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 forty 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 classic, proclaiming a “natural rate of unemployment†that is worsened by minimum wages, unions, and labor standards.
For Rachael 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. This has huge implications for policy, but it is a difficult issue 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 counter-parts.
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 out-sourcing. 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 common 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 is needed are Democratic economic advisers that challenge the flawed economic assumptions of Friedman’s laissez-faire school. Three generations ago Keynes identified the economic challenge 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.
If I may indulge myself, I’d like to add Gene Sperling to this list. I was listening to Al Franken the other day, and Franken asked him if he thought trade duties to combat foreign trade abuses was acceptable. Sperling went on a long, comatose list of “better education” and everything other than trade sanctions that protect the middle-class way of life. Gene Sperling sounds like a multinational company or Wall Street outsourcing financier, who supports full employment when we make $.60 an hour like un-unionized Chinese workers. I believe that Gene Sperling is principally reponsible for the Democrats losing the 2004 elections, as a John Kerry advisor. In fact, when Howard Dean started to talk about these trade fairness issues, Sperling got in his face and threatened to actively campaign against him. And guess what, the Democrats lost Ohio.
We can thank Gene Sperling and the Democratic Finance and Ways & Means Committee Members for sleeping through the 2004 election. If things continue, the same thing will happen in 2006 — a massive sellout of their middle-class constituents.
It’s not just Friedman. I’m sure Krugman would cringe to be thought a follower of Friedman. But he’s just as responsible for BS economics as Friedman.
It’s time to admit that “free trade” is not what has been implemented as a result of free trade liberal economists stamping their imprimatur on what corporations and their handmaidens in Congress and the White House have done. In fact, it’s past time for that mea culpa.
Dr. Krugman and other free trade liberals have said that those of us who have been alarmed at NAFTA and all that has followed from it don’t understand David Ricardo’s theory of comparative advantage. The fact is that NAFTA, the WTO, CAFTA and other abominations have nothing to do with comparative advantage. They have to do with removing legal requirements on corporations that have prevented them from driving their labor costs to the lowest possible level by inducing an international bidding war.
Krugman and his cohorts know very well that comparative advantage is not involved in this disaster. It is past time to admit it and put an end to the freebooting of pirate corporations. No nation is ever going to be able to prosper under this tyranny.
As an ignorant kibbitzer I humbly ask:
Why do we insist on calling such protectionist agreements as the WTO and NAFTA free trade?
Admittedly I learned my vague understanding of the term from the Economist. But not the neo-con rag of today, rather the still whiggish weekly of the sixties.
They beat the drum for free trade described as follows:
1. Eliminate (not rearrange) tariffs on goods.
2. Freely exchange ideas (not patent)
3. Encourage free movement of labor (not passports and quotas).
They always claimed that free trade made such good sense that it would pay a country to adopt it unilaterally. (I am not aware of any country that has done so)
The longed for result of the three points above was supposed to be lower prices for all goods while maintaining the most efficient production and providing a decent wage for all workers.
The Economist’s editors were highly skilled at presenting this notion seductively. But I note that the textile tariffs and sugar tariffs of the fifties have morphed to the quotas of today which still impose an unneccesary cost to consumers.
Is this somehow tied up with the disappearance of Keynes from public policy?
Many thanks for your time.
By the way, Brad De Long sent me here — though he is not to blame for that.
Dum Luk’s
— ml
1805: the world was a vastly different, strangely the same.
Today’s American industrialists would love to be, and are trying hard to be,
in the position of the Mellons and Vanderbilts. And given the intrigue in Washington – it seems that there are many who agree.
Too simplistic?
Maybe –
But – the next one hundred years is going to seem a lot longer than the last ibe hundred.
If you can forget about religion – China and India struggle to be America.
Out-sourcing is no longer just a catchword – Americans are finally starting to worry.
First hi-tech metallurgy, Electronics and autos went to Japan, Shoe making
disappeared in America. Textiles are fast leaving our shores… seemingly unimportant industries … but America is loosing the ability to make stuff that had always been our pride. Even the ability to feed the world is fast leaving the US as we import as much as we export.
Natural recourses will be only part of Asia’s problem.
Brain power is key in the equation and Asia has
more brains – population – to train. (Granted they have to feed them also.)
The problem for America is not only surviving the race for the great society , it
may just be surviving – period. Could America,
with its enormous debt and over reach become the China of
1960s? China was the center of the world for a couple of
thousand years. It lost it’s way for a few years. Is struggling to get it back.
If they do not have their own silent spring – if the earth does
not collapse .
How can America keep it’s high living standards?
One radical way of course is let all the corporations get rid of their
medical plans and retirement plans and
make them more competitive in the world market. If you are right
and labor’s wages seek their own level – then maybe – the world will
be flat. But that’s gonna take time. To do that the US Government
would have to pick up some social slack. like pension , health,
and welfare. I’m not sure the US has the reserves – the resolve to do that.
It could be done but there are a lot of radical voices
from the “Me generation” – me firsts, who do not believe we are “social people” a society, a village.
The change, of course, does not have to be black or white. .. as these arguments
tend to become. There are a lot of shades of social experiments around the
world. The problem seems to be that most work well on a
small scale – but when you get into the hundreds of millions
of people they have trouble. Though America, (sans raciest problems)
did pretty well from the fifties to the nineties. They were years with a
divided president and congress. There were Democrat years.
