Neoliberals Passing the Baton

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Robert Waldmann
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Brad DeLong got a huge amount of attention by saying it was time for neoliberals such as Brad DeLong to pass the baton to those to their left. Alarmingly, he seems to have written this first on twitter.

Zach Beuchamp rescued it from tawdry twitter to now very respectable blogosphere with an interview.

One interesting aspect is that Brad has very little criticism of 90s era Brad’s policy proposals. Basically, the argument is that Democrats must stick together, because Republicans are purely partisan and no compromise with them is possible. I absolutely agree with Brad on this.

But I also want to look at criticisms of Clinton/Obama center left policy as policy.

Brad tries to come up with 2 examples

I could be confident in 2005 that [recession] stabilization should be the responsibility of the Federal Reserve. That you look at something like laser-eye surgery or rapid technological progress in hearing aids, you can kind of think that keeping a market in the most innovative parts of health care would be a good thing. So something like an insurance-plus-exchange system would be a good thing to have in America as a whole.

It’s much harder to believe in those things now. That’s one part of it. The world appears to be more like what lefties thought it was than what I thought it was for the last 10 or 15 years.

Now monetary vs fiscal policy is only considered right vs left because of the prominence and fanaticism of Milton Friedman. Is see no connection between laser eye surgery, hearing aids, and private health insurance. Medicare for all is not a National Health Service (note I am not conceding that a national health service would be bad for medical innovation). Brad did not advocate insurance/plus/exchange system in 1993. He (and Bentson, Summers and Rubin) advocated a payroll tax financed system not the Clinton-Clinton and Magaziner mess. I think he is stretching to get a second example.

I think the first isn’t really left vs right and the second is and always was a bad political calculation. IIRC Obama certainly said that he thought single payer was better policy but politically impossible. That was the general line on the center left wonkosphere. I think the case for insurance-plus-exchange was at most a bad political argument disguised as a bad policy argument.

In another twitter thread (no not the one where he says twitter is a horrible medium for serious discussion) Paul Krugman comments

I want to focus on two of his tweets

Last point: wages. Here’s where research has convinced me and others that wages are much less determined by supply and demand, much more determined by market power, than we used to believe. This implies a much bigger role for “predistribution” policies like minimum wage hikes 10/

Pro-union policies, and more than we used to think. “Let the market do its thing, but spend more on education/training and a bigger EITC” no longer sounds like wisdom 11/

I listed this as the one economist’s mea culpa based on empirical evidence which came to my mind. A lot of center left economists used to oppose minimum wage increases and were convinced by empirical evidence (mostly by Card and Krueger) that this is actually good policy. But I don’t see any problem with the EITC. Rather, economics 101 based arguments against the minimum wage and unions have been undermined by evidence*.

I think Krugman’s problem with “a bigger EITC” is political. It appears on the Federal budget so deficit hawks won’t allow a really huge increase. In contrast, people can think firms pay the minimum wage, so increasing it sounds like a cheap way to help the working poor.

More generally, I don’t see any reason to abandone redistribution (like the EITC). In fact, I think that is both excellent policy and political dynamite. I note that Bill Clinton and Barack Obama campaigned promising to raise taxes on the rich and cut taxes on everyone else. Also they won. Other Democrats didn’t promise that and they lost. A more progressive income tax is a relatively market respecting policy long supported by left of center economists. Oh and also Alexandria Ocasio Cortez. I don’t think there is any evidence against the Clinton 1993 tax increase combined with EITC increase.

The fact that it is totally obvious that it is good politics (rejected absolutely by the Republican party and supported by most self identified Republicans) doesn’t mean that it is too obvious to stress. It means debating redistribution vs predistribution is a distraction (which one here is not like the others)?

I personally have criticisms of Bill Clinton type neoliberalism after the jump

OK so what can I add ?

I could bring up a really bad Clinton administration policy proposal based on neoliberalism: financial deregulation, and, in particular, Clinton’s last act signing the commodity futures modernization act. This was absolutely policy based on pro free market beliefs of people who cared about fighting poverty (Rubin himself was a relative skeptic compared to other people and the Clinton Treasury whom I will not name and criticize).

