Not Always” and you go on about “the most expensive election campaign in American history is over, executives across America can now begin to assess what their companies will get in return for the roughly $2 billion dollars spent by business interests.”

Ah, what do you think that assessment will be? How will it turn out?

PORTER: Well, the immediate assessment will be …

HEFFNER: We lost.

PORTER: … it was a waste of money ‘cause we lost. (Laugh) Right? Most of the money was spent to support Republican candidates or attack Democrats. And Democrats mostly held their own … so a lot of this money was wasted.

If, if it was meant to, to provide a winner … right … to buy a winner. But even had they won, I mean the argument that I make in the piece … I wrote this story before I knew the results. And so my argument was that even had they won, it might be a waste of money from the point of view of … of the success of the companies and their shareholders.

HEFFNER: Well, of course, you make the point … added point, that maybe it was to their detriment … what, what you, what did you mean by that?

PORTER: Well, well … I, I … there’s a couple of ways that this can hurt a corporation … right … I mean one was … I used the example of, of Wall Street which I thought was pretty salient … that they spent a lot of money to help elect President Obama and then they didn’t really like what they got when the financial reform law was passed and when President Obama kind of like acquired a more … aggressive rhetoric … where he labeled banks as “fat cats … bankers as fat cats” and so on.

So, suddenly they flipped to Romney. So the money, presumably that they, they then deleted the money that they’d spent on the 2008 was not well spent and so now they were going to spend it well. Now they lost. So maybe that was not well spent either.

But also more broadly, I mean there’s been a lot of analysis suggesting that the kind of … that this political spending does not really help corporate bottom lines. I mean people that look at companies who spend on politics versus companies that do not spend on politics … and they try to find out “well, is this spending … you know, does it show up in better profits or higher share prices?” It does not.

In fact it often goes the other way, people … companies that spend on politics do worse than companies that do not. And I’m … the example in the piece that I … that, that you’re referring to … that I find really kind of very interesting is the story of AT&T … that …


PORTER: … you know, AT&T goes out and buys a company that pretty much any economist that knew about anti-trust law that you’d talk to would say “This is … this deal is going to be, is going to be rejected by the government. Because it is buying out a clear rival … you’re going to reduce competition … in this vital market for cell … you know … cellular communications …” and yet AT&T went ahead with it. And it made these arguments … it was very, very confident … was so confident that it was going to win … they it promised the owner of T-Mobile … because it was going to buy T-Mobile … it promised Deutsch Telecom, who owned T-Mobile … like, I don’t know, $6 billion dollars in break-up fees if the deal didn’t go through. And the deal didn’t go through.

And the reason that AT&T was so confident was because of its political clout. I mean it, it’s an enormous, it’s one of the biggest political spenders in, in corporate America. And so, it has lots and lots of friends on Capitol Hill. And all sorts of streets in Washington. And so, it … you know, it kind of like was victim to its own, you know, over-confidence because of the, the, you know, the political spending.

HEFFNER: But you know, that very point … when I read the piece … and particularly the way it started out … you know … what, what did you pay for and what did you get …


HEFFNER: I wondered … have … has the other side been just too darn worried about corporate contributions?

PORTER: Well, look … the … it’s very … it’s difficult to know … right. I mean if you look at … there’s also lots of studies that suggest that spending doesn’t really change electoral results that much, you know.

And this is stuff that goes back a bunch of years … there’s been a lot of work done on this. Does, you know, an extra million dollars, spent on this campaign gain it, you know …

HEFFNER: Or 50 million.

PORTER: … or 50 million …

HEFFNER: … by an individual.

PORTER: And, and the results are kind of … are not really … you know … I mean at least not in our history. We … it doesn’t show up in elections. And maybe it has to do with the fact that everybody is spending. And so, like … if maybe if one just stops spending altogether and the other one spent $50 million dollars, well then maybe you’d see a difference. But you get this kind of arms race, right … where, you know, each one moves up a notch and the other one moves up a notch … and so … it would be the same if nobody spent anything at all.

And it’s also perhaps because, you know, the electorate isn’t that easily swayed. What you do is you convince people who are already believe … you know, all these onslaught of advertising … just convinces you of what you already think, but doesn’t really change your mind.

I mean I don’t know, if you live in Ohio, you were watching … I don’t know how many minutes of political ads per hour and just basically you’re hearing the same thing over and over. Do you think that’s really going to … I, I mean I’m skeptical … this is not science, this is my intuition.

HEFFNER: Counter-productive.

PORTER: You know, yeah, that can be counter-productive or, at least you know, would have diminishing returns, you know.

HEFFNER: You think … my friend, Floyd Abrams, is going to have to go back to the Supreme Court and argue Citizens United …

PORTER: (Laugh)

HEFFNER: … from the other side?

