"left Reaganism"

Many progressives are celebrating President Obama's recently announced turn toward "middle-class economics" and Representative Chris Van Hollen's (D-MD) tax proposals. (Van Hollen's plan would levy taxes on financial transactions, close loopholes that benefit the very wealthy and link corporate executive pay to that of the rank-and-file workers in order to fund tax credits for those of more modest means.) But Salon just published a fantastic column from Michael Lind, the author of Land of Promise: An Economic History of the United States, that offers a dissenting view. Lind argues that policies that make modest adjustments to the tax code, rather than take more fundamental steps to ensure economic opportunity, are hopelessly mired in a conservative framework. As such, they are not truly populist at all. Instead, they embody what Lind calls "left Reaganism."

Until the rise of supply-side economics in the 1970s, the dominant mode of economic thinking in the United States was liberal Keynesianism. The central tenet of this approach was that economies get sluggish due to a collapse in demand: if workers' wages stagnate or unemployment gets too high, people will not have a lot of money to spend. They will stop purchasing goods, which will lead firms to cut back on production and lay off workers. This slowdown, in turn, will suppress demand even more. The only way out of this spiral, argued Lord Keynes, was for the government to step in and stimulate the economy directly. The main goal of this approach was to put money in people's pockets so that they would spend it. As such, tax cuts were a part of this goal, but were not as central to the Keynesian toolkit as social welfare programs and government jobs.

Reagan, on the other hand, followed Arthur Laffer and Jude Wanniski in holding that recessions were more likely to be caused by the tax code. (I explain the genesis of their ideas in chapter six of A Commercial Republic. Brian Domitrovic's Econoclasts tells the story in much greater detail.) Under this interpretation, the firms and wealthy individuals who modern-day Republicans like to call "job creators" are unwilling to increase production because, were they to do so, taxes would take too much of their earnings to make it worthwhile. Lowering taxes on corporations and the rich would provide them with the incentive to increase supply. When they did so, they would need more workers. This would increase employment,  and then demand would pick up.

Lind calls the supply-side approach "tax cut Keynesianism for the classes." (As a side note, I would quibble with this characterization, as the diagnosis of the problem and the intended purpose of the tax cuts are substantially different in the Keynesian and supply-side approaches.) Reacting to the popularity of conservatism over the last two generations, Democrats have been unwilling to offer an alternative approach. Instead they have merely presented "tax cut Keynesianism for the masses." Economic liberalism in the post-Reagan era has been defined by "little, gimmicky tax cuts, to the exclusion of direct interventions in labor and product markets or expansions of social insurance."

Lind urges progressives to return to the economic philosophies of the New Deal, which did not "tinker...with the tax code for short-term electoral gain, treating 'the middle class' as one of many narrowly targeted constituencies." Instead, the New Dealers built the modern middle class by "boldly us[ing] all the tools in the arsenal of the modern mixed economy: labor market regulation, social insurance, public utility regulation and state capitalism." Lind offers a few policy suggestions that would characterize that spirit today: a minimum living wage, restrictions on the immigration of the unskilled (to tighten up the labor market), increased investment in infrastructure and basic research, and price restrictions on college tuition and medical care. These would be much more popular, and more effective, than "modest, complicated tax cuts."