By James Kwak
A lot has been written recently about the direction of the Democratic Party. This is what I think.
I have been a Democrat my entire life. Today, the Democratic Party matters more than ever because it is the only organization currently capable, at least theoretically, of preventing the Republicans from turning the United States into a fully-fledged banana republic, ruled by and for a handful of billionaire families and corporate chieftains, with a stagnant economy and pre-modern levels of inequality. Yet I cannot find anything to disagree with in Senator Bernie Sanders’s assessment:
“The model the Democrats have followed for the last 10 to 20 years has been an ultimate failure. That’s just the objective evidence. We are taking on a right-wing extremist party whose agenda is opposed time after time and on issue after issue by the vast majority of the American people. Yet we have lost the White House, the U.S. House, the U.S. Senate, almost two-thirds of the governors’ chairs and close to 900 legislative seats across this country. How can anyone not conclude that the Democratic agenda and approach has been a failure?”
A central shortcoming of the party is that, on economic issues, it has nothing to say to people trapped on the wrong side of our country’s growing inequality divide. Hillary Clinton won the “working class” (household income less than $50,000) vote, but by a much smaller margin than Barack Obama in 2012 or 2008—despite Donald Trump’s ardent efforts to alienate African-Americans and Latinos. Some people voted for Trump because of racism or misogyny. But Clinton was also flattened by Trump among voters who feel their financial situation was worse than a year before or who think that life will be worse for the next generation. She lost the Electoral College in the “rust belt” states of the Upper Midwest, whose economies have never fully recovered from the decline of American manufacturing.
The Democratic Party was once the party of working people. So why is it increasingly becoming the party of well-educated, socially tolerant, cosmopolitan city-dwellers? Because, in an age of stagnant median incomes and a disintegrating social safety net, Democrats have no economic message for the many people who are struggling to make ends meet, to pay for college, to stay in a home, or to save for retirement.
This impotence is the product of sweeping changes in the intellectual and political landscape of the United States. As I discuss in my recent book, Economism, contemporary thinking about economic issues is dominated by “economism”: the belief that simplistic models accurately describe the real world and should be the basis of public policy. (For example: The minimum wage is an artificial price floor in the labor market, therefore supply will exceed demand, therefore unemployment must increase.) This naive or disingenuous worldview, according to which unregulated markets produce the best of all possible worlds, is frequently invoked to defend policies that favor the wealthy and justify the vast inequality that results.
Economism was promoted by conservatives who sought to roll back the New Deal and restore a mythical libertarian paradise governed by free markets, with a minimal state and low taxes. Their vision became the platform of the Republican Party in the 1970s and the policy handbook for President Ronald Reagan and every conservative leader since. In response, Democrats have tacked to the right on economic issues. Since Bill Clinton, the Democratic Party’s economic vision has been that prudent management of macroeconomic factors would foster higher private sector growth, which would in turn create jobs and prosperity for working families. The central planks of this platform have included: cutting budget deficits to reduce interest rates; reappointing Republican Federal Reserve chairs who would control inflation; and even seeking a “grand bargain” that would reduce Social Security spending in exchange for modestly higher taxes. As the Republican Party has been taken over by charlatans who insist on cutting taxes and crippling government at every opportunity, Democrats have rebranded themselves as the moderate party of responsible economic stewardship.
But there are two problems with this approach. The first is that it is economism lite. While Republicans say, “Free markets solve all problems,” Democrats respond, “Free markets solve most problems, but markets sometimes fail, so sometimes they need to be judiciously regulated to produce efficient outcomes.” This may be more accurate, but it undermines Democrats’ appeal to people who have not benefited from overall economic growth—because they have the wrong skills, live in the wrong place, got sick at the wrong time, or otherwise got unlucky.
The second problem is that economism lite doesn’t work, at least not anymore. A rising tide might lift all boats, as President John F. Kennedy claimed; but, then again, it might not. Since Ronald Reagan was elected president in 1980, labor productivity—the amount that each person can produce in an hour of work—has grown by 94% (a modest but respectable 1.9% per year); real per capita gross domestic product—total economic output per person—has grown by 82% (1.7% per year). Over that same period, however, median household income has increased by only 16% (less than 0.5% per year). In other words, the country as a whole has become almost twice as rich, but the typical family makes only a little more money than in 1980. Where has all the money gone?
To the very rich, as can be seen in one chart:
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