PORTER: (Laugh) Well, that would be an interesting one. I mean I wonder … I would … I mean … this is going to come up again to the Supreme Court … my, my guess is in some form.

I mean it seems very, very decisively decided, right? But I, I suspect this isn’t entirely settled.

HEFFNER: Well, nothing seems to be settled any longer at the level of the Supreme Court. I mean there is no hard and hidebound stare decisis any longer we can change. There are those who were worried about Roe v. Wade …


HEFFNER: … being over turned, etc.


HEFFNER: But here I, I wondered … jokingly whether corporate America might feel that it would be a lot better off if it were not possible to have this arms race?

PORTER: Yeah, well look at it … if they were forbidden from having this arms race like they might just save a lot of money and get the same political outcome.

HEFFNER: Well, that’s what you were suggesting.

PORTER: Yeah, you know, so it could actually help them out, you know. And if you talk to … there are businesses that are very thoughtful about this and have, you know, and have pulled back on spending. And you see … in fact a lot of businesses, after Citizens United, they put, you know, law … you know rules on their books saying “we’re not going to do independent expenditures” … you know these outside groups that spent a lot independently on the election.

A lot of that came from individuals rather than companies, because companies were a little afraid of, you know, giving to, whatever … American Crossroads, or Action USA or one of those groups, because they were kind of ceding control over their money. And they feared reputational risk and what not.

HEFFNER: What about that? Do we have any information as to whether any of those fears were justified, or concerns perhaps about stockholders.

PORTER: Oh, well, you know, we had had some examples of problems. I don’t know if you remember .. I mean is vaguely in my mind … Target ran into some trouble because it spent to support a group who was, who was spending it to support a candidate for Governor who was against gay marriage.

And that created a big back-lash against Target. There was a, a threat of a boycott and perhaps there was even a small boycott … against Target and Target kinda like … you know, sorta like ultimately ended up changing the … passing some specific rules to, to kind of like dye their political giving … to limit the kind of things they could do in the political sphere.

HEFFNER: Do you think a corporation would be that if, under the present circumstances where they really don’t have to be identified as doing what they’re doing.

PORTER: Well (laugh) … that’s right. I mean one of the things is that now they can put money in without anybody knowing about it. Well, yes, that will, that will free them from this problem.

But if … I talked to some businesses and they were concerned over another, another consideration … that they could be blackmailed. Because the fact that it’s, that this is undisclosed … know that you could donate money without telling anybody. It doesn’t mean that the person that you’re giving money to isn’t going to know.

HEFFNER: Right. And say “More, more, more”.

PORTER: So it can say “More, more, more” under the table and so you become, you know, the corporations were, were afraid that they could just be, you know, blackmailed, extorted into giving into these independent groups.

HEFFNER: Is there any evidence that stockholder groups have taken up the cudgels in this matter?

PORTER: I don’t think very aggressively. I mean this is a young …


PORTER: … rule … right? But you have groups like the Conference Board which groups big businesses that have, they’ve issued some, some reports expressing concern about the, you know, about Citizens United and the kind of money that it could unleash.

So, so there is concern. I don’t think it’s been, it’s come up like, you know, proxy votes and things like that … real pressure against corporation’s spending.

HEFFNER: Why do you think the market took such a nose dive …

PORTER: (Laughter)

HEFFNER: … right after the election?

PORTER: You know, I wish I knew. I mean the, the conventional wisdom is that they’re afraid of the fiscal cliff … right … that this left our politics just as stuck as they were before the election and hence there’s a chance that the … that we will go over the fiscal cliff … taxes will rise, spending cuts will be pretty draconian and the economy will probably suffer.

HEFFNER: You think the other capitalist countries … marketplace driven countries … France … Germany in particular … are looking at us and wondering “What are you guys doing?”

PORTER: Well, I’m sure they are. Although all these countries right now have problems (laugh) of their own, you know. Europe is in a tough spot. I mean Germany is still doing reasonably well, but that’s about … that’s about it. You know every other European economy is in trouble. So they’ve got a lot to … they’ve got a lot of problems of their own at the moment.

So, it’s not like a moment for great Schadenfreude, you know where they can look at the United States and say, “Well, what are these, what are these crazy folks doing?”.

But I bet you they’re worried. I mean because if the United States economy goes south right now, the world is in pretty bad shape and it would suffer along with us. You know, we are, of the rich economies right now … we’re one, one of the ones that is growing … you know, fast … I mean not that we’re growing fast, but we’re doing better than many others.

HEFFNER: Globalization … I keep thinking of your colleague Tom Friedman, who’s never been here … getting him here and saying “Well, what do you think about globalization now, maybe it would be better if the earth were flat”.

