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Tuesday, March 19, 2019

Yanos V: Stagnant Capitalism [feedly]

Stagnant Capitalism

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ATHENS – When the Great Depression followed the 1929 stock-market crash, almost everyone acknowledged that capitalism was unstable, unreliable, and prone to stagnation. In the decades that followed, however, that perception changed. Capitalism's postwar revival, and especially the post-Cold War rush to financialized globalization, resurrected faith in markets' self-regulating abilities.

Today, a long decade after the 2008 global financial crisis, this touching faith once again lies in tatters as capitalism's natural tendency toward stagnation reasserts itself. The rise of the racist right, the fragmentation of the political center, and mounting geopolitical tensions are mere symptoms of capitalism's miasma.

A balanced capitalist economy requires a magic number, in the form of the prevailing real (inflation-adjusted) interest rate. It is magic because it must kill two very different birds, flying in two very different skies, with a single stone. First, it must balance employers' demand for waged labor with the available labor supply. Second, it must equalize savings and investment. If the prevailing real interest rate fails to balance the labor market, we end up with unemployment, precariousness, wasted human potential, and poverty. If it fails to bring investment up to the level of savings, deflation sets in and feeds back into even lower investment.

It takes a heroic disposition to assume that this magic number exists or that, even if it does, our collective endeavors will result in an actual real interest rate close to it. How do free marketeers convince themselves that there exists a single real interest rate (say, 2%) that would inspire investors to funnel all existing savings into productive investments and spur employers to hire everyone who wishes to work at the prevailing wage?

Faith in capitalism's capacity to generate this magic number stems from a truism. Milton Friedman liked to say that if a commodity is not scarce, then it has no value and its price must be zero. Thus, if its price is not zero, it must be scarce and, therefore, there must be a price at which no units of that commodity will be left unsold. Similarly, if the prevailing wage is not zero, all those who want to work for that wage will find a job.

Applying the same logic to savings, to the extent that money can fund the production of machines that will produce valuable gadgets, there must be a low enough interest rate at which someone will borrow all available savings profitably to build these machines. By definition, concluded Friedman, the real interest rate settles down, quite automatically, to the magic level that eliminates both unemployment and excess savings.

If that were true, capitalism would never stagnate – unless a meddling government or self-seeking trade union damaged its dazzling machinery. Of course, it is not true, for three reasons. First, the magic number does not exist. Second, even if it did, there is no mechanism that would help the real interest rate converge toward it. And, third, capitalism has a natural tendency to usurp markets via the strengthening of what John Kenneth Galbraith called the cartel-like managerial "technostructure."

Europe's current situation demonstrates amply the non-existence of the magical real interest rate. The EU's financial system is holding up to €3 trillion ($3.4 trillion) of savings that refuse to be invested productively, even though the European Central Bank's deposit interest rate is -0.4%. Meanwhile, the European Union's current-account surplus in 2018 amounted to a gargantuan $450 billion. For the euro's exchange rate to weaken enough to eliminate the current-account surplus, while also clearing the savings glut, the ECB's interest rate must fall to at least -5%, a number that would destroy Europe's banks and pension funds in the blink of an eye.

Setting aside the magical interest rate's non-existence, capitalism's natural tendency to stagnation also reflects the failure of money markets to adjust. Free marketeers assume that all prices magically adjust until they reflect commodities' relative scarcity. In reality, they do not. When investors learn that the Federal Reserve or the ECB is thinking of reversing its earlier intention to increase interest rates, they worry that the decision reflects a gloomy outlook regarding overall demand. So, rather than boosting investment, they reduce it.

Instead of investing, they embark on more mergers and acquisitions, which strengthen the technostucture's capacity to fix prices, lower wages, and spend their cash buying up their companies' own shares to boost their bonuses. Consequently, excess savings increase further and prices fail to reflect relative scarcity or, to be more precise, the only scarcity that prices, wages, and interest rates end up reflecting is the scarcity of aggregate demand for goods, labor, and savings.

What is remarkable is how unaffected free marketeers are by the facts. When their dogmas crash on the shoals of reality, they weaponize the epithet "natural." In the 1970s, they predicted that unemployment would disappear if inflation were subdued. When, in the 1980s, unemployment remained stubbornly high despite low inflation, they proclaimed that whatever unemployment rate prevailed must have been "natural."

