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Saturday, December 29, 2007

"Democrats and the Meanings of Change"

In an introduction to a recent column, Paul Krugman wrote:

Broadly speaking, the serious contenders for the Democratic nomination are offering similar policy proposals... But there are large differences among the candidates in their beliefs about what it will take to turn a progressive agenda into reality.

At one extreme, Barack Obama insists that the problem with America is that our politics are so “bitter and partisan,” and insists that he can get things done by ushering in a “different kind of politics.”

At the opposite extreme, John Edwards blames the power of the wealthy and corporate interests for our problems, and says, in effect, that America needs another F.D.R. — a polarizing figure, the object of much hatred from the right, who nonetheless succeeded in making big changes.

Thomas Palley agrees that, for Obama, "change is a matter of political style," but he says there are key policy differences among the candidates that have not received the attention they deserve, partly due to intentional "bunching" of policy by the Clinton campaign:

Democrats and the Meanings of Change, by Thomas I. Palley [via email, no link yet]: Many people now believe the United States cannot afford to continue with the policies of the Bush – Cheney administration. Those policies have undermined global support for America that is a key part of national security, and have produced an economic expansion that has by-passed working families and looks like bequeathing years of house price pain.

However, if there is agreement that the heavy-fisted Bush-Cheney agenda is no longer acceptable, the question remains what will follow. Among Democratic presidential candidates, though there is much talk of change, its meaning remains unclear.

Beginning some thirty years ago, Ronald Reagan initiated a fundamental re-positioning of American politics that was later completed by Newt Gingrich, Dick Armey, and Tom Delay. That re-positioning shifted the entire political spectrum to the right.

This raises the question does change mean sticking with the political playing field we now have and just giving control of the football to new Democrats like Senator Hilary Clinton? Or does it mean re-positioning the playing field and shifting the political spectrum as proposed by progressive Democrats like Senator John Edwards?

Behind this difference lie vital real world consequences that will profoundly impact America’s working families. For Clinton-style centrists, today’s economy works reasonably well. Globalization delivers prosperity by providing cheap imports that lower prices; financial boom on Wall Street benefits all by raising stock prices; and higher corporate profits drive investment that increases growth and incomes. However, growth also creates losers which means the market’s “invisible hand” must be accompanied by a “helping hand”. Consequently, there is need for policies to supplement the incomes of the working-poor and to assist workers who lose their jobs because of trade.

For Edwards-style progressives the picture is very different. Globalization has created a divide between country and corporations, with companies abandoning the U.S. by shifting jobs and investment offshore. That maximizes profits but undermines wages and future prosperity. Higher profits have not raised growth, but have instead come at the expense of wages and increased income inequality. And Wall Street has spearheaded these changes by demanding that companies raise rates of return and rip up the old social contract with workers and their communities.

From a progressive standpoint the problem with new Democrats is they tackle symptoms, not causes. Though helping hand social policies are welcome, progressives believe such policies are not up to the challenge confronting America’s working families. Meeting that challenge requires deeper change, which is what the 2008 election is all about.

Yet, surfacing this difference has proved difficult. That is because the Clinton campaign has used the political tactic of “bunching” to obscure differences. That holds for every major issue from healthcare, to trade policy, to taxing Wall Street hedge fund incomes. On each issue the Clinton campaign has bunched up and signed-on, but always reluctantly and late.

This tactical effectiveness of bunching requires progressives to raise directly the question of change and its meaning. For Senator Obama change is a matter of political style. For Senator Clinton it means restoring the economic policies of the 1990s. However, with the exception of tax cuts, those policies are the policies of today. Thus, the 1990s ushered in NAFTA and free trade with China, and cemented trends from the 1980s regarding trade deficits, the separation of wages from productivity growth, and the dominance of Wall Street. What really saved the 1990s were the Internet and stock market bubbles, which is not a sustainable foundation for prosperity.

The 21st century has gotten off to a rocky start with America squandering much political and economic capital. Now, Americans want change. The Democratic primaries offer competing visions of change. One changes possession of the political football, the other changes the football field. That’s the debate the country needs, and it seems to be finally bubbling to the surface in the last days if the Iowa campaign.

I think the important distinction is between tackling symptoms (outcomes) and tackling causes. Is it enough to revamp the social safety net within the current economic structure, or does the structure itself need to be changed?

I think action on both fronts is needed, but my preference is to let market processes work without interference and then use the social safety net and other devices to correct distributional inequities ex-post.

But that is not to say that the structure itself does not need to be changed. When I say "market processes", I mean competitive markets, I don't mean monopolized markets, or markets that do not fully internalize costs, or markets that are manipulated through the political process, etc. Broadly, I am particularly concerned about the balance of power between firms and workers, i.e. that the labor market is not competitive and hence does not have the optimality properties we expect from well-functioning markets, that more should be done to cause firms to internalize environmental externalities, that firms have more political clout than workers, that opportunity is not equal, particularly educational opportunities and this limits mobility between economic classes, that there is too much concentration of ownership in key industries such as (but not limited to) the media, and that we are not paying enough attention to our domestic infrastructure needs. Plus all the ones I forgot.

Structural change to the economy, along with needed reform of the social safety net in areas such as health care, won't come without fierce resistance from the other side. Change, even change that is centrist in nature, will require a difficult political battle and there won't be a lot of time for learning on the job. I don't believe that a cooperative, compromise approach to policy will be successful in bringing about the change that is needed and I hope the Democratic nominee, whoever that might be, will be prepared to begin the difficult battle ahead of them from day one of their administration.

Update: From Paul Krugman, a link to more discussion along these lines:

I won’t write any more about this, by Paul Krugman: But I’ll link to Lambert, who channels me admirably.

    Posted by on Saturday, December 29, 2007 at 01:17 PM in Economics, Politics | Permalink  TrackBack (0)  Comments (43)


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