Altercation: How the Democrats’ Economics Changed

Today’s Altercation is guest authored by Michael Tomasky, former editor of this publication, who now edits both The New Republic and Democracy and has just published a new book, described below.

I want to thank Eric and the Prospect for giving me some space today to tell you about my new book. It’s called The Middle Out: The Rise of Progressive Economics and a Return to Shared Prosperity and was published earlier this month by Doubleday.

What’s it about, and why is it unique? I wrote the book to tell the story of the effort over the past decade or so by hundreds of people to change, as Joe Biden sometimes likes to say, “the economic paradigm.” That is, before the pandemic, you’ll recall that Biden was running as a kind of restoration candidate—if we just go back to how things were before Trump, we’ll be OK. Then, after the pandemic, he started talking bigger: This is a crisis, we have to act on an FDR-type scale. Then, after the murder of George Floyd, he added a more explicitly racial element: We have to address systemic racism in our criminal justice and economic systems.

That was all good to hear, and of course he’s had some successes and some setbacks along these lines. But my point is this: When a sitting president talks like that, it doesn’t come out of nowhere. He does so because those aforementioned hundreds of people—economists, political activists, and people in the important foundation and think tank worlds—have been talking like that for years, and devoting considerable resources to the effort. A few outlets, notably The American Prospect and Democracy journal, which I edit, have covered these efforts closely, but the larger mainstream press has not. Despite that, these arguments have finally found their way to the Oval Office.

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Take the very phrase “the middle out.” You’ve heard Biden use it many times: “Economic growth doesn’t happen from the top down; it happens from the middle out and the bottom up.” This is a direct refutation of supply-side, trickle-down economics: Growth doesn’t come from giving the rich more tax cuts; it comes from investing in a strong and growing middle class, which will be financially secure enough to spend money, goosing demand and producing higher employment and more. The policy implications are clear. Instead of tax cuts for the wealthy, the government needs to invest in the middle class via the kinds of things that were in Build Back Better—subsidized child care, paid family leave, expanded health care—so that people can live better and more secure lives (which in turn promotes growth a lot better than tax cuts for the rich do).

Well, Biden didn’t coin that phrase. I didn’t coin it. It was coined by Nick Hanauer and Eric Liu back in 2011. The fact that the phrase is more than a decade old reinforces my point above—a lot of people have been thinking about these problems for a long time.

How can liberalism win the economic argument against the right? People need to wrap their heads around four propositions:

1. Even when the economy today is “good,” it’s not really good. That is, even when unemployment is low and the market is doing well and so on, the fact is—a fact mostly unremarked in the daily media—we are still in the midst of an economy whose main feature is that millions of dollars every year are being transferred from the poor and the middle class to the top. So even when the working class (the 50th percentile, say) is doing better, the super-rich (the 1 percent and even the .1 percent) are doing way better.

2. Economics has finally recognized the existence of politics. For decades, or centuries even, economics gave no thought to politics. Wages, for example, were determined by a set of market forces, and politics had nothing to do with it. That’s how academics thought, but it’s not how the world works. In the world, workers make what they have the political power to make. That seems obvious to you and me, but economists were (and many still are) deeply resistant to acknowledging this. The book tells the story of how this change came about, through the work of people like Joseph Stiglitz and groups like the Economic Policy Institute. It’s a really important change because it rejects the assumption of classical economics that left alone, the market will find equilibrium. No—the state has to play an evening-out role.

3. Economics has changed profoundly in this century. In sum, much of economics has moved from being based on theoretical modeling to being based on empirical data. And as this change has happened, economics has moved left, not because economists are leftists, but because the empirical data showed, for example, that r > g, in Thomas Piketty’s famous formulation. That is, the data show that the system is rigged for the rich in a way theoretical modeling did not. There are still, of course, plenty of conservative economists, but a younger and more diverse generation of economists is changing the profession, and those changes are seeping their way into politics.

4. Finally, here’s how the Democrats should explain all this to people. Republicans and the right are not, of course, just going to lie down and stop arguing economics. We’re in for a long battle. I think the best way for Democrats to win it is this: They need to attach their economy ideas to the ideals that Americans are taught to cherish from an early age—democracy and freedom. They should say something like: Yes, our economic policies will put more money in your pocket. But they’ll do more. They are good for democracy, because as the founders knew, a healthy democracy depends on a strong middle class. Too much economic and political power in the hands of the rich leads to oligarchy, and that’s where we’re headed if the trend of the last few decades isn’t arrested.

In addition, our economic plans will advance freedom. The right has sold people one definition of freedom: The free market means freedom. Well, there are a lot of small towns across this country where people are “free” to work at the dollar store or sell a little Oxy. That’s not freedom. There’s another definition of freedom: making people free to live up to their fullest potential. That’s a kind of freedom that dates to Franklin Roosevelt’s “four freedoms” and the definition of rights advanced in his 1944 State of the Union; it even goes back to some founders, as Joseph Fishkin and William E. Forbath show in an important recent book. When that single mom who works at the dollar store can go to free community college and has a safe and affordable place to park her toddler while she takes those night classes, she is doing exactly that: fulfilling her potential, and in addition, contributing more to the economy. That’s freedom, too. I think the Democrats need to say that—especially after the Dobbs decision. When the right has taken away a half-century-old freedom from women, the door is open to repossess that word and radically redefine it.

Long-standing neoliberal economic assumptions are finally being successfully challenged. If we can save our democracy in these next couple of years, we can win this fight. And I think we’re more likely to win it when we make people understand that economics, democracy, and freedom are not separate things. It’s all one argument.

This seems appropriate today: Did you know, as Peter N. Hess demonstrates in a recent article in the Journal of Post Keynesian Economics, that not only does the US economy perform better under Democratic presidents than Republican ones, but that Democrats also show far greater fiscal responsibility when it comes to public spending? Here again, Democrats have been shockingly terrible, and the mainstream media, horrifically irresponsible, for allowing the Republicans to successfully argue the opposite all these years—just as they are today, despite having no economic program whatsoever.

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