Similarly, today's free marketeers attribute the failure of inflation to rise, despite wage growth and low unemployment, to a new normal – a new "natural" inflation rate. With their Panglossian blinders, whatever they observe is assumed to be the most natural outcome in the most natural of all possible economic systems.

But capitalism has only one natural tendency: stagnation. Like all tendencies, it is possible to overcome by means of stimuli. One is exuberant financialization, which produces tremendous medium-term growth at the expense of long-term heartache. The other is the more sustainable tonic injected and managed by a surplus-recycling political mechanism, such as during the WWII-era economy or its postwar extension, the Bretton Woods system. But at a time when politics is as broken as financialization, the world has never needed a post-capitalist vision more. Perhaps the greatest contribution of the automation that currently adds to our stagnation woes will be to inspire such a vision.

The Dangerous Absurdity of America’s Trade Wars [feedly]

Sachs has come a long way since co authoring the WashhingtonConsensus.

The Dangerous Absurdity of America's Trade Wars

EW YORK – Don Quixote fought windmills. US President Donald Trump fights trade deficits. Both battles are absurd, but at least Quixote's was tinged with idealism. Trump's is drenched in enraged ignorance.


Mar 4, 2019 calls on EU citizens to focus on three goals ahead of the critical European Parliament election in May.

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Last week, it was announced that the US international deficit on goods and services had widened to $621 billion, despite Trump's promise that tough trade policies vis-à-vis Canada and Mexico, Europe, and China would slash the deficit. Trump believes the US trade deficit reflects unfair practices by America's counterparts. He has vowed to end those unfair practices and negotiate fairer trade agreements with those countries.

Yet America's trade deficit is not an indicator of unfair practices by others, and Trump's negotiations will not reverse its growth. The deficit is, instead, a measure of macroeconomic imbalance, one that Trump's own policies – especially the 2017 tax cut – have exacerbated. Its persistence – indeed, its widening – was wholly predictable by anyone who has gotten to the second week of an undergraduate course on international macroeconomics.

Consider an individual who earns income X and spends Y. If we consider the individual's earnings her "exports" of goods and services, and the spending her "imports" of goods and services, it is immediately clear that she runs a surplus of exports over imports if her income is greater than her spending. A deficit means that she spends more than she earns.

The same is true when one adds incomes and spending across an economy, including both the private and public sectors. An economy runs a surplus on its current account (the broadest measure of its international balance) when gross national income (GNI) exceeds domestic spending, and a deficit when domestic spending exceeds GNI. Economists use the term "domestic absorption" for total spending, summing both domestic consumption and domestic investment spending. The current account may then be defined as the balance of GNI and domestic absorption.

It is important to note that the excess of income over consumption is the same as domestic saving. Therefore, the excess of income over absorption may be stated equivalently as the excess of domestic saving over domestic investment. When an economy saves more than it invests, it runs a current-account surplus; when it saves less than it invests, it runs a current-account deficit.


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Notice that trade policy is missing from the entire equation. A deficit on the current account is purely a macroeconomic measure: the shortfall of saving relative to investment. The US external deficit is not in any way, shape, or form an indicator of unfair trade practices by Canada and Mexico, the European Union, or China.

Trump thinks it is because he is ignorant. And his ignorance holds center stage in US public discourse mainly because of the pusillanimity of Trump's advisers (who, admittedly, lose their jobs when they cross him), the Republican Party, and American CEOs (who refuse to reject Trump's nonsense).

The US moved from current-account surpluses to chronic deficits beginning in the 1980s, mainly as the result of a series of tax cuts under Presidents Ronald Reagan, George W. Bush, and Trump. Cuts in taxes not matched by cuts in government consumption reduce government saving. A fall in government saving may be partly offset by a rise in private saving – for example, when businesses and households regard the tax cuts as temporary. Yet such an offset will generally be incomplete. Tax cuts therefore tend to reduce domestic saving, which in turn pushes the current account deeper into deficit.

Data from the Federal Reserve Bank of Saint Louis show that in the 1970s, US government saving averaged -0.1% of GNI, while private saving averaged 22.2% of GNI. Domestic saving was therefore 22.1% of GNI. In the first three quarters of 2018, US government saving was -3.1% of GNI, while private saving was 21.8% of GNI, so that domestic saving was 18.7% of GNI. In turn, the US current-account balance went from a small surplus of 0.2% of GNI in the 1970s to a deficit of 2.4% of GNI in the first three quarters of 2018.

