Why Democrats lose the war of ideas on economics

The short answer is that both broad factions of the party, DLC democrats and (less obviously) liberals play into Republican hands. Instead of challenging the foundations of Reaganite ideology and presenting an alternative vision, Democrats of all stripes largely accept it.


"Business" (DLC) Democrats

Kissing up to Wall Street:
If there was ever an industry more in need a healthy dose of regulation, the financial services industry is it. While many of the ethical breaches by industry players are well publicized, such as in the Enron and Worldcom scandals or the Eliot Spitzer cases, the decline in business ethics is only one of the harmful consequences. Another is the rise of "financialism"-- a wasteful and counterproductive enlargement of the finance industry itself. Facilitated by technology and a constant flow of deregulations since the early 70's the broader financial services sector is now larger than the manufacturing sector in America.

While it might be thought that information technology would lessen the need for manpower in the industry, employment has grown much faster than the population as a whole in the last few decades. Instead technology has chiefly been used to increase the overall volume of trade and to facilitate the maintenance of complex and dubious financial instruments such as derivatives -- basically we get trading for trading's sake.

Another consequence of the industry's power and hold over our government is excessive profits born of that power. While Banks and financial institutions are certainly entitled to a healthy profit, the level of profit (second only to pharmeceuticals) is ridiculous for an industry that essentially produces no useful innovation and makes little "value-added" contribution. This capital now used to line the pockets of executives and trust fund kids would be more usefully employed in support of a host of more useful endeavors.

The financial services industry has been able to accumulate such power because as the largest donor to both parties, it never loses an election. This money has tilted democrats away from their traditional alliance with workers. The Business Democrats now have us playing on Republican turf, competing for the same constituency with the same dollars. The Business Democrats consequently reinforce Wall Street's view of the world in the media and this is one reason why the Reaganite/Thatcherite economic view is now dominant.

Market Worship:
Partly a consequence of the financial services industry's rise to power, an economic ideaology that best supports its interests now hold's sway. The "invisible hand" notion that individuals acting in their own best interests producse the best of all possible worlds is basically accepted by both parties. The Business Democrats typically offer minor caveats to the general theme, but they do so from basically the same starting point of market worship. To this, Republicans can always respond with a simpler story and win the battle of ideas.

For example, John Kerry's tactic to prevent offshoring by filling tax loopholes for offshore corporations was couched in terms of making the market more fair. Bush could respond simply by challenging Kerry with waffling on "free trade" and not being faithful to the market worldview. Kerry may win the the specific issue by a wide margin but because it is an "ad-hoc" measure rather than a natural extension of a simple and consistent worldview, Kerry does not connect with voters.


Liberal "Green-Leaning" Democrats

America as bully:
Liberal Democrats like myself have read Howard Zinn, Jonathan Kwity, Noam Chomsky, and Chalmers Johnson. We are disillusioned of the notion that America is uniquely virtuous. America's many sins and abuses of power have been most prominent in the last 55 years or so from the Cold-War period to today's "War on Terror" -- as this is the period when America's power, and its potential for abuse of that power, has been at its greatest. Out of this recognition springs a worldview of "America as bully" in which our military and our government manipulates and takes advantage of less powerful countries to serve American political and economic interests (or the interests of the powerful within America such as the oil industry). The problem with this worldview is that it tends to be applied too liberally. In the economic domain there is another worldview with more relevance -- "America as sucker".

The ideology of free trade that is now pervasive in America is due in no small part to the influence of foreign trading interests who have been active in our political system for a number of decades. By hiring lobbyists and funding globalization-cheerleading think-tanks (CATO, Heritage, Brookings) and even academic institutions, the interests of foreign nations and foreign-based corporations who wish to export to our country have been advanced.

The bottom line is that free trade is a loser's strategy, and other advanced industrialized nations practicing strategic trade in their own national interest have been picking apart American industry for decades. The most prominent recent example is Boeing's loss of aerospace leadership to heavily subsidized Airbus. If Airbus is able to finish off Boeing, whatever the consortium nations
lose through paying subsidies will be more than made up for by gains Airbus can reap from its monopoly positioning.

The other theme that is overplayed is the notion that by buying Chinese goods, Americans are taking advantage of exploited Chinese workers, and by the same token domestically-based firms and their investors are also exploiting when they offshore to China. While there is some truth to this "America as bully" perspective, remember that China is utilizing a similar development strategy as Japan, Taiwan, South Korea, Singapore and other East Asian nations once did to achieve wealth. Also remember that these nations are now much more materially egalitarian and middle-class than the United States and even most of Europe. It may be a mistake to apply the old exploited worker paradigm to China because while they may be exploited, if the pattern holds it is not so much to benefit a
wealthy class of investors, but rather future generations of Chinese.

