Sputnik via AP
President Biden speaks during an event in the Rose Garden at the White House, April 8, 2021.
Some of my lefty friends wonder why I am so euphoric about the Biden administration. After all, he governs by the slimmest of legislative majorities. It’s one thing to propose great policies; another to get them enacted.
Biden still faces the challenge of restoring democracy, both by neutralizing the minority rule of the filibuster and by thwarting Republican schemes to further thwart the even more fundamental right to vote. We also have the obstacle of the Roberts Court.
I know all this. But I’m euphoric for a more fundamental reason. After four decades of the Democratic Party wandering in the ideological wilderness, a Democratic president has remembered why progressivism is good economics as well as good politics.
Exactly 25 years ago, in 1996, I published a book titled Everything for Sale: The Virtues and Limits of Markets. I had been looking for a comprehensive book explaining, sector by sector, where markets performed with reasonable efficiency and where markets failed, sometimes disastrously. I could not find such a book, so I spent five years writing it myself.
That book is the reason why I’m taken seriously, in some quarters anyway, as a quasi-economist even though I don’t have a Ph.D. in economics. It has been the foundation of my policy work ever since.
In case you haven’t read the book, and don’t wish to purchase it, here’s the basic point. Although standard economics tells us that markets are mostly efficient, that’s mostly baloney. “Efficient,” incidentally, means that you get the most available output by not tampering with the system of private supply and demand, and the market prices that result.
The theory is not just baloney; it’s convenient baloney. Leave private markets alone, and exorbitant wealth accrues to the already wealthy. So does political power to set the market rules—to tilt them even more heavily to the wealthy.
The idea that a “free market” exists in some pristine state of nature is also convenient baloney. All markets depend on rules—rules defining property rights, liability risks, unfair market practices. Even the common law is a set of rules, and it too is determined by market power and political power.
When I wrote my book, the political and ideological influence of “neoliberalism” was at its peak. Democrats like Bill Clinton and the economic team hired by Barack Obama accepted a lot of the standard wisdom about private markets being more efficient. They were rewarded for those views, in the political marketplace, by their Wall Street allies and appointees.
But those views turned out to be catastrophically wrong—as economics and as politics. Liberating private markets by deregulating them did not make the economy perform better. It only made the rich a lot richer, while incomes and economic security for everyone else lagged.
This brings me back to Joe Biden. The mainstream was been filled with article after article expressing wonder that Biden has been willing to upend the conventional wisdom about tax cuts for business being necessary to stimulate investment; about the need to appease financial markets with budget austerity and deregulation; about the alleged clunkiness of “big government.”
Did it have something to do with the pandemic, or with Trump, or the aftermath of the Great Recession?
Well, guess what? Those views have not just been proven wrong by events since the collapse of 2008, by global climate change, by the extreme concentration of wealth and by the failure of the Trump tax cuts to stimulate corporate investment, and by the newly dramatized abuses of workers on the part of Amazon. Those fanciful claims about free markets were wrong all along.
Since the mid-1980s, the Economic Policy Institute, which I helped found, has been demonstrating that truth. Since 1990, so has the Prospect.
In sector after sector of the economy, democratic government, in its power to tax, spend, and regulate abuses of capitalism, can improve on the market—can improve both its efficiency and its equity.
The basic claims of the free-market story boil down to these:
Markets, left alone, get prices more or less right. The price of carbon and the costs of global climate change blew that one away. So did the mispricing of securities in the run-up to the financial collapse.
Tax cuts increase private-sector investment. No, actually they don’t. The Trump tax cuts produced windfall gains that were used for stock buybacks. Real productive investment fell. The Reagan tax cuts increased deficits and stimulated the economy by increasing demand. Deficits to fund public investments would have stimulated growth far more efficiently.
Deregulation liberates market ingenuity. Mainly, it liberates economic concentration and anti-consumer scams.
Private is better than public. Often, it isn’t. Public is simpler, more transparent, and has fewer players taking their cuts. Social Security versus 401(k)s? Public schools versus voucher schools? Medicare versus Obamacare?
“Free trade” increases efficiency and choice. In practice, ultra-globalization has allowed multinational corporations to rig the rules, destroy labor and environmental standards, and leave America’s supply chains too vulnerable. Some trade is beneficial, but it needs to be managed.
Now, I don’t know whether Biden or his senior advisers happened to read my book or whether they just figured all this out for themselves, as I did a quarter-century ago. I’m just glad they figured it out.
But what a shame and a waste that Democratic presidents, going back to Clinton and Jimmy Carter, squandered more than four decades. So we’ve won the intellectual arguments—and Bidenomics is popular. Now we have to keep winning the politics.
