Democrats and Republicans are locked in perpetual conflict over economic policy. If this war is a constant, however, the borders of the battlefield are not.
In every era, partisan debates over economic governance are bound by bipartisan assumptions. Between the Second World War and the mid-1970s, the leadership of both major parties endorsed key tenets of New Deal liberalism. Dwight Eisenhower and Richard Nixon may have been less fond of labor unions and the welfare state than Harry Truman, John F. Kennedy, or Lyndon Johnson. But all five presidents recognized the legitimacy of social programs that mitigated market inequalities, federal agencies that regulated commerce, and labor organizations that mediated conflict between workers and managers. Eisenhower expanded Social Security and federal infrastructure investment. Nixon established the Environmental Protection Agency and welfare benefits for the disabled.
And all five presidents also believed that the federal government had a responsibility to promote full employment and price stability through fiscal policy. Nixon famously self-identified as a “Keynesian,” aligning himself with the conservative movement’s least favorite economist this side of Karl Marx.
But the liberal consensus did not survive the 1970s. Its death had many authors. The New Deal bargain between capital and labor had been sealed by high growth and American economic dominance. With European and Japanese industry battered and broken, U.S. exporters reigned supreme in the postwar period. This global advantage, combined with robust productivity growth, made high manufacturing wages compatible with high profits.
By the 1970s, however, many German and Japanese exporters were outperforming their U.S. competitors. Then rising oil prices and slowing productivity growth thinned profit margins. Corporations started seeing labor unions as an impediment to their global competitiveness, if not solvency.
Meanwhile, the stagflation crisis — which is to say, the simultaneous appearance of slow growth and high inflation — called Congress’s competence at regulating economic demand into question. The conservative movement had been gathering strength for decades and was well prepared to capitalize on the Keynesian Establishment’s crisis of self-confidence. Right-wing economists argued that stagflation was the inevitable consequence of New Deal liberalism’s hubristic ambitions. With corporate America turning on labor, and much of the U.S. electorate turning on left-wing social movements, conservative policy wonks had political winds at their back.
Ronald Reagan’s presidency brought the fight over economic governance to new, right-tilted terrain. Policy-makers in both parties came to prize price stability over full employment and deregulation over industrial planning. Authority over demand management shifted toward the politically insulated Federal Reserve, while discretion over investment became even more concentrated in the private sector.
Bill Clinton and his Republican adversaries fought over myriad economic questions, from tax rates to health care to environmental policy. But they shared an enthusiasm for financial deregulation, free trade, deficit reduction, and downsizing the administrative state; Clinton presided over the elimination of more than 400,000 federal jobs. This new consensus, often described as “neoliberalism,” held that relatively unfettered markets were more reliable stewards of economic development than federal officials. By giving the private sector greater leeway to allocate capital as it saw fit, policy-makers would promote higher rates of growth and innovation. Congress’s role wasn’t to guide economic development so much as to squabble over the redistribution of its spoils.
This worldview has been in some disrepute since the 2008 crisis, if not the dot-com boom. Deregulation failed to deliver postwar rates of productivity growth, even as it nearly capsized the global financial system. At the same time, with the federal government declining to update labor laws or promote wage-led growth, the working class’s share of national income steadily fell.
Nevertheless, in the Great Recession’s wake, America’s debate over economic management did not fundamentally change. The GOP found a way to interpret the financial crisis as a testament to the evils of big government. For its part, the Democratic Party shed its Clintonian attachment to financial deregulation. Yet its conception of the state’s role in economic management remained relatively modest, and its faith in “free trade” largely endured.
But today, nearly 15 years after the 2008 crash, the long reign of “zombie neoliberalism” is finally ending. Or so the historians Yakov Feygin and Nils Gilman recently argued in a widely discussed essay for Noema magazine.
Following the successive shocks of Donald Trump’s election and the COVID pandemic, “policymakers from across the political spectrum are embracing a more active role for the federal government in directly configuring the ‘real economy,’” Feygin and Gilman write. These politicians and wonks do not share a common vision for how Uncle Sam should guide industrial development. But they agree that Washington must reclaim some of the discretion that neoliberalism outsourced to central bankers and C-suites.
