Democratic Economic Advisors and Theory

There was some stir within the left in the announcement that Brookings’ Jason Furman is joining the fantastically named Austan Goolsbee as Obama’s chief economic adviser. Furman penned this controversial (mostly on the left) article calling Walmart a Progressive Success story.

Furman begins the article thusly:

Productivity is the principal driver of economic progress. It is the only force that can make everyone better off: workers, consumers, and owners of capital. Walmart has indisputably made a tremendous contribution to productivity.

Hence Walmart has made everyone better off, just as Socrates is mortal. Which is really not the big point (Furman praising elements of Walmart) but rather the on the surface rather conventional sounding (and conventionally correct at that) point that productivity is the principal driver of economic progress.

This article by Jon Chait (“Freakoutonomics”) lays out the argument of left economists that perhaps this is not as obviously the case as we might believe. This article very clearly lays out the struggle from the 90s to today between the centrist/center-left (mostly Clintonite) wing of Democratic Economists, mostly the Rubinites (of which Furman is one) versus the then Robert Reich (also supporting Obama) to today folks like Jared Bernstein. The Rubinite wing was more powerful during Bill’s tenure but now it seems the more left wing side of the debate is gaining ground.

Chait on why the Rubinites have lost some footing:

The cause of their doubt is the disturbing performance of the U.S. economy over the last five years. What’s happening is very simple: The economy is growing smartly, but, essentially, all the gains are going to the rich. It is almost a dystopian Marxist vision come to life. Corporate profits have soared, incomes at the very top have shot through the stratosphere, and, yet, the vast majority of Americans have not seen their living standards rise at all. This development does not offer much of an intellectual challenge to either the right (which is not particularly troubled) or the left (which is not particularly surprised). But the center is both troubled and surprised. And, for the Rubinites, figuring out just why this is happening, and what to do about it, has begun to unravel their confidence in the moderate remedies that not long ago seemed unassailable.

The key point then is that what has occurred in the last decade particularly is that productivity gains have not brought increased standards of living.  Chait cites this article by Ian Drew Becker and Robert J. Gordon in 2005 opening up this (seemingly) counterintuitive argument.  A more summary version of much the same argument here by the aforementioned Bernstein.

John McCain for example took some heat from Obama for arguing that the fundamentals of the US economy were strong and praising President Bush’s economic record.  Now coming (to the degree McCain thinks about economic matters at all) from the Phil Gramm and Larry Kudlow school of conservative economics, this is a correct statement.  Because he is only focused on the productivity gains, dividends in the stock market for the rich, inflation, etc.  McCain misses entirely the question of rising cost of living compared with non-similarly increased wages and purchasing power.  Not to mention the abominable state of US health care and increased pressure via the Supreme Court eroding worker rights siding with corporate interests.

Chait states that one of the culprits blamed for the disconnect between rising productivity and living standards (stagnation in the latter) is George Bush’s tax cuts during a time of war.  Certainly that exacerbated the issue, but according to some of these more progressive economists, a deeper trend may be at work.

And so, in setting about to unravel the mystery, economists (especially those on the center left) have looked closely at a deeper trend, one that has been going on much longer than the current administration: rising inequality. Although the post-1973 decline in productivity growth was long considered the primary economic problem facing the nation, lurking in the background was a more or less concurrent trend of widening inequality. Put simply, the fortunes of the very rich and the fortunes of everybody else have been diverging sharply. Over the last quarter century, the portion of the national income accruing to the richest 1 percent of Americans has doubled. The share going to the richest one-tenth of 1 percent has tripled, and the share going to the richest one-hundredth of 1 percent has quadrupled.

But what is coming to pass is that the center-left more and more is open to arguments that the prime cause of the rising inequality (and inequality as a prime cause of the current economic recession, yes Virginia it is a recession or rather the concept of recession or not doesn’t matter in the current environment) is plutocracy, or the growing influence and power of the rich.

In this sense, the center-left has been shifted left and Furman may not be as centrist as Rubin was during the 90s (a different time with a different set of issues).  Steve Clemons with some thoughts on Furman.

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3 CommentsLeave a comment

  1. Ever notice how there are no socialist economists?

    Perhaps its better to use a different frame:

    Let’s say economic science and history tells us that left wing economic models don’t work at all. Which possibly explains why all the economists have emigrated to the right. So who’s left on the left as a credible economist? The number is dwindling. If science isn’t backing them up, for what reason are they wanting to implement their preferred policies when they are known to be faulty?

    This should be a warning to you progressives: These people are exploiting your big hearts to secure political power. In the end, their policies do more harm than good.

    So then what does it mean to be progressive?

  2. flossophy,

    dig the name by the way. i love puns so that’s right my alley.

    i’m not sure I totally grasp your comment. I think there are a few number of errors in it. 1)For sure there are socialist economists. A)There are still Marxists around. B)Theoretically any centrist (center-left, center-right, even mainstream left) European economist is socialist (or social democracy, social welfare state). Was Keynes a socialist economist? Bunch of them still around.

    I would agree with you that soviet-maoist-chavez type economies always fail. if you want to call those socialist and the others (Krugman, Reich, Bernstein, Goolsbee) left-leaning capitalism/free market that’s ok with me. If your definition of the right includes say a James Galbraith I guess I would agree with that–though I think I wouldn’t frame it that way. i.e. You equate with right with simply free market. But there are so many shades of various degrees of market + state involvement (ordo capitalism, social welfare) that I don’t find the generic use of left/right particularly helpful. Your comment could be turned around and ask which economists of note remain on the right? Greg Mankiw. Peter Schiff. There are some but not too many.

    Second, I wouldn’t define myself as a progressive (i.e. the “you” progressives does not include me). I happen to be quite critical of state intervention in many regards though I’m not a full fledged free marketeer either. My view is closer to that of Adam Smith who thought the market as such should be basically non-interfered with but that the range of what constitutes the market should be massively bound by the state and more importantly civil society, with the creation of commons outside the bounds of both the market (right wing ideology) and the state (left wing ideology). The society, if needs be through the state, should decide where the market has valence and where it is out of bounds. Because Smith knew that while markets could form moral sentiments of individual pursuit, ambition, and the like, and those were fine in their place, if they escaped beyond a tight circle, then society would increasingly be undermined by ambitions and factionalism spreading. Since the right (cons, Republicans) had years of being in control and their economic theory failed (built on a shoddy house), then they left the door open for a left-swing and more state imposition. While I’m not totally pleased by it, since the conservatives failed, I don’t see that they have anyone to blame but themselves. And it’s too late now to cry crocodile tears about the evil left-wingers are going to massively increase the state.

  3. cjsmith – good post, thanks for it


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