PORTER: (Laugh)

HEFFNER: You, you wrote a piece, not all that long ago. “The Case For Raising Top Tax Rates” …


HEFFNER: What kind of response did you get to that?

PORTER: Oh, a lot of people thought I was crazy because the tax rates that I was talking about in that story were in the 70 to 80 percentile.

HEFFNER: But you had good basis in terms of our … even recent history.

PORTER: Well, yeah, that’s right, that’s right. I mean I, I would point out two things … that we have had these tax rates in recent history and in fact in moments of great economic prosperity …


PORTER: … we’ve had these tax rates … so the argument that tax rates at this level would destroy the economy are not supported by our history, I would say.

The other point that I would like to make, too, that kind of goes against it, is that even when we had these very high tax rates, it’s not like we were raising tons more money in taxes.

Because we … when had these very high tax rates, we also had lots of more forms to evade them or to avoid them, perhaps is a better word. You know there were all these tax shelters and what not, that were also available to people with a lot of money. And so, even though the tax … the total amount of tax revenue was higher … it wasn’t much, much higher … it wasn’t as high as you’d think with a 75% marginal tax rate, right?

But basically, the point that, that, that we can sustain these tax rates without harming the economy is that a lot of the money at the very, very high end is not necessarily creating wealth.

I mean … a lot of this has to do with what’s happening to the way that, that income is distributed in this country. A growing, growing share has gone to the very, very, very top … right …


PORTER: …and this is a trend that has continued since about 1980 or early 1980’s, late 1970’s and while we don’t quite entirely understand what has been driving this … there is the sensation that the accumulation of income at the very, very top, you know, the very top, you know, bankers and businessmen and also some athletes and artists. That is not necessarily conducive to economic growth, and that you could tax away some of that without hurting economic growth.

Because the standard theory says if you tax away your income, my incentive to go and get more income and be more productive is going to be, you know, attenuated. So I won’t put so much effort into it and hence the economy will grow less.

But if a lot of that money there isn’t really generating, you know … is, is really more reshuffling money within the economy rather than producing more wealth … you could tax away more of it, and it will do less harm.

HEFFNER: But, you know, that’s a point that puzzles me. You economic experts, people who write about economics, know that that debate is going on and has been going on in the political arena for some time now. Are there no studies that could confirm or deny the notion that up to a certain point, at any rate, taxation will not diminish investment or economic activity at some level?

PORTER: Well, the thing … that the nature of economy … economies are very complex. And so you can put together a study that looks at, you know, how we’ve had very high taxes and very high growth and how these things are not necessarily in opposition. But you will have somebody who says, “Well, but you know, there were …something was going on with immigration … or something was going on with this other variable. So the ability that economists have to clearly state a relationship like the one that you suggest is limited. You know, it’s not physics … even though economics would like to be like physics, it’s not quite … it does not have these kind of decisive … kind of like … conclusions.

And so the conclusions are always sort of up for re-interpretation and, and, and, and counter proposals. So … but I do, I do think that we do have pretty substantial evidence that we could raise tax rates and the economy would not, would not tank.

But the problem is not really economics, the problem is political. Can you get through the political system, even though, you know, even though you buy … even though you trust this proposition … can you get that proposition through the political system … so that the political system accepts these tax rates. And that’s when I think that, that we will never get tax rates anywhere near 75% or even 60%, 50%.

HEFFNER: Do sigh when you say that … “Alas …”

PORTER: No, I mean I don’t really … see, when we started about this conversation, talking about all these other countries that have had more robust kind of like social sectors … public social sectors. These governments don’t really have super high marginal tax rates …

HEFFNER: What’s the difference?

PORTER: Well they actually use very regressive tax systems. So very flat taxation regimes. They use consumption taxes to fund a lot of their government. So consumption taxes … they basically tax you for what you buy … at very high rates. I mean there’s the, the value added tax in, in Britain … that’ s above 20%, maybe 25%.

And so this, this, this hits the rich and the poor, you know. And in fact you can argue it hits the poor more, because the poor spend a larger share of their income than the rich.

But, it actually … you can actually get a lot of money, you can actually generate a lot of tax revenue with these kind of tax systems.

So what the European system has done, or other systems that use consumption taxes, is … “We’re going to take tax money from everybody. Not just the rich. We’re going to take a lot of tax money from the middle class and the rich and the poor. And we’re gong to use this to fund … ah … universal services that are going to be … probably that are going to be more highly valued by the poor than by the rich, because the poor need them more”.

HEFFNER: More next time … and you have to come back and talk further. Thank you so much for joining me.

PORTER: Thanks very much for having me … it was great.

HEFFNER: And thanks, too, to you in the audience. I hope you join us again next time. Meanwhile, as an old friend used to say, “Good night and good luck.”

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