As a result of the 2017 US tax cuts, government saving is likely to fall by around 1% of GNI. Private saving may rise by perhaps half of that, in anticipation of tax increases ahead, with a marginal increase in business investment and declining housing investment producing a modest overall effect. The net result is therefore likely be a rise in the current-account deficit, perhaps of around 0.5% of GNI.

Trump's own signature tax policy is therefore the main explanation of the modest rise in the international imbalance. Again, trade policy is largely irrelevant to the outcome.

Yet trade policy is certainly not irrelevant to the global economy. Far from it. As Trump chases a chimera, the world economy has become more unstable, and relations between the US and most of the rest of the world have palpably worsened. Trump himself is held in disdain in most places, and respect for US leadership has plummeted worldwide

Of course, Trump's trade policies not only seek to improve America's external balance, but also represent a misguided attempt to contain China and even to weaken Europe. This objective reflects a neoconservative worldview in which national security reflects a zero-sum struggle among nation-states. The economic successes of America's competitors are deemed to be threats to American global primacy, and thus to American security.

These views reflect the strands of belligerence and paranoia that have long been a feature of American politics. They are an invitation to unending international conflict, and Trump and his enablers are giving them free rein. Seen in this context, Trump's misconceived trade wars are nearly as predictable as the macroeconomic imbalances they have so spectacularly failed to address.

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Saturday, March 16, 2019

Bernie Can Win

Bernie may win. Today is the first day I believe that. Three things converged to change my stance from longtime supporter to believer in the possibility of victory. My longtime support comes from Senator Sanders', then Mayor of Burlington, strong friendship with my union in the early 80s. But, even through 2016, while his strength surged beyond anyone's expectations, actual victory seemed a remote thing, and support for Bernie's message did not equate with any lack of enthusiasm on my part for Clinton's campaign against Trump. 
But of course Trumps campaign was the other unexpected surge. A surge that revealed the deep sickness that has overtaken US society, driven and aggravated by the astounding rise in social and economic inequality, both nationally and globally.

The three things:
1. Bernie's campaign has decidedly broadened its base and leadership into a rainbow coalition -- social democratic alliance. In Washington talk his campaign is grabbing his 'left' and millenial base and bringing in the grassroots and some elected officials from the Obama coalition. 
The 'color' of the audiences attending the rallies is looking very rainbow,I can count. The elements of this emerging coalition add up to a MAJORITY of the working classes, men and women,  and of nationally and racially victimized communities.

2.From the Green New Deal to Medicare for All, to Ending Endless Wars, to cleaning our government and democracy of the corruptions that led to Trump -- It will take more than electing a president, and supportive Congress (but AT LEAST that), to match the concentrated power of the enemies of these ideals. A lifetime of experience in the labor movement and the study of revolutions tells me: Do not ever believe a ruling class will surrender its power and wealth simply to a VOTE. Bernie now frames his agenda focused on the theme of JUSTICE -- perhaps another sign he has been re-reading Dr. King. He used is last time too and he has always used "economic justice" in his campaigns, but there seems to be a thematic shift this time -- and itts powerful. The many wounds inflicted over the decades since austerity began have taken a vast toll. It will take an active movement, a revolutionary one in the sense that -- like Dr King --- real mass participation, even sacrifice, will be required. Bernie is telling the truth about this, too, about what the people must face, and do themselves. His political intuition, always extraordinary on the left, IMO, is still improving. The new campaign is more professional. And he is still outdrawing everyone. He can win. And he would bring a movement as powerful as Roosevelt's with him. That gives his program -- which is similar on the surface with some other presidential candidates -- the sense of credibility and potential real power that the same words absent the "movement" cannot sustain.

3.. The centrist position is collapsing. I think Bloomberg's withdrawal was my first strong sense of this. This is a new feature. Brad DeLong (himself a centrist) said it best -- the liberal stance "is collapsing because it needs at least some rational partners in the 'conservative' party to achieve legislative wins. And there are no partners". The Marxist in me argues the political divides are also likely a feature of the class divides that have become bottomless chasms in US society. Middle ground is now becoming the ground of feet planted firmly in mid air.

