Economist's View: Points of Agreement between Rubinites and Populists
リンク: Economist's View: Points of Agreement between Rubinites and Populists.
The New York Times has another story about the split in the Democratic Party between the populist/protectionist faction and the free-trade advocates:
Here Come the Economic Populists, by Louis Uchitelle, Commentary, NY Times: For years, the Clinton wing of the Democratic Party, exercising a lock on the party’s economic policies, argued that the economy could achieve sustained growth only if markets were allowed to operate unfettered and globally.
Overcoming protests from labor unions, a traditional constituency, the Clinton administration vigorously supported free trade agreements like Nafta and agreed to China’s admission into the World Trade Organization. If there was damage to workers, then the Clinton camp proposed dealing with it after it occurred — through wage insurance, for example, or worker retraining and other safety-net measures. ...
Over time, this combination — called Rubinomics after the Clinton administration’s Treasury secretary, Robert E. Rubin — became the Democratic establishment’s accepted model for the future.
Not anymore. With the Democrats now a majority in Congress, and disquiet over globalization growing, a party faction that has been powerless — the economic populists — is emerging and strongly promoting an alternative to Rubinomics.
The populists argue that the national income has flowed disproportionately into corporate coffers and the nation’s wealthiest households.... They want to rethink America’s role in the global economy. They would intervene in markets and regulate them much more than the Rubinites would. For a start, they would declare a moratorium on new trade agreements...
Apart from such differences, there are nevertheless crucial issues on which the groups agree. Both would sponsor legislation that reduced college tuition, mainly through tax credits or lower interest rates on student loans. Both would expand the earned-income tax credit to subsidize the working poor. Both would have the government negotiate lower drug prices for Medicare’s prescription drug plan. And despite their relentless criticisms of President Bush’s tax cuts, neither the populists nor the Rubinite regulars would try to roll them back now, risking a veto that the Democrats lack the votes to override. ...
Kash has a nice discussion of this issue:
Policy Agreements and Disagreements, by Kash: The possibility of dissention among Democrats regarding economic policy seems to have been in the news this week. Mark Thoma points us to a commentary by Harold Meyerson on the subject, in which he focuses on the differences between the Hamilton Project and the EPI. And yesterday, Bloomberg had a piece about the disagreements between Robert Rubin and organized labor.
Nov. 22 (Bloomberg) -- Democrats are returning to power on Capitol Hill just as two powerful wings of the party, labor and Wall Street, are colliding over economic issues... AFL-CIO leaders, contending Democrats won the midterm elections because of voter concern about job security and stagnant wages, say it's time to set aside the free-trade policies touted by Rubin...
I suppose that it's natural for people to want to revisit this subject in the wake of the Democrats' recent election victory. But is this really news? As Mark pointed out, Democrats from both the Rubin/Hamilton Project crowd and the EPI/organized labor crowd would probably agree, at least in broad terms, on a large number of changes to economic policy. My candidates for areas of general agreement would include:
- Allowing the tax cuts on the wealthiest to expire, to help with the budget deficit;
- Restore pay-as-you-go rules to the federal budget process, to at least stop the US's budget problems from getting worse;
- Reform the Medicare prescription drug benefit to allow the government to reduce the price it pays for prescription drugs;
- Strive for broader health insurance reform, to increase the availability of health insurance to uninsured Americans;
- Strengthen the social safety net to help individuals who are lose out in the US economy through no fault of their own (e.g. by providing some form of wage insurance);
- Increase the minimum wage.
I'm sure I'm leaving something out, but even so, there's clearly a lot here that both camps would agree on, and a lot of work to do.
On the other hand, there is one big thing that the two factions do not agree on: trade policy. So if you boil it all down, it seems that the one significant point of dissention among Democrats is about how to change (if at all) US trade policy.
But the existence of pro-trade and anti-trade groups in the Democratic party is nothing new - they've both been around since at least the 1980s. Furthermore, very vocal anti-trade and pro-trade factions also exist within the Republican party; for example, a dozen Republican Senators voted against CAFTA this past summer, while a dozen Democrats supported it.
