Bye, Bye, Economic Pie
And more from this week...
I’ve often likened the Wall Street Journal’s editorial board to the Japanese soldiers holding out on remote islands, unaware the war has ended or sworn to fight on regardless. Since 2015, it has remained 2015 on that magical opinion page where time stands still, market fundamentalism reigns, and Speaker Paul Ryan has a budget-busting tax cut queued for passage. But Ryan has moved on to launching SPACs and submitting op-eds with titles like “Crypto Could Stave Off a U.S. Debt Crisis.” And as an inside-baseball complement to the return of conservative economics on display at the Republican National Convention this week, a remarkable column appeared yesterday from Glenn Hubbard, dean emeritus of the Columbia Business School and chair of President George W. Bush’s council of economic advisers.
ONE THING TO READ
Your one thing to read this week is from Glenn Hubbard at the Wall Street Journal: “The Economic Populists Have a Point.”
Hubbard is a top-notch economist and perhaps the most influential economic policy advisor on the Old Right. While he and I disagree constantly, I would put him alongside AEI’s Michael Strain as one of the most generous, good-faith, and substantive interlocutors on the debates raging within the right-of-center. He hosted me at Columbia last year for a really interesting discussion on “Rethinking Capitalism: Is the Current System Working for Americans?” Point being, what he is saying about economic policy matters a lot.
Note three things in particular.
1. His definition of human flourishing: “A conservative economic platform should recall why conservatives have stressed the benefits of markets. The goal, as my Columbia colleague and Nobel laureate Edmund Phelps puts it, is ‘mass flourishing.’ That is why we want markets to work—to advance innovation and productivity and allow communities to make that flourishing possible.”
One of the cardinal sins of market fundamentalism has been analyzing people as atomized individuals and focusing only on maximizing their welfare as consumers. The key starting point for a return to conservative economics is to reconceive the economic component of flourishing in terms of innovation and productivity within communities, as Hubbard does here.
2. His forthright acknowledgment that a rising tide has not been lifting all ships: “There’s more to the populist conservatives’ skepticism than traditional conservatives acknowledge,” he writes, and the Old Right should “agree[] with populist conservatives that markets don’t always work perfectly and that a hands-off approach isn’t always the solution.” I particularly enjoyed his observation that, “while competition at home and abroad expands the economic pie, it says little about the relative sizes of the slices, a point noted by populist conservatives,” which echoes my own long-running critique of “economic piety.”
This acknowledgment also echoes the recent paper from AEI’s Scott Winship, Understanding Trends in Worker Pay Over the Past 50 Years. I write in-depth about the paper here, but its key point is that “the productivity of the median worker has risen by less than overall productivity” owing to factors including “the shift to a lower-productivity service economy.”
3. His policy wish list: “A conservative economic agenda should include policies that advance economic growth and living standards. That means supporting research and development, maintaining pro-investment business tax provisions in the Tax Cuts and Jobs Act of 2017, and making regulations that benefit everyone.” I agree with all of this.
No mention of free trade or more immigration. No call for “getting government out of the way.” To the contrary, he is calling for higher R&D spending—what he goes on later to call “a limited measure of successful industrial policy.” No call for making permanent the entire, budget-busting TCJA, let alone cutting taxes further. The “pro-investment business tax provisions” in TCJA (by which he presumably means immediate expensing in particular) are the ones I consider most useful as well. And rather than a generic call for “cutting red tape,” he is focused on “making regulations that benefit everyone.”
The three themes—what flourishing means, what has gone wrong, what to do—flow naturally from one to the next. If one thinks broadly and in conservative terms about flourishing, one quickly notes that the economy has not delivered as it needs to, and the traditional free-market policy agenda then gives way to one focused more practically on what is needed for markets to work well.
American Compass’s mission is to restore an economic consensus that emphasizes the importance of family, community, and industry to the nation’s liberty and prosperity. A consensus is a difficult thing to define, operating often through unchallenged assumptions, topics avoided, and subtle cues that convey within a coalition what members in good standing should believe. So we mark carefully the fixed positions where the subtext bubbles to the surface and gets plainly said, allowing us to see where we have been and how far we have come. Pieces like Hubbard’s are a very good sign.
Bonus Link: Also on the Wall Street Journal opinion page, Peggy Noonan writes, “We saw something epochal: the finalization and ratification of a change in the essential nature of one of the two major political parties of the world’s most powerful nation. It is now a populist, working-class, nationalist party. That is where its sympathies, identification and affiliation lie. There will be shifts, stops and accommodations in the future, no party ever has a clear line, history intervenes, but it is changed, and there will be no going back.”
Bonus Bonus Link: Hubbard’s 2021 book, The Wall and the Bridge, provides a good reference point for the transformation underway on the right-of-center. My review essay in American Affairs summarizes his arguments and critiques them, well, rather harshly to say the least.