Trump is becoming, against his own intentions,  Sanders biggest ally. Most of his tweets now are focused on painting all Democrats as just fronts for "socialists" like Sanders and Alexandria Ortiz-Cortez. Yet Every day he also proves, however, that "compromises", or "deals" with barely disguised gangsterism is both impossible and foolish. The rich always think in their "gut" that red-baiting marginalizes the target. That has been the case in past history. But it only works politically if there is a center alternative. In this case IF Trump and his captive Rs tell the public that the only alternative to him/them is Sanders, or an equivalent, and IF Sanders "movement" keeps doing what its doing --- Bernie can Win. The people are not stupid.

John Case
Harpers Ferry, WV
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Friday, March 15, 2019

Conflicts of interest [feedly]

Conflicts of interest

The possibility or likelihood of conflict of interest is present in virtually all professions and occupations. We expect a researcher, a physician, or a legislator to perform her work according to the highest values and norms of their work (searching for objective knowledge, providing the best care possible for the patient, drafting and supporting legislation in order to enhance the public good). But there is always the possibility that the individual may have private financial interests that distort or bias the work she does, and there may be large companies that have a financial interest in one set of actions rather than another.

Marc Rodwin's Conflicts of Interest and the Future of Medicine: The United States, France, and Japan is a rigorous and fair treatment of this issue with respect to conflicts of interest in the field of medicine. Rodwin has published extensively on this topic, and the current book is an important exploration of how professional ethics, individual interest, and business and professional institutions intersect to influence practitioner behavior in this field. The institutional actors in this story include the pharmaceutical companies and medical device manufacturers, insurers, hospitals and physician partnerships, and legislators and regulators. Rodwin shows in detail how differences in insurance policies, physician reimbursement policies, and gifts and benefits from health-related businesses to physicians contribute to an institutional environment where the physician's choices are all too easily influenced by considerations other than the best health outcomes of the patient. Rodwin finds that the institutional setting for health economics is different in the US, France, and Japan, and that these differences lead to differences in physician behavior.

Here is Rodwin's clear statement of the material situation that creates the possibility or likelihood of conflicts of interest in medicine.
Physicians earn their living through their medical work and so may practice in ways that enhance their income rather than the interests of patients. Moreover, when physicians prescribe drugs, devices, and treatments and choose who supplies these or refer patients to other providers, they affect the fortunes of third parties. As a result, providers, suppliers, and insurers try to influence physicians' clinical decisions for their own benefit. Thus, at the core of doctoring lies tension between self-interest and faithful service to patients and the public. The prevailing powerful medical ethos does influence physicians. Still, there is conflict between professional ethics and financial incentives. (kl 251)
Jerome Kassirer is a former editor-in-chief of the New England Journal of Medicine, and an expert observer of the field, and he provided a foreword to the book. Kassirer describes the current situation in the medical economy in these terms, drawing on his own synthesis of recent research and journalism:
Professionalism had been steadily eroded by complex financial ties between practicing physicians and academic physicians on the one hand and the pharmaceutical, medical device, and biotechnology industries on the other. These financial ties were deep and wide: they threatened to bias the clinical research on which physicians relied to care for the sick, and they permeated nearly every aspect of medical care. Physicians were accepting gifts, taking free trips, serving on companies' speakers' bureaus, signing their names to articles written for them by industry-paid ghostwriters, and engaging in research that endangered patient care. (kl 73)
The fundamental problem posed by Rodwin's book is this set of questions:
In what context can physicians be trusted to act in their patients' interests? How can medical practice be organized to minimize physicians' conflicts of interest? How can society promote what is best in medical professionalism? What roles should physicians and organized medicine play in the medical economy? What roles should insurers, the state, and markets play in medical care? (kl 267)
The book sheds light on dozens of institutional arrangements that create the likelihood of conflicted choices, or that reduce that likelihood. One of those arrangements is the question for a non-profit hospital of whether the physicians are employed with a fixed salary or work on a fee-for-service basis. The latter system gives the physician a very different set of financial interests, including the possibility of making clinical choices that increase revenues to the physician or his or her group practice.
Consider physicians employed as public servants in public hospitals. Typically, they receive a fixed salary set by rank, enjoy tenure, and have clinical discretion. As a result, they lack financial incentives that bias their choices and have clinical freedom. Such arrangements preclude employment conflicts of interest. But relax some of these conditions and employers can compromise medical practice.... Furthermore, emplloyers can manage physicians to promote the organization's goals. As a result, employed physicians might practice in ways that promote their employer's over their patients' interests. (kl 445)
And the disadvantages for the patient of the self-employed physician are also important:
Payment can encourage physicians to supply more, less, or different kinds of services, or to refer to particular providers. Each form of payment has some bias, but some compromise clinical decisions more than others do. (kl 445) 
Plainly, the circumstances and economic institutions described here are relevant to many other occupations as well. Scientists, policymakers, regulators, professors, and accountants all face similar circumstances -- though the financial stakes in medicine are particularly high. (Here is an earlier post on corporate efforts to influence scientific research; link.)