The bounds of political possibility have therefore shifted. Investing $280 billion into domestic semiconductor manufacturing, high-tech research, and workforce development is now a bipartisan cause. Dedicating even larger sums to the transformation of America’s energy system, meanwhile, is something that even moderate Democrats can get behind.
According to Feygin and Gilman’s account, these fledgling stabs at “industrial policy” mark the dawn of a new economic era, that of “the designer economy.” In such an economy, policy-makers “intentionally shape markets” to achieve specific “socioeconomic outcomes.” This new paradigm is “potentially as transformational to American capitalism as the New Deal was in the 1930s or Reaganism was in the 1980s.”
Feygin and Gilman identify real shifts in America’s intellectual currents. And as a prescriptive vision for how U.S. policy-making should evolve in the coming years, the “designer economy” has much to recommend it. As a prediction of how American politics will evolve, however, the authors’ argument seems unduly optimistic. There may be a bipartisan coalition in favor of increasing the federal government’s capacities and responsibilities for economic management. But there is also a bipartisan coalition opposed to those ends. And in the American political system, fortune favors the status quo.
Industrial policy makes strange bedfellows.
In Feygin and Gilman’s account, the past few years have led a motley crew of constituencies to embrace big(ger) government.
First, Trump’s election shook liberal technocrats out of their complacency. Many Democratic economists had interpreted neoliberalism’s failure to generate strong growth as an indictment of the latter as a goal, rather than the former as a paradigm. Which is to say, they concluded that tepid growth was an inevitable feature of mature industrial economies. The spectacle of a proto-authoritarian demagogue painting the Rust Belt red made such economists less comfortable with their fatalism.
Then the pandemic provided liberals with a demonstration of the government’s latent capacities for economic management. First, Congress’s COVID-relief policies revealed that recessions as we’d known them were essentially optional. By replacing more than 100 percent of the income that U.S. households lost to economic shutdowns, the federal government managed to reduce poverty amid mass unemployment.
For another, Operation Warp Speed provided proof of concept for government-induced innovation. Uncle Sam guaranteed a vast market for effective COVID vaccines, prompting the private sector to make large investments in vaccine research and manufacturing capacity. In other words, by leveraging its purchasing power, the state effectively conjured the mass production of a medical breakthrough into being in less than a year’s time (and this process could have moved even quicker had regulatory hurdles been relaxed). This success naturally sparked interest in expediting the development of other socially useful technologies through similar interventions.
Meanwhile, in the absence of state guidance, the private sector was disappointing a wide range of interest groups. The pandemic alerted national-security hawks to the perils of global supply chains; in an emergency, nations would prioritize their own resource needs over those of trade partners. Outsourcing production of critical inputs to U.S. adversaries like China might maximize profits. But it did so at the cost of America’s self-sufficiency. Thus, many hawks reasoned, the federal government would need to take the reins and ensure that the U.S. could make the things it absolutely needed here at home — or, at the very least, within the borders of close allies.
Idiosyncratic conservatives, meanwhile, came to believe that free trade and low wages were antithetical to their social politics. Traditional family structures required a sole male breadwinner whose labors enabled his wife to dedicate herself to child-rearing. And sole male breadwinners require high wages (ideally in masculine-coded employment). Thus, after Trump rhetorically disavowed free trade and championed government support for domestic manufacturing, some social conservatives embraced a Hamiltonian vision of state-led development.
Finally, having given up on the politics of carbon taxes, climate hawks became increasingly committed to industrial policy. If the government could not tax or regulate the fossil-fuel economy out of existence, it would need to expedite the green one’s development. Which is to say, the state would need to direct massive subsidies to green technology and clear regulatory hurdles to green-energy infrastructure.
Along with America’s social democrats (who have always agitated for more economic planning), these disparate groups share an interest in enhancing the government’s capacities for planning and coordinating economic activity.
Designing the economy requires upgrading the government.
As Feygin and Gilman rightly emphasize, those capacities have badly atrophied over the past half-century. On the one hand, the Republican Party spent the past two generations deliberately eroding the administrative state’s competencies. Today, regulatory agencies and congressional offices cannot hope to compete with the private sector for managerial talent or expertise. The budgets necessary to outbid McKinsey do not exist. Instead, the government must outsource key administrative functions to private contractors.
