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Sunday, November 26, 2006

Points of Agreement between Rubinites and Populists

The New York Times has another story about the split in the Democratic Party between the populist/protectionist faction and the free-trade advocates:

Here Come the Economic Populists, by Louis Uchitelle, Commentary, NY Times: For years, the Clinton wing of the Democratic Party, exercising a lock on the party’s economic policies, argued that the economy could achieve sustained growth only if markets were allowed to operate unfettered and globally.

Overcoming protests from labor unions, a traditional constituency, the Clinton administration vigorously supported free trade agreements like Nafta and agreed to China’s admission into the World Trade Organization. If there was damage to workers, then the Clinton camp proposed dealing with it after it occurred — through wage insurance, for example, or worker retraining and other safety-net measures. ...

Over time, this combination — called Rubinomics after the Clinton administration’s Treasury secretary, Robert E. Rubin — became the Democratic establishment’s accepted model for the future.

Not anymore. With the Democrats now a majority in Congress, and disquiet over globalization growing, a party faction that has been powerless — the economic populists — is emerging and strongly promoting an alternative to Rubinomics.

The populists argue that the national income has flowed disproportionately into corporate coffers and the nation’s wealthiest households.... They want to rethink America’s role in the global economy. They would intervene in markets and regulate them much more than the Rubinites would. For a start, they would declare a moratorium on new trade agreements...

Apart from such differences, there are nevertheless crucial issues on which the groups agree. Both would sponsor legislation that reduced college tuition, mainly through tax credits or lower interest rates on student loans. Both would expand the earned-income tax credit to subsidize the working poor. Both would have the government negotiate lower drug prices for Medicare’s prescription drug plan. And despite their relentless criticisms of President Bush’s tax cuts, neither the populists nor the Rubinite regulars would try to roll them back now, risking a veto that the Democrats lack the votes to override. ...

Kash has a nice discussion of this issue:

Policy Agreements and Disagreements, by Kash: The possibility of dissention among Democrats regarding economic policy seems to have been in the news this week. Mark Thoma points us to a commentary by Harold Meyerson on the subject, in which he focuses on the differences between the Hamilton Project and the EPI. And yesterday, Bloomberg had a piece about the disagreements between Robert Rubin and organized labor.

Nov. 22 (Bloomberg) -- Democrats are returning to power on Capitol Hill just as two powerful wings of the party, labor and Wall Street, are colliding over economic issues... AFL-CIO leaders, contending Democrats won the midterm elections because of voter concern about job security and stagnant wages, say it's time to set aside the free-trade policies touted by Rubin...

I suppose that it's natural for people to want to revisit this subject in the wake of the Democrats' recent election victory. But is this really news? As Mark pointed out, Democrats from both the Rubin/Hamilton Project crowd and the EPI/organized labor crowd would probably agree, at least in broad terms, on a large number of changes to economic policy. My candidates for areas of general agreement would include:

  • Allowing the tax cuts on the wealthiest to expire, to help with the budget deficit;
  • Restore pay-as-you-go rules to the federal budget process, to at least stop the US's budget problems from getting worse;
  • Reform the Medicare prescription drug benefit to allow the government to reduce the price it pays for prescription drugs;
  • Strive for broader health insurance reform, to increase the availability of health insurance to uninsured Americans;
  • Strengthen the social safety net to help individuals who are lose out in the US economy through no fault of their own (e.g. by providing some form of wage insurance);
  • Increase the minimum wage.

I'm sure I'm leaving something out, but even so, there's clearly a lot here that both camps would agree on, and a lot of work to do.

On the other hand, there is one big thing that the two factions do not agree on: trade policy. So if you boil it all down, it seems that the one significant point of dissention among Democrats is about how to change (if at all) US trade policy.

But the existence of pro-trade and anti-trade groups in the Democratic party is nothing new - they've both been around since at least the 1980s. Furthermore, very vocal anti-trade and pro-trade factions also exist within the Republican party; for example, a dozen Republican Senators voted against CAFTA this past summer, while a dozen Democrats supported it.

Yes, the issue of trade policy is indeed a source of disagreement among Democrats. But it's also a source of disagreement among Republicans, and among independent voters. So while the anti-trade faction may be larger in the Democratic party than in the Republican party (at least if measured by votes in Congress), the divisions over trade policy really seem to often transcend party and ideology. I haven't yet figured out what separates people into the anti-trade and the pro-trade groups, but whatever it is, I don't think that the division is anything new, or unique to Democrats.

It would be a big political mistake to have early policy proposals break down due to Democratic Party infighting. Democrats should focus on Medicare, health insurance, Paygo, the minimum wage, and perhaps tax issues (i.e. the AMT) and avoid trade legislation as much as possible for the next two years. In general, both factions agree on the need to strengthen the social safety net to help to overcome the negative effects faced by workers hurt by shifting production patterns, but they disagree strongly on the benefits of free trade, especially when there are sharp differences in labor and environmental standards.

Update: Greg mankiw also notes this article.

    Posted by on Sunday, November 26, 2006 at 04:41 AM in Economics, International Trade, Policy, Politics | Permalink  TrackBack (0)  Comments (20)


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