Yes, the issue of trade policy is indeed a source of disagreement among Democrats. But it's also a source of disagreement among Republicans, and among independent voters. So while the anti-trade faction may be larger in the Democratic party than in the Republican party (at least if measured by votes in Congress), the divisions over trade policy really seem to often transcend party and ideology. I haven't yet figured out what separates people into the anti-trade and the pro-trade groups, but whatever it is, I don't think that the division is anything new, or unique to Democrats.
It would be a big political mistake to have early policy proposals break down due to Democratic Party infighting. Democrats should focus on Medicare, health insurance, Paygo, the minimum wage, and perhaps tax issues (i.e. the AMT) and avoid trade legislation as much as possible for the next two years. In general, both factions agree on the need to strengthen the social safety net to help to overcome the negative effects faced by workers hurt by shifting production patterns, but they disagree strongly on the benefits of free trade, especially when there are sharp differences in labor and environmental standards.
Posted by Mark Thoma on November 26, 2006 at 04:41 AM in Economics, International Trade, Policy, Politics | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/t/trackback/6943150
Listed below are links to weblogs that reference Points of Agreement between Rubinites and Populists:
Comments
How is it that people can put forth economic theories,
yet be unable to spell correctly.
Posted by: Jeremy | Nov 26, 2006 5:44:01 AM
I'll repost my comment from Kash's site since he and you are of roughly the same cloth.
Yes there have always been pro and anti trade wings in the party. But this "can't we all just get along?" sentiment won't hold unless you're prepared to stand for it. The Trade Protectionists are clearly emboldened,and they don't presume to "coexist" with trade supporters. They're already going after Bob Rubin, a man who's views I presume you broadly agree with.
This issue isn't going to go away. For many, it's issue #1. If you believe the things you say you do, then you should be prepared to defend them instead of pleas for peace & civility from the camp that doesen't appear interested in quarter at this moment.
The Trade issue isn't just a teritary concern that will go away if the Pro-Trade camp will just stress areas of agreement with their antagonists. For the so caled Populists, it is THE issue. If the pro trade camp can't actively defend their views to their antagonists, they don't deserve to be considered.
Posted by: DRR | Nov 26, 2006 5:54:15 AM
DRR when Free Traders are willing to put their money where their mouths are: like making an all out effort to eliminate sugar quotas, or export subsidies for wheat, or selective tariffs on canadian lumber or on particular grades of steel then maybe more of us skeptics would listen.
But from the outside observor Free Trade seems to equate to protectionism for key American sectors like agriculture and allowing a private Canadian company to sue California for trying to regulate contaminates in drinking water. Which in turn stemmed from an American company suing Canada over the same issue:
Canadian Firm Sues California Over MTBE
$970 million suit seeks to end gas-additive ban
"Less than three months after Governor Gray Davis moved to end the use of MTBE, the Vancouver- based Methanex Corp. announced Tuesday that it is using the North American Free Trade Agreement to seek $970 million in compensation for lost profits.
The challenge under NAFTA's little-known ``investor rights'' provisions packs a big legal punch. A similar lawsuit filed last year by a U.S. company forced Canada to overturn its ban on a gasoline additive that has been implicated in health problems.
Other NAFTA suits are under way in the United States and Canada, seeking to overturn a wide variety of government regulations. Consumer and environmentalist groups warn that big business may be able to use NAFTA to gut decades of progressive legislation."
This isn't theoretical. The US and major internationals are using Free Trade agreements as a club on workers and people who believe environmental considerations (like non-poisen drinking water) and working conditions should be paid attention to.
Posted by: Bruce Webb | Nov 26, 2006 7:07:59 AM
DDR:
I agree that Mark Thoma is engaging in wishful thinking. With no real solutions on the table, and populistic ignorance still widespread, I'm concerned that the protectionists will get their way.
Posted by: georgist | Nov 26, 2006 7:35:13 AM
"populistic ignorance still widespread"
A different frame of reference does not equate to "ignorance".
Capitalism in large part is about maximizing returns. Without being as crass as the fictional Gordon Gecko it embraces the concept "Greed is good". It is a perfectly legitimate move for any individual to make a judgement about whether any given economic transaction results in a gain or loss. The implied argument of Free Traders is that I should not concern myself with my individual loss if it is being offset by huge net gains somewhere else. To which my reply is "Why is that?"
