I can't recommend Jon Chait's new article on the failure of pro-growth economics highly enough. It's not merely the best, but possibly the only, primer on why the current economic moment seems so unsettled, the once-discredited labor-liberals so ascendant, and the Clinton crowd so quiet.
What Chait does is tell the economic history of the past 30 years. It's something a fair number of wonks could rattle off to you, but wouldn't actually be allowed to write for anyone -- too boring, with too little new information. The magazine industry is biased against context. Chait's genius was to peg it to the retreat of Clintonomics, thus giving it the sexy, and guaranteeing it a place in the feature well of The New Republic.
In short, here's the story: As you all know, in the late 70's, wages begin to stagnate. The ostensible reason for this is slow growth and plummeting productivity. During the post-war period, productivity averaged 2.5% a year. From 1973 to 1995, it was 1.5%. Since wages have always tracked productivity, smart lefties began focusing on how to reinvigorate productivity. They did that through Clintonomics: Fiscal responsibility combined with mild downward redistribution. The deficit reduction freed up money for the private sector to invest (when the government runs a high deficit, it pushes up the price of loans by sucking up so much money itself -- economists call this "crowding out"), and worked like a charm. Helped along by the tech boom, productivity shoots up, as does growth, and both metrics have remained healthy and robust ever since (well, till this quarter).
The hitch: Wages didn't track. Productivity and growth went up, but they weren't distributed across the economy. Wages increased somewhat throughout the mid-to-late 90s, but as the supercharged growth gave way to the robust numbers of the past few years, the rich began sucking up the gains (if you've been reading this blog, you already know that. For a refresher, go here). The left has tried to explain this away as a consequence of Bush's fiscal policy. Sadly, the trends show up in pretax income also. The right has tried to explain this accelerating inequality as an unstoppable structural feature of the new economy: It's the meritocracy, or computers, or benefits, or global trade. Unfortunately, those explanations are largely bullshit. Europe also has computers, and trade, and mobility, and benefits, and has easily avoided the widening chasm we've seen. So what makes us different?
In a word, power. Or the distribution of it. Europe has strong unions and active governments; countervailing powers that wrest a portion of the pie for their constituencies. We don't. This is a point I made in my riposte to Jacob Hacker this week, but it can't be said often enough. There is a tectonic shift in liberal thinking underway. We used to think the country's economic problems were about economics. At times, that's been true, It isn't now. Now, they're about power. And that's a conversation the Clintonites are very grudgingly, very awkwardly, coming to accept.