On the other hand, the federal government’s legal authority to expedite development has been circumscribed by liberal proceduralism. In the 1970s, outrage over urban renewal and environmental degradation led progressives to erect obstacles to top-down economic governance. They empowered individuals to obstruct federal projects through litigation, if any environmental concern was plausibly threatened, and championed the right of communities to veto new housing or infrastructure developments.
Thus, fully transitioning to “the designer economy” will require a panoply of policy reforms, write Feygin and Gilman. Salaries and staffing levels at a wide variety of government institutions will need to be increased, and the government will need to be “empowered to override blocking factions, particularly at the state and local levels.” More ambitiously, the authors argue that the government’s data-collection and analysis capacities should be expanded, so that it can serve as a “bottleneck detective,” effectively preempting supply shortages (and thus inflation) by anticipating and redressing obstacles to production. They also call for Uncle Sam to set national objectives for emerging general-purpose technologies like robotics and synthetic biology, and incentivize relentless innovation in those spheres. Finally, they believe the government will need labor-market policies that smooth the transition of workers from declining industries into emerging ones.
This is more politically plausible than most utopian visions of American political development, and more utopian than most politically plausible ones. There is already an ostensible bipartisan consensus in favor of economic growth and American commercial dominance. The “designer economy” just elaborates what maximizing those goods would plausibly require in the third decade of the 21st century.
Nevertheless, there is little cause for confidence that America’s political class will rally behind increasing the power and competencies of the federal government anytime soon.
The “small government” coalition persists.
There are two fundamental obstacles to the paradigm shift that Feygin and Gilman prophesize. The first is that there is at least as much bipartisan opposition to their vision as there is support for it. The second is that partisan polarization makes that reality difficult to change.
Some conservative intellectuals and Republican senators evince interest in industrial policy and indifference to Reaganite orthodoxy. But they are the exception, not the rule. The GOP leadership is not only unenthused about increasing the federal government’s capacities; it is staunchly committed to degrading them.
Brink Lindsey, vice-president of the centrist Niskanen Center, recently noted that when “historians and social scientists try to compare the overall state capacity of different countries, they often look to tax receipts as a useful proxy. After all, the ability to raise revenue is a precondition of everything else that government does.”
This metric does not flatter the United States. Over the past three decades, the Internal Revenue Service has failed to collect roughly 15 percent of the taxes it is owed, fumbling upwards of $380 billion a year. The Biden administration sought to close this gap through an $80 billion increase in the IRS budget — and as soon as Republicans secured control of the House of Representatives, they passed a bill repealing it.
Right-wing intellectuals might wax lyrical about “state capacity libertarianism.” But the conservatives who actually wield political power in the U.S. are largely unified in their desire to undermine the administrative state’s most basic function. All but one of the House GOP’s 222 members voted to slash funding for the IRS, despite the fact that doing so would actually add $115 billion to the national debt in the coming decade, according to the Congressional Budget Office.
Apparently, the GOP believes that reducing the federal deficit is so important that it is justified in threatening to engineer a global financial crisis unless President Biden slashes spending — but still not important enough to justify making the IRS slightly better at collecting taxes.
Needless to say, the House GOP’s official goal for fiscal policy — to balance the budget within a decade by gutting discretionary spending — is not compatible with building a “designer economy.” And although Republicans probably lack the stomach to actually implement such draconian austerity, there is scant opposition within red America to austerity as such. Today’s GOP is not divided between a Reaganite Establishment and Hamiltonian vanguard so much as it is split between lawmakers who primarily answer to avaricious business interests and ones who display primary loyalty to the addled consumers of right-wing infotainment. The latter constituency may have less attachment to libertarian economics than the Koch Network. But its perpetually cultivated rage and paranoia is scarcely conducive to aggrandizing the federal government’s competencies and authorities.
The GOP’s contempt for the federal government is the biggest obstacle to the designer economy, but it is hardly the only one. Building a bipartisan consensus in favor of Feygin and Gilman’s vision would also require ideological shifts within the Democratic Party.
In contrast with red America, there are significant parts of the Democratic coalition that are already broadly supportive of the designer economy. Self-styled “supply-side liberals” and social democrats will have few complaints with Feygin and Gilman’s prescriptions. But other factions beneath Joe Biden’s big tent will be less enthused.
