The Democrats' Silent Spring
Dr. Thomas Palley was chief economist of the US–China Economic and Security Review Commission. Prior to joining the Commission, he was director of the Open Society Institute’s Globalization Reform Project. He has written for The Atlantic Monthly, American Prospect and The Nation magazines. He can be reached at www.thomaspalley.com.
In 1962, Rachel Carson published her environmental epic, Silent Spring, which documented how chemical-based agriculture was killing the bird life and birdsong of America’s countryside. Over the last 40 years, the Democratic Party has also slowly lost its voice and fallen silent on the economy, with Democrats substituting a laundry list of program plans for economic vision.
What happened to mute the Democrats’ voice on the economy? The academic ascendance of the laissez-faire vision of an economist named Milton Friedman. Friedman’s vision benchmarks modern economic theory, and it thereby benchmarks policy. Put another way, most economists are singing the same hymn—Friedman's 1968 proclamation of a “natural rate of unemployment” that is worsened by minimum wages, unions and labor standards.
For Rachel Carson, restoring America’s birdsong called for banning the chemical DDT. For Democrats, recovering their voice calls for rediscovering an earlier economic paradigm now extinguished in policy discourse. The problem is that contemporary economics has been captured by Friedman's Chicago School construction of free market economics, leaving little room for alternative interpretations of economic reality.
As a result of the dominance of the Chicago School, both Democratic and Republican economic advisers are trained to occupy a common intellectual space. The only differences that can survive relate to values and the defense of an egalitarian society. The dominance of one economic theory has huge implications for policy, but this is an issue difficult to convey to pragmatic worldly politicians. Seventy years ago, John Maynard Keynes acerbically captured this reality:
(T)he ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slave of some defunct economist. (J.M. Keynes, The General Theory of Employment, Interest and Money , 1936, p.383.)
And so it remains today. The current cohort of Democratic policy advisers unconsciously uses the same analytical framework as their Republican counterparts.
Mentioning names can appear churlish, but not doing so invites charges of vagueness. Consider the following: Professor Greg Mankiw of Harvard University (famous for his observation that flipping hamburgers is a manufacturing job) was chairman of President Bush’s Council of Economic Advisers (CEA). Mankiw made his name in the 1980s as a new Keynesian, a school of thought that maintains unemployment exists because of inflexible prices and wages. This intellectual background readily qualifies him to serve in a Democratic administration. The same holds for Ben Bernanke of Princeton University, who was recently confirmed as the next Federal Reserve chairman. Like Mankiw, he too made his name in the 1980s as a new Keynesian, writing about the Great Depression.
Alan Blinder of Princeton University is the very best of Democratic economic advisers, being deeply sensitive to problems such as income inequality and outsourcing. Yet Blinder shares the same analytical views of the economy as Mankiw and Bernanke. Specifically, he shares their views regarding the conduct of monetary policy and the economic logic of free trade and globalization, though his values lead him to have different positions regarding progressive taxes and the need for social insurance.
Bernanke is from Princeton; so is Blinder. Mankiw is from Harvard; so is Lawrence Summers. All four got their Ph.D.s from Harvard or MIT. No doubt, all four are virtuous people, but virtue is not the issue. The issue is that all share the same invisible hand paradigm, albeit each may see varying degrees of arthritis. How this state of affairs came about is a complicated story. One important factor is the science myth in economics, whereby economists tolerate only one “core” theory about how the economy works.
Given this shared analytical framework, what distinguishes economic advisers is their level of “compassion.” Ironically, this makes the Democrats the true “compassionate conservatives.” However, within the laissez-faire paradigm, compassion usually reduces economic efficiency. Consequently, Republicans own the market efficiency franchise, while Democrats own the fairness franchise. Meanwhile, efficiency appears to trump fairness with the American electorate, which explains Democrats relative disadvantage in public economic debate.
This pattern is evident across an array of issues. The Clinton administration consistently ducked on trade and labor standards. To the extent that there was support, it was for reasons of compassion and political expediency. The same holds for elite Democratic policy thinking about trade unions and the minimum wage. The one area where elite Democratic policymakers have made an upfront economic efficiency argument is the budget deficit, but this poorly conceived foray has merely risked turning the party of FDR into the party of Herbert Hoover.
What we need now are Democratic economic advisers who challenge the flawed economic assumptions of Friedman's laissez-faire school. Three generations ago, Keynes identified the economic challenge of the time as one of “optimizing” capitalism so that it delivers for all. That challenge continues in the era of globalization. Meeting it requires unashamedly and openly making the economic efficiency case for labor standards, trade unions, minimum wages, corporate accountability and financial market regulation. Additionally, today’s advisers must confront the environmental challenge posed by the industrial economy itself. That’s a big ticket, but it's a ticket that can own both the efficiency and fairness franchises, and that’s a politically unbeatable combination.