Towards a Progressive-National Conservative Consensus?
Why we should worry about the direction of U.S. economic debates
Greetings, The War on Prices subscribers,
I often think back to early March 2021. Joe Biden and the Democrats are hashing out the details of their American Rescue Plan, which would ultimately extend $300 per week expanded unemployment benefits through September that year, slather most individuals with $1.4k in Biden bucks, and renew a whole bunch of elevated tax credits as part of a $1.9 trillion relief package.
It’s now conventional wisdom that, in a variety of ways, this bill worsened the eventual inflation problem. Whether it was the unemployment insurance benefits holding back labor supply, or the “stimulus” boosting consumption in ways the Fed didn’t ultimately offset, the bill gets the economic thumbs down as a package given what happened to the price level afterwards.
And yet can you remember what Republicans were saying about it at the time? Probably not, because unlike, say, Larry Summers, who was sounding the alarm about inflation, their contemporary opposition was muted. As this legislation was being debated, in fact, the leading lights of the GOP were wittering on about Dr. Seuss Enterprises “cancelling” six books which the company itself deemed contained racist and outdated imagery. That’s right, as one of the most misguided and consequential macroeconomic bills of recent decades was proceeding, Republicans in Congress were wailing about a private company changing its offering of kid’s stories.
To a certain extent, this was just further evidence of the realignment of politics around cultural rather than economic divisions. I tend to be a conscientious objector to most culture wars, so find this trend regrettable, yet undeniable. But I also think the passing of that bill with such weak opposition reflected an implicit economic consensus that was crystallizing between Democrats and Republicans at the time: that running sustained, large structural budget deficits just didn’t matter. Let’s not forget, even before the pandemic, the U.S. had a 4.7 percent of GDP deficit under President Trump, at a time when unemployment was just 3.5%. Trump had previously declared himself the “King of Debt.”
Where progressives and nat cons meet
The conventional wisdom is that the U.S. political parties have never been more divided. Bipartisanship, we are told, is dead. And, to be clear, there’s obviously a lot of truth to that, both in the workings and rancor of Congress and on many individual policy debates - incorporating everything from climate change to the basics of electoral integrity.
Yet just as the horseshoe theory of politics predicts, the more extreme elements on the left and right in many ways start to look a lot like each other, at least when it comes to what they see as the correct scope of the government in economic life. And over recent years, even as cultural issues have become more salient, I’ve become increasingly concerned that the sharper edges of the “progressive left” and “national conservative right” - both ascendant within the Democratic and Republican coalitions - have been pulling the economic debates we do have publicly in directions that will be harmful to the prospects of a free, prosperous economy.
In fact, both these “sides" critiques of free-market capitalism have resulted in a coalescing of attitudes towards being open to the same types of interventionist government policy. Though the details of their specific offerings differ, the broad strokes of a shared argument goes something like this:
“Free-market and libertarian ideas have dictated economic policy since the 1980s. The legacy of this period has been low wages, rising inequality, hollowed out industrial heartlands, “financialization,” disaffection, humiliation for manufacturing workers, monopoly Big Tech power, brittle supply-chains that leave Americans vulnerable to shocks, and corporations more committed to short-term profit than workers’ interests.
Policy can mitigate or avoid these costs through pro-worker trade protections and industrial policies, commitments from the federal government to buy American, a welfare state more supportive of families, a clamp down on the excesses of Big Tech, government corporatism to ensure businesses act in workers’ interests, and investments in key manufacturing capacity to make the country more resilient.
Yes, that’s paraphrasing a range of different debates. And, again, the details of policies can differ - progressives favor green industrial policy, for example, while national conservatives opt for more traditional manufacturing-centered favoritism. But there’s clear overlap in what the response of government should be. Remember Tucker Carlson’s glowing endorsement of the economic policies of Elizabeth Warren below? Both the progressive left and the nat con right want to cajole businesses to become laptops of their social and economic agenda.
Now, libertarians and free-market thinkers have spent a great deal of time countering each and every one of these rank timeline assertions over the last decade. My colleagues at the Cato Institute likely always find it amusing to hear that we’ve been secretly running the government for decades. But here is not the place to repeat those arguments.
Instead, I think one interesting development from all this is that a lot of the more centrist thinkers and writers on economics from left and right have begun to notice that policy discussions have taken a dark turn - and are pushing back on their own “sides.” Though these writers themselves often differ massively on their views of the social safety net and tax levels, they are “pro-market” in the sense of doubting the efficacy of a lot of the proposals for price and entry interventions, tariffs and industrial policies, new antitrust laws, and the regrettable politicization of business. More than that, they are often ready to point out where existing government interventions themselves are exacerbating social and economic problems.
The most recent example of this is, again, Larry Summers. The former Treasury Secretary under Bill Clinton has this week patiently explained how the century-old Jones Act (which restricts the transport of goods by water to vessels that are U.S.-flagged, built and, usually, crewed and owned here) has exacerbated the distress that Puerto Rico has suffered from the recent hurricane, by denying the island the quick transportation of nearby fuel.
More than that, Summers points out that even beyond the case for lifting the Act temporarily, this law was enacted for exactly the same “resilience”-focused, Buy American reasons that many progressives and national conservatives are so keen on today. Turns out that, as with the baby formula debacle, when shocks hit that affect the domestic economy more than international markets, policies that have encouraged more inefficient domestic production and “self-sufficiency” can actually reduce the U.S.’s resilience, rather than increase it. Who knew? (see Economics In One Virus chapter 11).