THIS WEEK AT AMERICAN COMPASS
The Compass Point is from yours truly, adapted from my remarks last week at the National Conservatism conference in Washington: What Time Is It? Time to Govern.
Gaining productive power requires focusing on people’s problems and explaining how you are going to solve them, not pounding the table for “Christian Nationalism” or a “second American Revolution.” And importantly, it then requires using the power gained to in fact solve the problems—not to pivot quickly to some far-reaching ideological agenda that has nowhere near the support required for its success.
ALSO ON THE COMMONS
Batya Ungar-Sargon explains what Donald Trump’s selection of J.D. Vance as his running mate says about Trump himself and the creation of a new American “center,” very different from the one envisioned at the Brookings Institution.
And, on the American Compass Podcast this week, veteran political analyst Henry Olsen of the Ethics & Public Policy Center explains how the Party of Reagan went off the rails, and why Vance has the potential to get it back on track.
WHAT ELSE SHOULD YOU BE READING?
Healthcare policy is devilishly difficult, in part, because the basic rules and assumptions that govern markets simply do not apply. This obviously poses a challenge for the Right’s “choice and competition!” rhetoric, but the Left’s public-payor model ultimately runs into many of the same problems. Two recent dives into medical billing from very different sources—the Wall Street Journal and The Lamp—illustrate this well and make for fascinating reading:
Jacobin grapples with Teamsters president Sean O’Brien’s speech at the Republican National Convention. Self-recommending!
Compass advisor Michael Pettis makes an especially crisp and stark presentation of the case that it doesn’t really matter whether American economists want to be interested in industrial policy; in a global economy, industrial policy is interested in them.
Bonus Industrial Policy Link: This week was the fifth anniversary of my debate with Richard Reinsch, at the first National Conservatism Conference, on the question “Should America Adopt an Industrial Policy?” A useful reminder of the conversation’s early days and, at the 52:40 mark, a remarkable cameo during the speeches from the floor.
For a good understanding of Senator Vance’s own intellectual development and thinking on a lot of the key issues facing America, I highly recommend two essays he wrote back around the time of American Compass’s launch:
And finally, if you want my own thoughts on the Vance nomination, please take a look at my column in Financial Times:
Enjoy the weekend!
I find it bizarre that the WSJ hides its opinion page behind a paywall like they don't want people to read their opinion. Thanks for summarizing the content.
The selection of Vance is hugely important for the future. The GOPe is obviously plotting to retake the party and Trump just put a big obstacle in the way. Trump's mortality got demonstrated to him in the most dramatic way possible plus he is increasingly confident of victory and wants to make something of it. It is also important as a new vision for the party which is as you say a worker/family oriented entity rather than the oligarch controlled party of Romney and Ryan.
I think the future is not a fusion of the right populists with the conventual conservative economics but with the left populists. This has not been accomplished since William Jennings Bryan but it is a possibility with Vance. Consider: (lifted from Compact)
He co-sponsored a bill with Sen. Raphael Warnock (D-Ga.) to lower the price of insulin.
He backed legislation with Sen. Elizabeth Warren (D-Mass.) to claw back executive pay when big banks fail.
He spearheaded legislation with Sen. Sherrod Brown (D-Ohio) to regulate the rail industry following the disaster in East Palestine.
He worked with Sen. Dick Durbin (D-Ill.) for drug price transparency and to promote greater credit-card competition.
He introduced a bill with Sen. Sheldon Whitehouse (D-RI) to battle corporate mergers.
This is obviously all situational but is perhaps a portent for the future.
Up until the early 1980s, real wages and labour productivity typically moved together. As the attacks on the capacity of workers to secure wage increases intensified, a gap between the two opened and widened, as wage gains were increasingly detached from producitivity growth (as had been the case under the Treaty of Detroit for the UAW).
The wage share in many countries was more or less constant for a long time during the Post Second World War period and this constancy was so marked that Nicholas Kaldor (the Cambridge economist) termed it one of the great “stylised” facts.
It meant that real wages grew in line with productivity growth which was the source of increasing living standards for workers and allowed them to maintain growth in consumption expenditure commensurate with the growing output of the economy.
The productivity growth also provided the ‘room’ in the distribution system for workers to enjoy a greater command over real production and thus higher living standards without threatening inflation.
Since the mid-1980s, the neo-liberal assault on workers’ rights (trade union attacks; deregulation; privatisation; persistently high unemployment) has broken the nexus between real wages and labour productivity growth.
So while productivity growth has proceeded, real wages have been stagnant or growing modestly.
As a result, the wage shares in most nations have been falling, which has led to GDP growing less efficiently (as more and more of GDP's gains were funnelled up to those with the highest savings propensities), and private debt growth surged, as the now struggling middle class took on more debt to sustain their living standards. All of which meant that capitalism itself worked less well which is a point that Glenn Hubbard, to his credit, acknowledges (in contrast to many other market fundamentalists)