The generally problem with the America as bully worldview is that it is applied too liberally as a overreaction to the hyper-patriots -- the world is a bit more complicated than that particularly in the economic domain. The other problem is that it is an moral argument more than an economic one. The other side can dismiss it easily with irrelevant but rational sounding abstract economic arguments about comparative advantage and other such nonsense.


Broad brush Anti-Big-Business:
The second mistake that many liberals make is to become anti-"big business". The problem with big businesses is that they become dangerous when they hold to much power and influence. The benefit of big businesses in many domains is that they can achieve greater efficencies through economies of scale. While size doesn't offer a lot of advantages in locally-constrained fields such as food service, in some internationally traded goods, size is essential to compete. A good example is steel where Americans have been losing to Japanese, European, and Korean competion largely because we have failed to consolidate as effectively.

By the same token, liberals make a mistake when they decry "corporate welfare". Decrying Corporate welfare with a broad brush on the grounds that it violates free-market principles feeds into Republican hands because it implicitly validates their market worship while accomplishing little to stop the individual
abusive practices. Corporate welfare in and of itself is not necessarily a bad thing; it makes sense to give subsidies to an infant industry that shows great future promise but could not survive in the short-term without assistance; it also makes sense sometimes to give to an old business that has fallen on tough times, especially if their circumstances are bad because of temporary factors or bad luck -- the disruption of allowing valuable industries to fail can be much greater than the temporary burden to taxpayers.

The problem lies not in the practice of corporate welfare but who gets it. Often in this country corporate welfare is doled out according to politcal influence, so that big Ag and big finance can count on assistance, while the auto, steel, and civilian aerospace industries get very little support compared to their international competition. What we should want are big businesses that are allowed a certain amount of market power to achieve international competitiveness but are regulated in such a way that they act to meet the interests of the broader economy. What we need is a government that is powerful enough to exercise some control over big business instead of the other way around.

Reagan spent eight years telling us he was going to reduce the debt and deficit, yet both went through the roof. He cut taxes for the wealthiest and claimed that the benefits would trickle-down to the rest.
Bill Clinton and the Democratic Congress passed the deficit reduction act of 1994 that led to the annual budget surpluses, and the reductions in the federal debt.
When Bush Jr. took over as President, he reintroduced the era of government irresponsibility and aided the Congress in spending like drunken sailors in a whorehouse, while restoring the Reaganesque tax structure. Consequently, we now have deficits and debts that make Reagan's economic mistakes look like chump-change.
I don't think any Democrats accept the Reagan/Bush idealogies, and I think the Republicans that think they do are only fooling themselves.

Wasn't it Clinton who let NAFTA breeze on through? Kerry is also a supporter of NAFTA, and on the issue of trade, this is what hurt him in the campaign, as the article correctly states. The other side simply called him a waffler over the issue. Why? Because he's trying to play in their arena on this issue.

"Business Democrats" are what is killing the Democratic Party. Politicians who would choose corporate interests over the interests of the people whenever they collide are what is killing the party.

If we're going to survive, we need to look at what's happening on the ground and be pragmatic about economic issues. The article makes sense here, but being pragmatic is certainly not the same as selling out and giving benefits to those who had the most influence on you.

Of course, there are differences between the economic policies of Clinton and those of Reagan or Bush II, but that wasn't the main point. The main point is that when Democrats have embraced the Friedman/Reagan/Thatcher notion of the goverments role in the economy. This is most visibly symbolized by Clinton's state of the union remark --"The era of big government is over", and manifested in his policies concerning business regulation and international trade. Even concerning the tax structure, while Clinton was able to make it slightly more progressive, the main thrusts of Reagan's "reforms" in the early 80's were not challenged. For example, The Nixon tax structure was much more progressive than the Clinton one. The point is that libertarian-leaning Republican economic ideals hold sway in the marketplace of ideas.

None of this means that Bush II's policies have not been remarkably bad even by Republican standards.

It is so true that "free trade" is a sucker's game. We give up our power to some idealized notion of "free tyrade" that is anything but free.

Good point about "corporate welfare" - I think this term was a reaction to the "welfare queen" stories of the Reagan era, and the origin of the term was from the grassroots, not the party leaders. This is the kind of thing that happens when you react.

The points about trade and big business are right on.

The desire to shine light on obvious hypocrisy is understandable; the term "corporate welfare" certainly accomplishes that goal.

As I hinted at, one of the problems is that Democrats don't really have a simple story to tell with regard to economic policy. We just have a vague notion that the market doesn't always work, and seek to plug the dike when we think it fails.