Summers is not alone. There are a *lot* of broadly pro-market economists from across the political spectrum out there who are deeply skeptical of both the progressive and national conservative policy agendas, including their underlying premises. There is a lot of analysis provided by these economists for why these new interventionist ideas are so misguided, and indeed how, contra the progressive and national conservative claims, existing government interventions often *cause* a lot of the economic and social problems we see today.
You are invited…
And that’s why I’m hosting a special conference at Cato entitled New Challenges to the Free Economy (From Left and Right) next Thursday, 6th October (which you can register to attend or watch online here). The aim is simple: to bring together a broad range of pro‐market economists to debate and discuss the nature of the threats to our prosperity from progressivism and national conservatism, to take stock of whether these grievances about the status quo are real or imagined, and to consider what free-market reforms might help.
I’m really excited about the panels and the speakers. Our two keynote addresses are from former President Obama Council of Economic Advisers supremo, Jason Furman, and the American Action Forum President and former Congressional Budget Office director, Doug Holtz-Eakin.
Panels through the day will focus on policy eras where the progressives and nat cons seem to be pulling debates in the same anti-market direction. To discuss the rise of antitrust populism, we’ll be joined by Google chief economist Hal Varian, former Federal Trade Commissioner Joshua Wright, Stanford law professor Doug Melamed, and NetChoice’s Jennifer Huddleston.
Next up, PIIE’s Adam Posen, the Upjohn Institute’s Susan Houseman, and Columbia University’s Arvind Panagariya will update us on where we are with trade policy, and the pitfalls and likely results of the new shared push for industrial policy and other measures to bolster domestic “resilience.”
Both progressives and national conservatives are contributing, in different ways, to the politicization of business, whether through the jaw‐boning of companies over their content moderation or through weaponizing the use of government‐granted privileges. ITIF’s Rob Atkinson, Harvard Business School’s Elisabeth Kempf, and the Fraser Institute’s Matthew Mitchell will explore how politicized businesses have become, the underlying causes, and the risks of progressive and nat con demands of companies in future.
To dovetail with that panel, GMU’s Bryan Caplan, former President Trump CEA chief economist Casey Mulligan, and the Mercatus Center’s James Broughel will interrogate how excessive regulation fuels economic discontent by stirring the sense that it’s impossible to get anything done. They will also explore the prospects for more market-led regulatory reform in this political environment, on which center-right free-marketeers can perhaps find common ground with the smaller group of supply-side progressives.
And then, finally, Cato’s Romina Boccia, Harvard’s Jeff Miron, the Committee for Economic Development’s Alan Cole, and the Committee for a Responsible Budget’s Maya MacGuineas will discuss fiscal sustainability. This high inflation moment seems to have killed off the progressive left’s brief flirtation with Modern Monetary Theory. But with Treasury yields having risen, what should we make of the hardening of support on left and right for the entitlement programs that, on autopilot, would blow up ever rising deficits?
We’d love for you to join us to explore all this, so please do sign up at the link. And if you’re in DC, why not come along in person?
OTHER THINGS
The fallout from Kwasi Kwarteng’s mini-budget in the UK continues. After a rollercoaster week in the markets, my broad views remain unchanged: the statement had a lot of micro measures on tax to like; whether Truss can raise growth will heavily depend on getting the other non-tax supply-side reforms done; the market reaction to me was about the interaction of fiscal and monetary policy; and the Chancellor was wrong not to set the tax cuts in a broader fiscal framework that made a downpayment on spending restraint to stay credible on fiscal sustainability.
Nevertheless, we must accept this is now a dangerous political and economic moment for Truss. I’m pondering what might be done on the fiscal side of things. On the supply-side, I wrote for The Times this week about how the reaction to the budget necessitates curbing her radicalism (and stop using that term for doing non-radical things!) Instead, she should look for marginal improvements to raise growth that are more politically feasible and seek to bring NIMBYs and vested interests onside. A lot of Truss’s most visceral opponents are overreaching right now, by trying to imply that *any* spending cuts are beyond the pale and that cutting the overall tax burden to circa 2018 levels while committing to the biggest energy subsidy in Europe is a repudiation of ever shrinking the state’s footprint on supply-side grounds. See how ridiculous that sounds?
Speaking of overreach, the IMF was within its rights to put out a statement on concerns about fiscal sustainability after the UK’s mini-budget. But it also added a line about Truss’s tax cuts raising inequality. I don’t know what’s going on there, but there’s been a bunch of weird blogs and papers over the years from the IMF torturing various datasets trying to try to prove that inequality is bad for growth. The evidence just isn’t there, as I first noted years ago. And that’s not surprising. Inequality measures are summary statistics of the outcomes of millions of transactions, trades, endowments, and policies - some of which are desirable and some highly undesirable. The idea that there would be any robust link between these measures and GDP growth is wishful. But that’s the trendy motivated reasoning that makes the IMF feel part of the zeitgeist!
That’s all for this week! I was supposed to be at a Cato conference in sunny South Carolina, but Hurricane Ian put paid to that.
Have a great weekend
Ryan