Economics, Law, Philosophy, Politics

The Intellectual Foundations of a New Progressive Era?

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This post is the fourth in a series of five considering what the shape of progressive political-economic thought might look like following the neoliberalism of the Reagan Era.

In earlier posts, I introduced the progressive view of markets as government creations, and sketched some of the intellectual history of the idea.

In this post, I would like to note a few distinctive features of this view of markets and how it relates to other economic and political positions.

First, the idea is counterintuitive. The opposition between government and markets is so deeply rooted in our public economic discourse today that it may take some explanation and illustrations to show what is meant by the claim that our markets are government creations. But the idea is no more counterintuitive than Reagan-era claims were at the time of their introduction, such as the slogan that “government is not the solution to our problem; government is the problem.” In addition, the idea has the virtue of being in some sense obviously true. No one can deny — and sophisticated neoliberal theorists like Hayek do not deny — that the functioning of modern economic markets depends on and is shaped by state enforcement of property, contract, corporate, criminal, and many other laws.

Second, the view of markets as government creations, and the legal rules of markets as political choices, frames economic debates in a way that favors progressives but leaves room for conservatives to participate — just as the neoliberal framing of economic debates in terms of a choice between government and the market favored conservatives but left room for progressives to participate. Conservatives in a new progressive era would be free to argue (unappealingly) that we should choose rules for our markets that favor billionaires over working families, because of the merits of wealth accumulation, for example; just as progressives in the neoliberal era have always been free to argue (unappealingly) that high taxes and big government are actually a good thing, because certain parts of the economy are better left to government management.

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Economics, Law, Philosophy, Politics

Markets Are Government Creations: A Resource Guide

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[Note: This post is unlike the other posts on the blog, for the reasons described here. It offers a series of very rough notes toward a historical sketch of the idea that markets are government creations — in other words, the rejection of the neoliberal, neoclassical, or Reagan Era idea of a conceptual opposition between government and markets. More specifically, it fleshes out the claim in an earlier post that the idea of markets as government creations has been widely accepted by legal scholars, yet largely ignored by academic economists.]

“[T]he market is rational and the government is dumb.” Dick Armey[1]

“[T]he self-regulating economy does not always work as well as its proponents would like us to believe.” Joseph E. Stiglitz[2]

The idea that government plays a constitutive role in markets, including classical liberal markets, is not a new one. But it has never achieved dominance in either public or academic debates about what we would now identify as economic issues. It has never gained the status of a widely shared assumption in the way that its contrary has—the notion of a conceptual opposition between government and the market, public and private. Here, I will offer a brief history of the idea of markets as creatures of government, partly with the simple aim of bringing together in one place the disparate legal and economic contexts in which the idea has been expressed.[3]

At least in the United States, the peak influence of the idea that government constitutes markets arrived a century ago during the Progressive Era, when the “legal realist”[4] and (intellectually related) “institutionalist economics”[5] movements rose to prominence in academic and professional legal and economic thought, respectively. Both movements reacted against the orthodoxies of late-nineteenth-century thought in their respective fields. In law, this orthodoxy is sometimes referred to as “Classical Legal Thought” (CLT).[6] In economics, the orthodoxy often goes under the name “neoclassicism.”[7] A more general term encompassing both threads of intellectual history, but also extending beyond them, would be “classical liberalism.”

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Economics, Law, Politics

After Trump: A Progressive Manifesto

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Whether we think of the last four decades in U.S. politics as the Reagan Era or, with an eye to global political-economic trends, as the era of neoliberalism,[1] it is worth considering that the political regime with which we are all familiar may be coming to an end, with the current president as its final unraveling.

A little over a year since the election of Donald Trump, what we have seen is consistent with the theory that his presidency may be a “disjunctive” one. The term comes from the political scientist Stephen Skowronek’s structuralist theory of presidential politics, which suggests that certain presidents — such as John Adams, John Quincy Adams, Franklin Pierce, James Buchanan, Herbert Hoover, and Jimmy Carter — find themselves in an “impossible leadership situation” as “a president affiliated with a set of established commitments that have in the course of events been called into question as failed or irrelevant responses to the problems of the day” (39).

