Markets And The Common Good
Thomas Palley runs the Economics for Democratic and Open Societies Project. He is the author of Plenty of Nothing: The Downsizing of the American Dream and the Case for Structural Keynesianism. His weekly economic policy blog is at www.thomaspalley.com
Like a modern-day Rip Van Winkle, there are indications that the Democratic Party may finally be awakening from its long slumber and realizing it lacks a compelling identity. That lack of identity is especially clear regarding the economy, and it contrasts with Republicans who have long emphasized free markets. The current moment of Republican unraveling offers Democrats an historic opportunity to close this identity gap and change the direction of American politics.
The Republican free market message resonates with deep-seated cultural attachments to individualism and freedom, and their message tacitly treats free markets as identical to free society. Democrats should challenge this message with one about “markets and society,” meaning that markets should serve both individuals and society. Whereas free markets are especially good at promoting the interests of individuals, there are important societal interests—such as democracy and community—that they fail to address and may actively harm. That calls for institutions other than markets to represent those interests, and also for thoughtfully balancing markets with society’s other interests.
For most of the past 30 years voters have regarded Republicans as the party they feel most comfortable with managing of the economy. This standing has enormously benefited Republicans in both elections and their ability to determine the daily economic policy agenda. The public is not made up of policy experts and people have neither the time nor the willingness to become informed on technical economic policy issues. Thus, the party that gains the public’s confidence and frames the economic debate has a huge advantage. It can more easily propose policy changes and the benefit of the doubt, while the party on the outside must always defend before it can propose.
Now, due to a combination of failed policies and policy excess, the continuation of Republican economic policy dominance is an open question. The economic recovery following the last recession has been the weakest since World War II. And most importantly, there may be increasing support for the belief that the Republican Party is less a party of small government and efficient markets, and more a party of profits for big business and tax relief for the super-wealthy.
These developments create a momentous opportunity for Democrats, but at this stage they face a choice between a phoenix and a cuckoo response. Some would imitate the phoenix, a mythical bird that periodically incinerates itself to emerge revived and regenerated from the ashes. Others would imitate the cuckoo, which lays its eggs in the nests of smaller birds and has them raise its offspring in place of the original eggs.
The cuckoo strategy is being pressed by so-called “New Democrats,” who aim for a softer version of the current policy program, inaugurated by Ronald Reagan in 1980. According to this strategy, Democrats should use the current moment to occupy the economic policy nest created by Republicans and redecorate it. This would involve continuing with the themes of budget austerity, free trade and deregulated markets that Republicans pioneered. However, these themes would be softened by “compassionate” initiatives like greater income supports for the poor and tax incentives to help low-paid workers save.
Significant steps toward such a strategy have already been taken by former Treasury Secretary Robert Rubin, who has established his Hamilton Project at the Brookings Institution. The goal is to build an intellectual infrastructure that can be paired with the political expertise of the former Clinton administration, thereby establishing policy hegemony within the Democratic Party.
In sharp contrast, a phoenix strategy would build on the progressive legacy of Franklin Roosevelt’s New Deal and Harry Truman’s Fair Deal, bringing back to life the economic logic and vision that inspired them. This is a far more difficult enterprise, that not only aims to wrest control of the policy debate, but also to redirect it. Instead of merely making minor adjustments to the Republican framework, a phoenix strategy would dramatically alter understandings of the nature of markets and their relation to society.
Changing the understanding of markets is key. Economic conservatives have hoodwinked Americans into accepting a view of the economy that saddles them with economic fatalism. Compare this to the Roosevelt-Truman era, when people believed the economy could be shaped by policy. The conservative lie is that “natural” market forces mean little can be done about low wages, disappearing pension and health benefits and degenerate competition predicated on international outsourcing. This is Margaret Thatcher’s infamous TINA—“there is no alternative.” It is untrue. Changing tax laws, the method of providing health insurance, the conduct of monetary policy and the rules governing corporations, labor markets and international trade can transform the market into a force for race-to-the-top-progress rather the race-to-the-bottom exploitation.
Labor Democrats, African-Americans and immigrants constitute the natural core constituency of a phoenix strategy since these groups are dealt the worst hand and face the most blighted future under the current policy regime. However, that constituency must be broadened to include middle class America if it is to sustain lasting political victory. This can be accomplished because questions about the nature of markets and their relation to society are central to all Americans. Not only is individual economic well-being at stake, so too are values regarding family and community.
A successful phoenix strategy cannot rest on taking a list of policy proposals cobbled together over the past 20 years. Instead, it requires a clear articulation of the purpose of society and the relation of markets to society. In short, the development of a philosophy in which markets serve society, rather than society serving markets, is necessary. Out of this statement and vision can then flow a new progressive policy agenda in which all elements are mutually reinforcing.
This is exactly what radical conservatives accomplished 40 years ago with their capstone notion of free markets, which in turn drove policies of free trade, deregulation, attacking unions and small government. The conservative philosophical trick was to assert the existence of natural free markets and then claim an identity between markets and the interests of society. That trick worked well, but the fallacy of its assumptions is now showing up in the corruption in politics and the gross inequities evident in society.
A “markets and society” agenda resonates strongly with themes that run deep in America’s identity. Americans are committed to individualism and freedom, but they are also committed to democracy and country. Markets speak to individualism and freedom. Society speaks to democracy and the common-good embodied in country. That is an agenda that can trump the conservative position that deregulated free markets solve all problems.
Copyright Thomas I. Palley