This field of research makes an important contribution to a particular challenging topic in contemporary healthcare. But Rodwin's study also provides an important contribution to the new institutionalism, since it serves as a micro-level case study of the differences in behavior created by differences in institutional rules and practices.
Each country's laws, insurance, and medical institutions shape medical practice; and within each country, different forms of practice affect clinical choices. (kl 218)
This feature of the book allows it to contribute to the kinds of arguments on the causal and historical importance of specific configurations of institutions offered by Kathleen Thelen (link) and Frank Dobbin (link).

 -- via my feedly newsfeed

Bargaining for the Common Good Comes of Age [feedly]


Bargaining for the Common Good Comes of Age

The week-long strike by the United Teachers of Los Angeles (UTLA) in January 2019 marked the most significant struggle yet in a movement by teachers and other public-sector workers called Bargaining for the Common Good.  By striking over a long list of community-generated demands and with the support of a dense network of allies, LA teachers moved bargaining away from the union-versus-taxpayer framework into which public employers routinely push such conflicts.  Instead UTLA made itself the spearhead of an effort to reshape LA's priorities around a common good agenda.  Drawing on several years of experimentation by public-sector unions around the country, and coming hard on the heels of the #RedforEd teachers uprisings of 2018, the LA strike illuminated a significant shift in union strategies, one that holds profound implications for the future of organized labor and the relationship of unions to working-class communities.

Judged by the "pure-and-simple" union standards of a generation ago, the UTLA strike might have been deemed a failure because it did not add a penny to the six-percent raise the LA school board had offered teachers prior to the walkout.  But the strike was anything but a failure. The union fought over issues that went far beyond salaries, issues at the heart of public education and its centrality to the aspirations of working-class Angelenos.

The teachers won commitments from the school district to reduce class sizes by four students by 2021, increase investment in the schools, hire school nurses and full-time librarians, reduce standardized testing and random searches of students, and launch a dedicated hot-line for immigrant families who need legal assistance.  Many of these demands were crafted with allies like the Association of Californians for Community Empowerment (ACCE), and they explicitly challenged the austerity agenda of LA school superintendent Austin Beutner, a wealthy philanthropist and former investment banker who was installed by the LA school board in 2018 despite having no prior experience in education.

The UTLA strike was the most recent iteration in a string of post-Great-Recession public-sector union battles that have consciously attempted to rethink the participantsprocesses, and purposes of collective bargaining. If mid-twentieth-century collective bargaining was binary, involving only employers and unions, more recent efforts have sought to give community stakeholders a voice at the bargaining table. If traditional bargaining was done behind closed doors and focused on issues like salary, these fights have been waged in public around broader demands. And if traditional bargaining concluded with signed contracts and the demobilization of the union's membership, these efforts have made bargaining one step in an ongoing strategy of worker and community empowerment.

This approach can be traced back to the depths of the Great Recession, when President Barack Obama's agenda became mired in the politics of austerity and Tea Party activism was installing antiunion Republican governors like Wisconsin's Scott Walker and tightening the grip of austerity on all levels of government. In that toxic environment, some public-sector unions began to realize they could no longer do business as usual.

That realization helped elect Karen Lewis and her Caucus of Rank-and-File Educators slate to leadership of the Chicago Teachers Union (CTU) in 2010.  Lewis and her colleagues immediately challenged the austerity agenda that had been forced upon Chicago schools by aligning the union's fight with the interests of community allies. Calling for smaller class sizes, improved facilities, and a host of other demands that went beyond wages and other narrowly defined work issues, the CTU staged a precedent-setting strike in 2012, vilifying Rahm Emanuel as "Mayor One Percent."