"What is in it for me?" Is not mindless, ignorant, populism. It is the central question in any economic transaction and you ignore it at your peril. Simply dismissing the legitmate economic concerns of millions of Americans as being "ignorant" is not going to advance the argument for fair trade.
It does offer the prospect of pissing a lot of people off though. Folks are waking up to the reality that the warm mist steadily pouring down on then from up above is not a gentle spring rain. "Let them eat cake" is not a viable long term strategy.
Posted by: Bruce Webb | Nov 26, 2006 8:03:50 AM
It is a perfectly legitimate move for any individual to make a judgement about whether any given economic transaction results in a gain or loss.
That's simple rationality on the voters' part. It's not what I was referring to as "economic ignorance".
The implied argument of Free Traders is that I should not concern myself with my individual loss if it is being offset by huge net gains somewhere else.
Edmund Phelps on sharing the gains from globalization
You stand refuted by a Nobel laureate in economics. And that ignores the fact that "distribution" or "inequality" is somewhat of a red herring. Injustice is the root issue: misguided attempts to overcome its consequences are a recipe for economic stagnation and lack of progress. Unfortunately, many people will refuse to know these simple facts.
Posted by: georgist | Nov 26, 2006 9:41:30 AM
Well Phelps is wrong and in this case his solution is pernicious.
Really this blatant appeal to authority rather than actually addressing the argument and backing that up with data is part and parcel of the attitude we are addressing here.
You saying something is a "simple fact" makes it neither "simple" nor a fact. Assertions are like opinions which are like other unnamed entities. The mere fact that you make them doesn't make them smell spring fresh.
"red herring", "misguided attempts", "recipe for economic stagnation"
per Georgist. Backed by nothing but a screen name taken from a long dead economist. Around these parts you gain credibility by making reasoned arguments backed up by links to original data tables. Not by laying down the law based on some assumed authority drawn from ... well nothing really.
Phelps fundamental argument is that inequality should be addressed by income transfers from middle class wage workers to the poor rather than by any mechanism that would burden returns on capital.
Prove me wrong, if you can. But a blind link and an appeal to authority gets you nothing. Many Nobelists get their Nobels for proving other Nobelists wrong. That Phelps was rewarded for a lifetime body of work does not give him the Permakey to the economic discourse throneroom.
Posted by: Bruce Webb | Nov 26, 2006 10:19:34 AM
Phelps fundamental argument is that inequality should be addressed by income transfers from middle class wage workers to the poor rather than by any mechanism that would burden returns on capital.
What returns on capital? With long-run interest rates at an all-time low, I don't see capital benefiting much from globalization. Come to think of it... I don't see wages benefiting much either. That's it, I'm a protectionist - this "gains from trade" stuff is baloney!
Posted by: georgist | Nov 26, 2006 11:18:22 AM
"With no real solutions on the table, and populistic ignorance still widespread, I'm concerned that the protectionists will get their way."
Populists should get their way. This is a democracy and populists, including yellow dog dems and unions, provided the winning margin. All the sop to the dictators of China won't create a winning message to the voters of this country. Furthermore, populists won because the free-trade policies have failed voters, even as they've stuffed corporate coffers and the suitcases of greedy, ruthless, stateless CEO's. This is a democracy, bud.
"What returns on capital? With long-run interest rates at an all-time low, I don't see capital benefiting much from globalization."
Surely you jest. You can't be serious. Have you payed any attention at all to corporate profits in the last 5 years? How about this thought exercise... let's say corporate profits increase over 40%, and wages decline, even as housing, health insurance and tuition go through the roof, and pensions disappear. Hmmh. Now if that happened, wouldn't you agree the voters might want a policy switch. Well, guess what? That's what happened! And the voters want a policy switch. Go figure - those crazy ignorant voters!
Posted by: dissent | Nov 26, 2006 11:51:42 AM
Corporate profits are not the same thing as returns on capital. Aren't returns on invested capital best measured by risk-adjusted interest rates?
Posted by: georgist | Nov 26, 2006 11:56:38 AM