Divided Democrat/Republican years, Republican years,
Republican/ Democratic, years and Republican / Republican years.
But most of all they were years that the US had the advantage of being the
prime power in the contest of powerof the cold war. Now there is the feeling of all against all. And it is not helped by the “Me first” attitude in American politics, industry and – religion.
The basic need is to take Milton Friedman logic, or Ayn Rand logic to their REAL actual conclusions instead of veering off or stopping short, as these folk do.
To think of the ECONOMIES of scale think 40 acre hamberger stand, to see the POWER of scale think McDonalds. This divides the question and brings to light the real problem.
A single person working hard and effeciently, does not have alot of flexibility, if he works eighty hours a week instead of fourty he produces a lot more but has not improved his lot, (if he works longer now and takes a vacation he has only changed his schedule) likeways if he works for less no matter how that compensation is measured he is again worse off.
If he has a machine that makes his work more effecient, and the machine is expensive and sits idle when he is not working, the cost of the machine could be offset by 2 or three people using the machine, but the useful end of the machine’s life would arrive that much sooner. If there are other costs of idle time of the machine then they would be reduced by shift work, but such costs are normaly minor.
Most productive work in modern civilization however cannot be done by one person working alone, several to a very great many must do their bit in unison with others to accomplish most of what the civilization does. And here is the rub, to work in unison they must be POLITICALLY organized!
Economics has nothing to do with the politics, though politics can make great hash of any economy.
The assumption Freidman, Rand, et al. is a Royal one, if you own it, you are the King. Anything else is just supply and demand of the number of serfs you can capture and keep, vs such skillls in competing Kings if any (and eventually there will always be just one King, and no freedom to the enterprise al all.) Waste, fraud, and corruption become the norm as it is the least accountable of all political systems.
As in any royal political setup, the king and his friends do little but play, and plot, usually leaving even the political battlefield to minion soldier grunts (lawyers, sales people) leaving the actual economics to the lowest classes to actually produce anything at all.
It is in the Political model of corporate management that Democrats can make the most headway. Forcing the King to a Magna Carta as is the case when a Union manages to exist at all is a very small step, and even that step is eroding. There are some corporations with a better system, 3M, or the several ESOPs about, and a few corporations have honerable Kings at any given time, but again such folk usually less focused on world domination, and often barely defend themselves, much less work to expand their paradeim.
Friedman economics is the politics of Chicago coprofessor Leo Strauss. To lay out their complete logic in plain English is to defeat their purpose, and immediately suggest alternatives.
Just a brief reference to the INVISIBLE HAND of Adam Smith. I wonder if anyone knows that ALL (I mean ALL) Principles of Economics Textbooks leave out what Adam Smith ACTUALLY SAID about the “invisible hand” in the Wealth of Nations. He explicitly identified the invisible hand as leading investors to PREFER DOMESTIC TO FOREIGN INVESTMENT. In other words, as Smith viewed the world, the reason mercantilist interferences with trade were bad was not only that they created inefficiencies but they were NOT NECESSARY to produce the PREFERRED result — namely the development of domestic manufacturing industries which would maximize the employment creation effects of those investments.
[Smith may have been wrong — and perhaps definitely is in today’s world — but that is HOW he saw the world when he wrote …]
The long quote is on p. 475-7 in Volume I of the Wealth of Nations but here’s the end part — it is the ONLY TIME the term “invisible hand” appears in the book, by the way.
SMITH WROTE:
By PREFERRING THE SUPPORT OF DOMESTIC TO THAT OF FOREIGN INCDUSTRY, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. (I: 475-7)
[section in CAPS is NEVER quoted in any as far as I can tell Principles of Economics text …]
Even in such a simple way as ACCURATELY reporting what Adam Smith, the so-called father of “free enterprise economics” said in his main book, the intellectual “gate keepers” of our knowledge have (perhaps unconsciously) edited Smith to conform to their world view.
For very different takes on the triumph of Friedman style “pro free market” economics I’d recommend Ha-Joon Chang’s KICKING AWAY THE LADDER (on how currently “developed” countries didn’t use free trade to get there!) and Robert Pollin’s CONTOURS OF DESCENT (an attack on both the Clinton and Bush [W]’s administrations’ policies).
Finally, I couldn’t agree more about Gene Sperling. I had the displeasure of sharing a discussion panel with him — he tends to filibuster when “unacceptable truths” are presented…
Re the comment above about David Ricardo’s concept of comparative advantage: Ricardo wrote in the early 19th century. Like Adam Smith, he simply assumed that capital would stay at home. Conditions for investment in foreign countries at that time were so risky as to automatically lead capitalists to prefer investment in their own lands.
Examples of risky conditions in foreign countries: Don’t speak the language. Don’t understand foreign customs and culture. Hard to monitor foreign investment due to travel and communication obstacles. Don’t understand foreign law. Don’t have a read on social alliances in foreign lands. Etc.
Today, the world is globalized. The capitalist can monitor his investment in Indonesia from his headquarters in Ohio, through the internet. Is there a problem? He can be there in one day via air travel. The legal system has been regularized through WTO etc. Someone there will speak English.
Impediments to overseas investement have been substantially neutralized. The result: unlimited mobility of capital, such that capital never has an incentive to invest in the well being of any particular locale.