Assuming our democracy survives the next three years — which remains unclear so long as an unwell racist demagogue possesses executive power, supported by a blindly obedient mass following — what might come after the Reagan Era? The continuing global spread of illiberalism, perhaps aided by the rise of a more competent American strongman, is one possibility. But what is the progressive alternative?

What would American progressives like to see replace the collapsing ideology of neoliberalism?

This question has been a driving preoccupation of this blog since I started writing it in 2014. I still find it useful to frame the challenge for progressives in terms of the question I asked in my second post: If a progressive today were to write a book like Milton Friedman’s Capitalism and Freedom, what would it say? In order to lay the intellectual foundations for a new progressive era, progressives should be able to offer what Friedman’s book offered to the Reagan regime: a simple, rhetorically compelling, easily summarized general vision of politics and the economy — alongside a sample of bold policy proposals that embody the general vision and can serve as a focus of practical political action.

It now seems to me that the intellectual foundations for a new progressive era are finally coming into view. In recent years, a growing chorus of progressive voices — from Dean Baker, Robert Reich, Dani Rodrik, and Geoffrey Hodgson, to the legal scholars at the recently launched Law and Political Economy blog — have begun to coalesce around a simple, compelling idea about government and markets. At the risk of oversimplification, the basic thought is something like this:

The economic choice we face today is not, as the last forty years of our politics has suggested, between government and the market. In fact, as a closer look makes clear, markets are created by governments. The rules of our economic markets are established by our government through its laws.

Our markets are government creations, and the rules of our markets are political decisions. It is in our power as a democracy to fix the rules when they are broken.

For the last forty years, we have lived in the illusion that “the free market” means a set of market rules favoring the wealthy and powerful few at the expense of the freedom of the many. But nothing in the nature of markets requires the neoliberal economic policies our government has so often chosen.

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Politics

Background Part III: Today

The current moment in American politics is a chaotic one characterized by frequent, unpredictable alternations in power and no clear, dominant vision of governance. A similar moment appears to have occurred in the Gilded Age, when control of the House shifted back and forth for decades after the Civil War, and few presidents left a lasting ideological mark.

On the one hand, the Reagan era vision of government has collapsed. Contrary to the dreams and promises of the Reagan era, the core programs of the New Deal era remain in place, and show every indication of continuing to remain in place, because the American people support them—as President George W. Bush’s failed attempt to privatize Social Security illustrated. In addition, the conservative promise of “smaller government” rings increasingly hollow in the wake of the growth of government spending, and the worsening of deficits, under both Presidents Reagan and the second Bush. Above all, the 2008 financial crisis definitively discredited the economic assumptions of the Reagan era. Financial deregulation led to the crisis, and those who bought into the core economic assumptions of the era failed to see the crisis coming, failed to understand the nature of the crisis as it happened, and continued to make inaccurate predictions in the wake of the crisis. The predictions of generally Keynesian economists were far more accurate.

The Bush administration’s failed response to Hurricane Katrina, and the inequality laid bare in the aftermath of the hurricane, further undermined the credibility of the Reagan-era dream of enhancing freedom by disabling the government.

The economy of the Reagan era has also shown itself to be generally inferior to what preceded it. While the New Deal era was defined by rising wages, decreasing inequality, relatively low unemployment, and decades without a financial crisis in the United States, the Reagan era has offered stagnant middle-class wages, increasing consumer debt, rising inequality, declining or at least stagnating social mobility, and a steadily escalating series of speculative bubbles and financial crises. The economic policies of the Reagan era did not cause all of the weaknesses in the American economy over the last three decades. But it is likely that many of the economy’s pathologies were exacerbated by the Reagan-era embrace of deregulation, and especially financial deregulation; decreased taxation, disproportionately to the benefit of the wealthy; reduced spending on public goods; a smaller safety net; opposition to organized labor; a heavy reliance on corporate subsidies; and in macroeconomic policy, a strong dollar and a greater focus on low inflation than on low unemployment.

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