The CTU's success was soon replicated by the St. Paul Federation of Teachers (SPFT) in 2013. It patiently built an alliance with parents and community groups, with whom it drew up twenty-nine bargaining demands, including one insisting that the school district cease doing business with banks that foreclose on their students' families. After rallying broad community support, the St. Paul teachers won most of what they sought. "I had negotiated almost a dozen previous contracts for the SPFT," explained Mary Cathryn Ricker, the union's leader. "But, for the first time, I felt that signing a contract was just one step in building a larger movement."

A new strategy of alliance-based bargaining emerged from these campaigns. By May 2014, when many of its practitioners convened to compare notes at Georgetown University, the strategy had a name: Bargaining for the Common Good.  Soon it spread beyond teachers' unions. In 2014, a coalition of unions and community allies launched Fix LA, an effort to break the grip of austerity politics on the city's municipal services. That coalition exposed the fact that Los Angeles spent more taxpayer money paying fees to the Wall Street firms that marketed municipal bonds than it spent maintaining the city's streets. Fix LA  demanded that the city use its $106 billion worth of assets, payments, and debt issuance as leverage to "demand better deals with Wall Street," which would allow taxpayer money to be invested in the community and not transferred to wealthy bankers.

While these campaigns were carefully planned, their groundwork laid months if not years in advance, the teacher uprising of 2018 showed that common good bargaining was also adaptable on the fly—even in states where collective bargaining isn't allowed. In a shutdown that closed all 55 of West Virginia's school districts in January 2018, teachers first denounced tax policies that allowed the state's richest citizens to evade paying their fair share and then refused to return to work until other state employees won the same wage increase they were offered.  Soon thereafter, Oklahoma teachers protested the state's failure to fairly tax wealthy oil and gas interests, and Arizona teachers demanded that the state enact no further tax cuts until its per-pupil spending on education reached the national average.

In some ways Bargaining for the Common Good harkens back to the origins of teacher unionism and figures like Margaret Haley, leader of the Chicago Teachers Federation at the dawn of the twentieth century.  She crusaded against corporate tax dodgers who collected public subsidies at the same time Chicago was, as Haley put it, "closing the schools, cutting the teachers' salaries, increasing the number of children in each room, and otherwise crippling the service for want of money!"

Yet if it borrows from labor's past, Bargaining for the Common Good also represents a creative adaptation to the needs of workers and communities under twenty-first century capitalism.  Financialization, privatization, increasing inequality, and, most recently, judicial attacks on unions' ability to collect fees from the workers they represent, which culminated in the Supreme Court's 2018 Janus v. AFSCME decision, have undermined traditional bargaining.  Bargaining for the Common Good responds to these changes by recasting unions as defenders not only of their members but the community's very well being. "In bargaining for the common good, we see great possibilities for a style of campaign that puts forward a vision for the city as well as for the schools," UTLA president Alex Caputo-Pearl explains.

By reframing collective bargaining as a community endeavor advancing broad demands that transcend the narrow wage-hour-and-working-condition economism the predominated in the twentieth century, the Bargaining for the Common Good movement is helping us imagine a revived twenty-first century labor movement.  As teacher unionism continues to boil in recent days—from Oakland, California, to Jefferson County, Kentucky—a common good agenda that unites public workers with the communities they serve is taking clearer shape, and inhibitions against striking that long held workers in check are dissipating.  More workers struck in 2018 than in any year since 1983.

Many worried that the Janus decision would be the final blow to the labor movement, but a new community-centered organizing model suggests otherwise. Not only are unions weathering Janus, they are beginning to find their voice—a voice that has too long remained silent.  Not a moment too soon.

Joseph A. McCartin

Joseph A. McCartin is Executive Director of the Kalmanovitz Initiative for Labor & the Working Poor at Georgetown University.

 -- via my feedly newsfeed

The influence of centrist Democrats is fading fast. What does that mean for liberal technocrats? [feedly]

The influence of centrist Democrats is fading fast. What does that mean for liberal technocrats?

It seems Brother Bernstein is not leaning toward his old boss....

To state the obvious, the policy agenda of the Democratic Party has moved to the left. Ideas that used to be on the fringe — Medicare-for-all, guaranteed jobs and the Green New Deal, all financed by very progressive taxation — are now much more widely accepted by Democrats.

Two possible theories explain this evolution: the old one from the center-left and the new one from the "leftier" left. The center left was/is essentially friendly, and largely deferential, to markets. Left to their own devices, financial markets will efficiently allocate excess savings to their most productive uses — so over-regulation is dangerous. Same with globalization. Taxes should be progressive, but not too much so or you'll dampen private investment. Public borrowing crowds out private borrowing, so deficit reduction is an oft-stated goal.

