This quote is right up there with the great Will Rogers line: “I don’t belong to an organized political party. I’m a Democrat.”
Matthew Yglesias opens his recent post with it. I don’t know if he coined it, but if so, A Huge Kudos. It’s utterly and painfully true. A deservedly iconic statement.
Here’s what he’s talking about (emphasis mine):
Clinton administration official Alan Blinder and co-author Mark Watson [look] at the well-established fact that GDP growth under Democratic Party presidents is more rapid than under GOP Presidents, and concludes that it’s all just a coincidence.
Except they don’t mount a very strong argument for that conclusion.
Even Koch-funded Tyler Cowen’s headline (“Why is there superior economic performance under Democratic Presidents?”) stipulates without caveat to this Blinder-Watson statement:
The superiority of economic performance under Democrats rather than Republicans is nearly ubiquitous; it holds almost regardless of how you define success.
This is a bare, uncontestable fact. (Though conservatives do try…)
The most immediate and obvious (but not inevitable) conclusion from this fact is that Democratic policies are economically superior; they result in faster growth and more prosperity. At the very least, it’s unequivocal that in advanced, prosperous countries over many decades, more taxes/government spending do not result in slower growth.
This the strongest, most powerful argument liberals/progressives/Democrats can make. It’s the kind of (admittedly shallow but) compelling story that conservatives/Republicans have deployed brilliantly, unremittingly, and with extraordinary success for decades — despite a desperate paucity of good evidence supporting their story.
But for whatever reasons, Democrats won’t take up this winning rhetorical gauntlet: “we are the party of growth, prosperity, and true economic freedom.” They keep whining about equity/equality — which is great in my book, but really: Americans just change the channel.
Leading liberal economists are horrendous in this regard. There is a solid, cogent theoretical and empirical argument that in prosperous countries, wider distribution of income and (especially) wealth — more equity/equality, arrived at through whatever institutional means — delivers faster growth, and more prosperity for all. Bigger pie. All boats rise. All that rot.
Liberal economists could be arguing this strong case: equ(al)ity causes economic efficiency, growth, and prosperity. Or put another way: widespread distribution of wealth and income both causes and is widespread prosperity. Or, the weak (and more accurate) form: excessive inequality — extreme concentration of wealth and income — quashes growth.
There are unlimited, rich, theoretical and rhetorical grounds to explore here, largely untouched in mainstream economic discussions. Here just two out of dozens:
1. A higher minimum wage incentivizes producers to invest in productive technology, driving prosperity even in the old Solow growth model.
2. Widespread prosperity gives producers more choice in which products to develop. (Libertarian choice-fetishists, take note.) Would Apple have had incentive or opportunity to develop the iPhone absent a market of hundreds of millions in the prosperous middle class? Units sold matters, not just dollar volume. (Think: Amortization of fixed costs.) Absent that widespread demand, would Apple be producing diamond-studded dumb phones instead?
But leading liberal economists don’t just ignore the strong argument for the economic efficiency of equity, they actively pooh-pooh it. They don’t just accede to but support the hoary old idea that inequality = faster growth/more prosperity, before the argument has even begun.
They leave the strongest rhetorical (and theoretical) argument for progressive policies lying on the floor, mouldering.
And as Matthew points out about Blinder/Watson, their counterarguments are remarkably weak and armchair-conjectural, mostly relying on some particular and arguably inapplicable empirical measure rather than a deeply grounded theoretical model or broadly researched empirical evidence.
Yesterday I took on the strongest argument I’ve found* against what Paul Krugman calls the “underconsumption” story (not a good moniker, IMO), an argument from…Paul Krugman. I found it to be seriously unconvincing. You can draw your own conclusions.
Aside from Krugman’s argument, here’s what we hear from leading liberal economists. You can draw your own conclusions about these as well:
December, 2008: There’s no obvious reason why consumer demand can’t be sustained by the spending of the upper class — $200 dinners and luxury hotels create jobs, the same way that fast food dinners and Motel 6s do.
November, 2011: …any such story, basically an underconsumptionist story, would seem to depend on the notion that rising inequality has led to rising savings. And you just don’t see that.
January 2013: …we do not know how rising inequality interacts. There are more poor people who are liquidity constrained but they have less spending power, so we are not sure how it goes.
Replying to me, two days ago: I would expect greater inequality coupled with a higher propensity to save on the part of the rich to drive all asset yields down. Yet what we have seen has been a steep, prolonged fall in Treasury bond yields while stock-market equity yields have plateaued at about 5%/year. (I replied to this here.)
Jared Bernstein [and Paul Krugman, channeled by Kevin Drum]:
January, 2013: “I wish I could sign on to this thesis,” says Paul Krugman, “and I’d be politically very comfortable if I could. But I can’t see how this works.” Me neither. I spent a couple of months trying to write a magazine piece based on this thesis, and I finally gave up. By the time I was done, I just didn’t believe it. So I gave up and spiked the idea. [I've pinged Kevin repeatedly asking for a post explaining why he gave it up -- I'm really dying to know -- but all I've seen is this:]
November, 2013: “I’ve been surprised at just how much the rich can spend,” said Jared Bernstein, former chief economist to Joe Biden, when I called to ask him about this last year.
“I’ve been surprised at just how much the rich can spend”? “$200 dinners and luxury hotels create jobs”? This is the counterargument?
Why is there such strong resistance to this compelling story among liberal economists? One would expect them to embrace it wholeheartedly (though not blindly or unequivocally).
My very brief, condensed, and quite possibly quite wrong explanation: even these brilliant liberal economic thinkers are crippled by fundamentally incoherent, traditional mental models of “capital” and “saving,” tenuous tenets of classical economics that IMHO should have been thoroughly eradicated by the outcome of the Cambridge Capital Controversy — but which have continued their mental sway, zombie-like, for decades. (That, plus oddly excessive allegiance to Friedman’s rather iffy lifetime-income hypothesis.)
They don’t fully grok that saving money is not saving corn (QTC, actually; saving money means that corn is not produced, so cannot be saved), and that financial assets are not “capital” (roughly, they’re claims on capital).
But they do understand on some level: what Krugman calls the “underconsumption” story is a direct challenge to that mental model, to the troubled tenets that they have been (unconsciously?) promulgating for their whole careers. Few humans of a certain age relish the prospect of rethinking their mental models from the ground up.
But really, they don’t need to do that. They can simply drop their weak, rather knee-jerk objections to the idea, embrace its powerful arithmetic appeal as a potentially useful rendering of how economies work, and explore it using the rigorous theoretical and empirical methods in which they are so competent and well-versed. Here’s one place to start (HT: Stone and Steve Randy Waldman).
It’s time for liberals to start taking their own side in this argument.
* I forgot to mention one other argument in that post: the strong (market) monetarist position that different distribution wouldn’t matter (nor would anything else, for that matter) because the Fed would just step on faster growth. Nick Rowe makes essentially this argument in his response to one of my previous posts on this subject.
Cross-posted at Angry Bear.