Has the policy consensus on economics fundamentally changed in recent years?
To read Mike Konczal it has. I can’t say I’m convinced. While some of the details may have changed, I still think we’re talking about different—liberal and conservative—versions of the same old trickledown economics.
But first Konczal’s argument. He begins with a pretty good summary of the policy consensus before the crash of 2007-08:
Before the crash, complacent Democrats, whatever their disagreements with their Republican peers, tended to agree with them that the economy was largely self-correcting. The Federal Reserve possessed the tools to nudge the economy to full employment, they thought. What’s more, government programs, while sometimes a necessary evil, were likely to be an inefficient drag compared with the private market. Inequality was something to worry about, sure, but hardly a crisis, and policies were correspondingly timid and market-focused.
And it’s true: the debate about the conditions and consequences of the crash—after Occupy Wall Street, in the midst of the Second Great Depression—challenged that consensus, by focusing much more attention on inequality and disrupting the idea that the growing gap between rich and poor is somehow natural and necessary and by calling into question the idea that capitalist markets are self-stabilizing and full employment can be guaranteed by relying on markets.
In all honesty, that’s the least that can be expected, especially on the liberal side of mainstream political and economic thinking in the United States.
But then, when Konczal outlines the policies that make up what he calls the “new liberal economics,” embodied in Hillary Clinton’s campaign and the current Democratic Party, the evidence is very thin. In terms of specific policies—like following the dual mandate for the Fed of stabilizing prices and maximizing employment and supporting paid family and medical leave—the new liberal economics looks a lot like the old liberal economics of the Great Society programs (and, for that matter, of the Nixon administration). And while the policies Democrats support are certainly different from those of current Republicans (which Konczal summarizes as a “mix of Kempism, austerity, and favorable taxes and regulations for businesses that characterizes Paul Ryan’s ideas” and “Trump’s agenda of mercantilism and a chauvinistic welfare state”), they aren’t evidence the existing policy consensus represents a radical change.
That’s because the consensus before the crash, and now seven years into the recovery, has been based on trickledown economics. On both sides of the political and economic aisle.
The overarching idea, shared by liberals and conservatives, is that the existing economic system—with the surplus being appropriated by a small group at the top, who then decide what to do with it—will eventually deliver benefits to everyone, including those at the bottom (through, e.g., more jobs and higher incomes).
There are differences, of course. While the conservative view of trickledown economics emphasizes individual decisions and private markets, the liberal view is based on the idea that individual decisions are constrained by larger institutions and structures and and government programs are necessary to achieve desirable social outcomes. But, in both cases, the benefits created by existing economic arrangements are supposed to start at the top and trickle down to the bottom.
The consensus before the crash was that the liberal and conservative approaches to trickledown economics represented the limits of the relevant debate about economic policy. And now, seven years into the recovery from the crash, the debate that takes place between those limits remains the policy consensus.*
So, to my mind, there’s nothing new about the “new liberal economics.” It’s just a different mix of policies that together make up the latest version of liberal trickledown economics.
*If the existing policy consensus has been disrupted, it’s only because Donald Trump has highlighted the fact that trickledown economics, in both its versions, represents an unfair hustle.