That sounds pretty Republican (or it did before Republicans went nuts). But there are two salient differences. One is that under center-left Democrats, you let the market rip, but you shave some gains off the top and redistribute them to those left behind, say through a robust Earned Income Tax Credit, the highly successful pro-work, anti-poverty wage subsidy that was expanded under President Bill Clinton. The second is that, in rare cases, it is kosher to tweak incentives to achieve a policy goal. A carbon tax to push back on climate change is a good example. Better yet, a cap-and-trade approach, in which the government sets up a market — there's that word again — wherein firms can trade pollution credits. 

The guiding principle is that the center-left policymaker has the technocratic skills to administer exactly the right tweaks and redistributions to ensure that markets continue to deliver optimal results.

Though this position still describes some Democrats, it is no longer the dominant view, as economist Brad DeLong recently showed in a Vox interview. DeLong, who calls himself a "Rubin Democrat" (a reference to Clinton's centrist treasury secretary, Bob Rubin), argues that the moment is such that "The baton rightly passes to our colleagues on our left. We are still here, but it is not our time to lead." "DeLong believes," according to the piece, that "the time of people like him running the Democratic Party has passed."

What changed to usher in this twilight of the technocrats? The limits of "unfettered" markets and under-regulated finance, and the risks of letting them rip, have become undeniably clear. Even before the finance-infused housing bubble delivered the Great Recession, market-driven inequalities soared to levels we hadn't seen since the 1920s. 

Then there's the fact that markets weren't really "unfettered" (ergo, the scare quotes). Though their center-left proponents argued otherwise, trade deals were not for "free" trade. They were stacked to protect investors over workers and consumers (as Sen. Elizabeth Warren (D-Mass.) argued regarding the Trans-Pacific Partnership). Center-left policymakers didn't just leave financial markets alone; they actively deregulated them (see the repeal of Glass-Steagall banking regulations supported by Clinton in 1999). And when the labor unions came knocking for political support, the center-left too often wouldn't open the door (see the lack of support among moderate Democrats for the Employee Free Choice Act).

Next, center-left policies appeared insufficient to meet the challenges Democrats increasingly cared about, such as growing inequality, inaccessible health care, the cost of college, climate change, retirement insecurity and institutionalized racism. DeLong argues, with merit, that many of the center-left policies never got a chance because they depended on "a responsible center-right partner to succeed," and such support was never even close to forthcoming.

But as with the trade deals, the problem wasn't just political. Where center-left Democrats touted the need for "tough choices" on Social Security and Medicare (by which they meant, in part, cuts to benefits), the left wing of the party wanted to expand the programs, as is seen in today's prioritization of Social Security expansion and Medicare-for-all. 

For all these reasons, this twilight of technocrats makes sense to me. But it raises the question: What's up in the morning? If the old left's theory has been proved wrong, what is its replacement?

The Democratic left's new theory of the case is still forming, but it looks something like this: Both parties have stood by while markets were rigged, and therefore, they — both markets and the old parties — cannot be counted on to solve the challenges listed above. We must de-rig them through antitrust action, robust labor standards, union power (as a counterbalance to capital's power) and trade deals that are handshakes between workers across borders, not investors. At the same time, we can very progressively tax accumulated wealth and use the proceeds to both provide opportunities for those who have been left behind and fight existential market failures — most importantly, climate change.

What does the cast-aside technocrat have to say about that? The knee-jerk response is that such intervention into the market pushes too far and will kill the goose that lays the golden eggs. But this response is unconvincing. Social democracies have long existed (e.g., Scandinavian countries) that go much further to protect their citizens and their environment, spending 10 percentage points more of their GDP through the public sector ($2.1 trillion a year, in our economy) than we do without paying a productivity price for it. Obviously, universal health coverage is achievable, as it exists in every other advanced economy, at a cost of 6 to 8 percent of GDP less than we spend.

The fact is, while opponents scream about the massive negative market responses to the progressive agenda — People will stop working! Investors will stop investing! Doctors won't take patients! — we don't know either what the actual agenda will look like, if it will ever get legislated, or, if it does, what its impact will be on the zillions of moving parts in our economy.

All we know is that in some fundamentally important ways, what we've been doing hasn't worked. DeLong's right. It's time to pass the baton.

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