I won’t discuss welfare reform or the Clinton crime bill. Both were opposed by the center left wonks. That was politics not policy.

But there was strong support among neoliberal wonks for reinventing government, that is for outsourcing and replacing public provision of services with vouchers. There clearly was a strong view that the private sector is more efficient than the public sector. There was I think sincere support for reducing the number of Federal employees.

I think there is now strong evidence that the public sector is often more efficient than the private sector. Part of the case was politics disguised as policy. Voters hate the bloated Federal Bureacuracy (based on total fantasy about its size and cost). There is a theoretical argument that civil servants don’t work because it is very hard to fire them. In fact, they do work. This is a failure of vulgar economics 101 in which people are assumed to care only about consumption and leisure.

In contrast there are huge problems with contracting out to private firms. The incentives civil servants face is enough to overcome the laziness of people less lazy than me (almost everyone) but it is nothing compared to the incentives private contractors have to take advantage of the government. What I always say is that a large state is costly, but the cost depends on the surface area — it is very costly for the state for modestly paid civil servants negotiate with businessmen and highly paid private managers (before going out the revolving door). Reinventing government makes it more costly. The key example is not a Clinton reform (although Clinton reluctantly signed the bill) Medicare Advantage was supposed to cause Medicare to wither on the vine because the Centers for Medicare and Medicaid Services (CMS) couldn’t compete with private insurance. By 2010 defenders of private insurance (crucially including Joe Lieberman) were absolutely determined to prevent the CMS from competing with private insurance, because they knew private insurance companies couldn’t survive the competition.

Also school vouchers have been shown to have large negative effects on achievement.

I’d say considerable evidence of positive long term effects of welfare programs has accumulated. The assumption based on economimics 101 that welfare reduces pre-transfer income by distorting incentives has not fared so well. The evidence tends to suggest direct benefits. I promised not to discuss this one, because I am sure that welfare reform was based on political calculations not bad policy analysis (it was not a policy of the Rubin wing of the party — Rubin advised Clinton to veto the bill).

Now on another topic. How about winning elections. Isn’t that important too ?

In the interview, Brad discusses policy and parliamentary (in the USA Congressional) politics. He could also argue about electoral politics and say Democrats have to move left to win elections. In any case I will argue that.

Brad’s argument is distantly related to the mobilize the base vs capture the center political strategies. He doesn’t stress this in the twitter thread or the interview, but he could discuss voters and how few genuinely indpendent voters there are. Like me, he can vividly recall the 80s when lots of smart Democrats (and also Robert Waldmann) argued that the party had to move rightward to recapture the center. I recall reading something by Robert Kuttner about what the party needed was left populism and this was blocked by the power of money in the Democratic party (think Bernie Sanders back when Sanders was mayor of Burlington). When I first read that, I thought it was crazy. Now I think it is totally right. Also note that, by promoting the internet, Al Gore saved the party from centrists like Al Gore. Now candidates and candidate-candidates can raise huge amounts of money with small donations and don’t have to get along with and flatter rich people. Obama proved this 8 years before Sanders proved it again.

There are fewer swing voters and much less ticket splitting than their used to be. This means that elections are determined mainly by whether young people vote. Sneering and Alexandria Ocasio Cortez is not good political strategy (also unwise unless one is a smart as she is and few people are).

* I have to say what I think of unions there was a liberaltarian argument that unions help insiders and create inequality (and support racial segregation). Also it was argued that unions prevented productivity growth by featherbeading and generally being rigid. These claims were never supported by evidence (empirically oriented labor economists like Richard Friedman always contested them}. In any case, the extreme decline of unions in the USA provides strong evidence that unions weren’t the problem. They declined at the same time that there was a huge increase in inequality (there has also been an increase in racial wage differentials). Also their decline correlated with a marked decline in the rate of productivity growth. This is crude evidence, but detailed evidence long contradicted the case against unions. I think part of the shift is new evidence and part of the shift is more respect for evidence vs theory among economists. On the other hand, it’s a whole lot easier to raise taxes on the rich and cut taxes on the non rich than to bring unions back.