The Democrats’ right flank has limited appetite for new taxes and spending. Sustainably financing a beefed-up federal bureaucracy, an active labor-market policy, large subsidies to critical industries, and the designer economy’s other components may require more extensive tax increases than Kyrsten Sinema and Joe Manchin were willing to tolerate last year.
It’s possible that such moderates may nevertheless be amenable to a watered-down version of Feygin and Gilman’s vision. But other Democrats are hostile to one of the designer economy’s foundational elements: heightened federal authority to override resistance to development from states, municipalities, and litigious individuals.
Building a bipartisan consensus in favor of state-guided economic development will require increasing public confidence in government as an economic actor. At present, that confidence is undermined by the public sector’s persistent inability to build most anything on time and under budget. There are many reasons for the glacial pace of American infrastructure projects. But the ease with which well-resourced groups and individuals can obstruct development through environmental lawsuits is one.
As climate hawks have discovered, existing environmental laws exhibit a strong — and, in an age when rapid green development is essential for sustainability, often perverse — bias toward the status quo. In recent years, renewable power installations and transmission lines carrying low-carbon energy have been routinely delayed or killed on environmental grounds. When Joe Manchin tried to advance permitting reform legislation that would have eased the regulatory burdens facing new energy infrastructure, House progressives were largely united in opposition.
That legislative failure speaks to the fundamental flaw in Feygin and Gilman’s vision. They acknowledge that Democrats and Republicans have profoundly contradictory ideas about how the government should shape economic development. But the authors reason that the parties should nevertheless be able to find common cause in enhancing Uncle Sam’s capacity to shape development at all.
In practice, however, political factions are often reluctant to increase the prerogatives of institutions that their ideologically antithetical rivals have a good chance of eventually controlling. In a United States where Democrats and Republicans shared a staunch commitment to rapid decarbonization, progressives would likely be more amenable to enhancing the federal government’s ability to expedite energy projects. But we do not live in such a country, and so relaxing environmental obstacles to development will abet both clean-energy deployment and fossil-fuel extraction. Personally, I think this is a sound trade from a climate perspective, since a regulatory regime that favors stasis is necessarily one that favors carbon power. But it is not hard to understand why some environmentalists disagree.
Similarly, if Democrats and Republicans were mutually hostile to abortion rights, labor unions, and stringent regulations on commercial activity, conservatives might be more inclined to increase Uncle Sam’s capacities and authorities. Indeed, where the two parties are ideologically aligned, legislation extending the government’s reach has proven possible. But this is a highly limited issue space, composed primarily of national-security concerns. Bipartisan support for the CHIPS and Science Act was born of a bipartisan commitment to economically outcompeting China. The Pentagon’s gargantuan budget is a testament to bipartisan interest in American martial supremacy.
But the administrative state writ large is often the scourge of conservative constituencies, a Leviathan that forces the “anti-woke” to abide by ever-expanding civil rights laws, imposes consent decrees on embattled police departments, and circumscribes the entrepreneurial freedom of predatory lenders, polluters, and labor-law violators. Given that Democrats have held the executive branch for nearly half of this century, conservatives have every reason to fear that strengthening the federal government would mean strengthening their enemies. So the GOP’s national-security hawks will address their anxieties about U.S. industrial capacity through discrete legislation while rallying behind their party’s broader war against a well-funded and well-functioning administrative state.
This is not intended as a counsel of despair. As Feygin and Gilman note, there have been genuine and consequential shifts in mainstream economic thinking over the past few years, especially on the Democratic side of the aisle. The Biden administration has prioritized full employment over fiscal moderation, and industrial strategy over market governance, to a much greater extent than its Democratic predecessor. And bipartisan fears that Chinese firms will outcompete American ones, by virtue of the former’s receipt of state support, will likely yield further opportunities for bipartisan investments in key industrial sectors.
But Feygin and Gilman are also right that the federal government will fail to fully execute its fledgling “designer” ambitions in the absence of reforms that enhance its discretion and competencies. And for the moment, there is no bipartisan consensus in favor of such measures. We are not all “post-Keynesians” now.
