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November 26, 2006

Ideological Faceoff

From The New York 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...

This approach coincided with a period of economic prosperity, low unemployment and falling deficits. 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 having won 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.

... 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 until clauses were included that would, for example, restrict layoffs and protect incomes.

Oh, Lord.

The split is not over the damage from globalization. Mr. Rubin and his followers increasingly say that globalization has not brought job security or rising incomes to millions of Americans. The “share of the pie may even be shrinking” for vast segments of the middle class, Mr. Rubin’s successor as Treasury secretary under President Clinton, Lawrence H. Summers, recently wrote in an op-ed in The Financial Times. And the populists certainly agree.

But the Rubin camp argues that regulating trade, or imposing other market restrictions, would be self-defeating.

That seems right to me.  What's the counter?

The economic populists argue that the trade agreements themselves are the problem. They cite several studies showing that more jobs shifted to Mexico as a result of Nafta than were created in the United States to serve the Mexican market.

Hmm.  Doesn't that argue by way of attacking with a point the other side already conceded?  Perhaps we should focus on the actual claims made by those who argue globalization is a force for good?

And then there is this:

As the two groups face off, Lawrence Mishel, president of the Economic Policy Institute, contends that the populists are pushing much harder than the Rubinites for government-subsidized universal health care. They also favor expanding Social Security to offset the decline in pension coverage in the private sector.

Expanding Social Security?  Maybe "the people" weren't as upset about growth in entitlements (via Medicare's prescription drug benefit, for example) as we were led to believe?

Is there any room for agreement here.  Sure:

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...

OK. I'm not sure access is the problem with our educational system, but at least that focuses on a real issue.

Both would expand the earned-income tax credit to subsidize the working poor.

Nice.

Both would have the government negotiate lower drug prices for Medicare’s prescription drug plan.

Uh-oh.  Price controls by any other name...

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.

That's interesting.

Here, I guess, is the bottom line:

The populists argue that the national income has flowed disproportionately into corporate coffers and the nation’s wealthiest households, and that the imbalance has grown worse in recent years. 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 until clauses were included that would, for example, restrict layoffs and protect incomes.

I have a prediction: I won't lose much sleep thinking about which side in this debate I support.

November 26, 2006 in Economic Growth and Development, Federal Debt and Deficits, Labor Markets, This, That, and the Other, Trade | Permalink

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Comments

I'm losing more sleep over the fact that there actually appears to be a debate in the first place.

I was under the impression that we had just finished performing a very thorough half century empirical evaluation of these theories.

Posted by: Adrasteia | November 26, 2006 at 06:29 PM

Medicare already dictates reimbursement rates to providers - so we already have plenty of price controls in health care.

Posted by: Morris Davis | November 26, 2006 at 11:29 PM

What *is* it about this "debate"?

Is it this moderation:

"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."
--a moderated view that presumes the global market is free and unfettered with the introduction (and not intrusiveness) of transnational companies? Is it a view that presumes the government is the intervening and regulating agent rather than the co-venturing arm of the transnationals?

Do we need to have double the number of illegal immigrants to see this matter more clearly?

The populists...whiners...scumbag socialists if they aren't ideological terrorists!

Do we need to have another ramp up in the decay (half life?) of equitable distribution of wealth?

Apparently we do.

Posted by: calmo | November 27, 2006 at 01:51 PM

"For a start, they would declare a moratorium on new trade agreements until clauses were included that would, for example, restrict layoffs and protect incomes." Do you mean "would" or "could"? Isn't this just opinion at this point?

Posted by: bailey | November 27, 2006 at 02:10 PM

It's interesting the hand-wringing over the possible policies of the new Democrat-controlled congress. It's almost as if the previous beloved Republicans were free-trade zealots. Bush and his buddies in Congress promoted free trade in steel, right? And softwood lumber. And textiles. Internet gambling. Agricultural products. They got a deal worked out in Doha, didn't they? Must have been the Democrats that somehow blocked all that free-trade manouevering.

And, as I saw someone say elsewhere on the web, how come it's price controls if the govt negotiates drug prices with manufacturers, but just good practice to get fleet discounts for their vehicles? Or are we suggesting there are price controls on cars now?

Posted by: foo | November 27, 2006 at 04:54 PM

bailey -- Although I didn't include it in my post, the Times article does include a quote from my new Senator who answers the question as "would." No speculation there, although that is, of course, just one opinion. (However, as far as I can tell Sherrod Brown is one of the darlings of the "new thinking" crowd.)

foo -- Fair point. If the intervention of the government is more like collective bargaining with monopolists, then the regulations could improve efficiency. But I'm a skeptic on that matter.

Also, as I ahve said in previous comments, I don't think it is very useful to use arguments like "yeah, but the guys before us were bad too." That may be a fair way for history to judge, but for now I'm for thinking about whether the future will bring good policies or not so good policies.

Posted by: Dave Altig | November 28, 2006 at 07:24 AM

foo -

the drugs purchased by the government is a large percentage of total drugs purchased. the same can't be said of cars.

Posted by: cb | November 28, 2006 at 01:52 PM

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