A new economics

November 16, 2023, from New York Times

A then-obscure think tank named the Roosevelt Institute released a report in 2015 that called for a new approach to economic policy. It was unabashedly progressive, befitting the history of the institute, which was created by trusts honoring Franklin and Eleanor Roosevelt.

The report called for higher taxes on the rich, a higher minimum wage, more regulation of Wall Street, more support for labor unions, more aggressive antitrust enforcement and more government investment in economic growth. National news outlets covered the report while also noting how much of a break it represented with decades of economic policy by both the Democratic and Republican Parties. There was ample reason to be skeptical that much would change.

But much has changed in the past eight years.

President Biden has enacted the biggest government investment programs in decades, two of which — in infrastructure and semiconductor development — received bipartisan support. Both the Biden and Trump administrations showed more interest in antitrust policy than their predecessors. Many states, blue and red, have increased their minimum wages. American workers have become more interested in unionizing, and labor unions in both the auto industry and Hollywood have recently won big victories. Even some Republican politicians speak positively about unions.

“It’s very surprising this all happened,” Felicia Wong, the longtime president of the Roosevelt Institute, told me. “For a long time, those of us who have been arguing for it were on the outside looking in.”

In today’s newsletter, I want to consider two questions: What explains the shift toward what Wong and her colleagues call (in a new report, released today) a New Economics? And is that shift likely to continue?

Unmet promises

The simplest explanation for the shift is that the old economic approach hasn’t worked very well for most Americans. Starting in the 1980s, the U.S. moved toward an economic policy that’s variously described as laissez-faire, neoliberal or market-friendly. It involved much lower taxes for the wealthy, less regulation of business, an expansion of global trade, a crackdown on labor unions and an acceptance of very large corporations.

The people selling this policy — like Milton Friedman, a Nobel laureate in economics — promised that it would bring prosperity for all. It has not.

Incomes for the bottom 90 percent of workers, as ranked by their earnings, have trailed economic growth, and wealth inequality has soared. For years, Americans have told pollsters that they were unhappy with the country’s direction. Perhaps most starkly, the U.S. now has the lowest life expectancy of any affluent country; in 1980, American life expectancy was typical.

Conventional wisdom rarely changes quickly. Friedman and his fellow laissez-faire intellectuals spent decades on the fringes, before the 1970s oil crisis and other economic problems caused many Americans to embrace their approach. But conventional wisdom can change eventually. And after decades of unmet promises about the benefits of a neoliberal economy, more people have grown skeptical of it recently.

Donald Trump also played a crucial role. He won the Republican nomination in 2016 while defending Social Security and Medicare and criticizing free trade and high immigration, two pillars of neoliberalism. By doing so, he proved that even many Republican voters had drifted from the views of Ronald Reagan and Paul Ryan.

As president, Trump often contradicted his own populist rhetoric. (His one big piece of legislation was a tax cut that mostly benefited the rich.) But he shattered so many basic norms of governance that Democrats came to think they too could discard long-held beliefs. As Neera Tanden, who is now Biden’s top domestic policy adviser, said to me in 2018, “Donald Trump has widened the aperture for policy discussions in the United States.”

Still vulnerable

Where does the New Economics go from here?

For all the progress it has made, the movement remains far from its biggest goals. In many ways, Americans are still living in the Reagan era. Taxes on the rich remain low. Corporations are much larger than in the past, and they can often prevent workers from forming unions even when most employees at a work site want to join one. Many progressive proposals, like universal pre-K, remain dreams.

In the short term, the biggest question is probably whether Biden can win re-election, given Trump’s lack of a consistent economic policy. One threat to Biden’s re-election is voters’ unhappiness with the economy’s recent performance, especially inflation.

Today’s high prices are mostly not Biden’s fault, as my colleague German Lopez has explained; inflation has also been a problem in other countries, related to Covid disruptions, the war in Ukraine and other factors. But Biden has failed to persuade voters that he is sufficiently focused on high prices, and they give his overall economic policy much lower marks than they give his specific policies, like the investments in infrastructure and semiconductors.

For all these reasons, the New Economics both has made surprising progress over the past decade and remains vulnerable to reversal.

Related: After ignoring inequality for years, economists are now publishing books about it. They disagree on how to address the problem, The Times’s Jennifer Szalai writes.

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