A tale of two narratives
Deeply conservative assumptions and obstacles to reform are embedded in neoliberal economic models and budget scores. These models, which are used to devastating effect at places like the CBO, make passage of progressive legislation hard if not impossible. As David Dayen has explained in The American Prospect, “Republicans like to talk about “cost-benefit analysis,” but Congress has created a structure to simply run the costs without the benefits. That mentality must change if we’re to have a decent conversation about the role of government.” Knowing the assumptions used by official scorekeepers and identifying where they are unrealistic is critical for promoting good policy.
Two economic narratives can be used when modeling the economic effects of policy. Let's take student debt cancellation as an example.
CBO's narrative is based on the assumptions of scarcity and rational expectations. This narrative says that cancelling student debt means that the economy might shrink because companies will invest less and people will consume less today because they feel poorer because they expect their taxes to go up in 20 years when the government shrinks the deficit. This is the same economic thinking that imposed crippling austerity on Europe: if governments cut spending and lay off workers, the economy will grow because people will rush to buy furniture today because they feel richer because they expect their taxes to go down in 20 years. The assumptions are ludicrous and the results are devastating.
A second narrative is based on the facts of abundance and uncertainty. Cancelling someone’s student loan enables that person to consume more, which boosts investment and employment, raising other people’s incomes in a virtuous cycle. Debt cancellation could even give more people the opportunity to start a business, which might further increase the productive capacity of the economy. This has all been modeled, it just needs to be modeled in the right way by the official scorekeepers.
We face the same hurdles with free public college, universal healthcare, green investment, wealth taxes, more generous Social Security benefits, and so on. When the state fulfills its role of mitigating unknowable risks in an uncertain world, it allows all Americans to prosper and creates additional economic growth as a positive side effect. But there is a real risk that legacy economists continue to prevent necessary change based on a neoliberal ideology dressed up with a façade of hard science and talk of trade-offs and crowding out. These theories were much more legitimate for the 18th century world on which economics is based.
For centuries America has successfully spoken the rhetoric of Jefferson and implemented the policies of Hamilton. We enacted tariffs and industrial policy to help develop northeastern manufacturing, issued land grants to railroads to support the development of the west, and invested in the research that created virtually every significant Silicon Valley technology and many of the pharmaceutical products that we use today. We accomplished all of this while somehow preaching the Randian gospel of self-sufficiency. Implementing progressive policy will be very difficult if the messaging doesn’t change to better reflect the symbiotic relationship between the public and private sectors.
Of course, some of the difficulty in implementing reform is cultural – there’s the quip that socialism never took root in America because the poor don’t see themselves as an exploited working class but rather as temporarily embarrassed millionaires. Rural communities don’t see Democrats as the party of the working class. Democrats need to reach out to these communities more effectively. We won't succeed if we continue to ignore the historical and economic forces that create tremendously wealthy cities at the expense of rural economies.
When workers are not paid for their productive output, money is transferred to the wealthiest citizens who cannot possibly use their expanded consuming power. Consumption stagnates, and investment stagnates because it is consumption that produces yields on capital. In countries like the US where consumption has not gone down, it is only because debt has gone up. Avoiding the problem does not solve it. This process of increasing inequality results in a cycle of economic stagnation and democratic dysfunction. The cycle is not new, and there is no easy fix.
Politics and messaging
For centuries America has successfully spoken the rhetoric of Jefferson and implemented the policies of Hamilton. We enacted tariffs and industrial policy to help develop northeastern manufacturing, issued land grants to railroads to support the development of the west, and invested in the research that created virtually every significant Silicon Valley technology and many of the pharmaceutical products that we use today. We accomplished all of this while somehow preaching the Randian gospel of self-sufficiency. Implementing progressive policy will be very difficult if the messaging doesn’t change to better reflect the symbiotic relationship between the public and private sectors.
Of course, some of the difficulty in implementing reform is cultural – there’s the quip that socialism never took root in America because the poor don’t see themselves as an exploited working class but rather as temporarily embarrassed millionaires. Rural communities don’t see Democrats as the party of the working class. Democrats need to reach out to these communities more effectively. We won't succeed if we continue to ignore the historical and economic forces that create tremendously wealthy cities at the expense of rural economies.
Nothing new under the sun
When workers are not paid for their productive output, money is transferred to the wealthiest citizens who cannot possibly use their expanded consuming power. Consumption stagnates, and investment stagnates because it is consumption that produces yields on capital. In countries like the US where consumption has not gone down, it is only because debt has gone up. Avoiding the problem does not solve it. This process of increasing inequality results in a cycle of economic stagnation and democratic dysfunction. The cycle is not new, and there is no easy fix.
In the (very) old days, debt would build up to socially unsustainable levels, leading to revolutions in which all the clay tablets recording debts were burned, among worse things. This destructive process of debt accumulation and rising inequality might be why the Old Testament mentions a debt jubilee as necessary policy. The Mesopotamian kings eventually realized that peaceful redistribution was a better policy for virtually everyone involved. We’re seeing a version of these dynamics today, going back to 2008 and before. In places with high inequality, almost everyone can become better off -- and the economy can grow faster and be more resilient -- through thoughtful transfers to the working class and poor, whether those transfers come in the form of debt forgiveness, a decent minimum wage, cash, childcare, education, or other reforms.
The last four years have reinforced the notion that a great society’s decline is not something that can just happen in the distant past. To succeed and prosper as a nation, we need less Milton Friedman and more William Jennings Bryan, Henry Wallace, and Ken Galbraith in our economic policy.
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