James Buchanan, one of the most influential free-market conservatives of the past half century, chastised liberals (progressives) for being romantic about politics. His work on Public Choice Theory urged us to look at “politics without romance”. Buchanan was right. Being overly romantic about politics can lead to serious error, but this error is by no means limited to liberals. Case in point: Tyler Cowen has recently been criticizing Democratic proposals to raise the minimum wage to per hour, and the .9 trillion covid relief/stimulus package proposed by President Biden. In both cases, he treats complicated questions of political strategy as if they were blackboard exercises in economic theory, totally ignoring politics. Let’s start
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James Buchanan, one of the most influential free-market conservatives of the past half century, chastised liberals (progressives) for being romantic about politics. His work on Public Choice Theory urged us to look at “politics without romance”.
Buchanan was right. Being overly romantic about politics can lead to serious error, but this error is by no means limited to liberals.
Case in point: Tyler Cowen has recently been criticizing Democratic proposals to raise the minimum wage to $15 per hour, and the $1.9 trillion covid relief/stimulus package proposed by President Biden. In both cases, he treats complicated questions of political strategy as if they were blackboard exercises in economic theory, totally ignoring politics.
Let’s start with stimulus. Cowen has been echoing recent arguments by Larry Summers that the covid bill is too large and may lead to a surge in inflation and/or a Fed-induced recession. No doubt this is possible; a more prudent approach to fiscal policy might be to spend, say, $1 trillion now (to increase vaccine production and distribution, help state and local governments, etc.), and to keep the rest in reserve in case the economy stalls. But this overlooks politics in several ways. It overlooks the high probability – close to 100% – that if the economy does not recover rapidly this year that Congressional Republicans will block any further assistance. This would give Republicans a good shot at gaining control of at least one house of Congress in 2022, and it would likely doom Biden’s presidency. Similarly, it overlooks the fact that Democrats have endorsed $2,000 stimulus/relief checks, and that reneging on that promise might hurt them and help Republicans. Does Cowen think this would be good for the country, given the current degraded state of the GOP? Let’s not romanticize the fact that the GOP has become a threat to democracy and is thoroughly uninterested in effective governance. Of course, Democrats could try to pass a complicated bill with triggers or automatic stabilizers. But Democrats need to pass a bill quickly, they need to craft a bill that can be passed through reconciliation, and they only get one bite at the reconciliation apple. They also must pass a bill that is acceptable to all 50 members of their caucus. Criticizing the bill for falling short of economic perfection is fine if one is clear that an imperfect bill is still fully worthy of support, but Cowen lets an imaginary ideal be the enemy of the good. This is political romanticism.
What about minimum wages? Sure, there are reasons to worry that raising the wage to $15 will have negative employment effects and reduce non-wage job benefits. If I represented a rural, low wage district in Congress I would be thinking hard about possible alternatives (regional variation, wage subsidies, smaller increase, etc.).
On the other hand, the political forces pushing Democrats to push for $15 are considerable and cannot simply be ignored. The fight for $15 has been a long political campaign. Democrats can’t just abandon it and throw activists under the bus without at least trying to fight for it. Cowen emphasizes the need for regional variation. My guess is that many Democrats expect that the final bill will either be for less than $15 or include regional variation, but in politics you negotiate, and you do so in front of an audience, which makes pre-emptive concessions doubly problematic. Furthermore, minimum wages are popular with the public. This is important. Economic theory might suggest wage subsidies or some other alternative for helping low-income people, but we live in democracy, not an economic theory seminar. And just as the Republicans cannot be relied on to provide additional stimulus if the economy recovers too slowly this year, Republicans cannot be counted on to work creatively to find ways to help low-income workers. Cowen advocates for lowering the minimum wage for small businesses in response to the pandemic, but does not suggest doing anything to help workers whose incomes might be affected.
Sauce for the goose is sauce for the gander. Welfare state liberals should not be romantic about politics or economics. Neither should free-market conservatives.