Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. His blog, Beat the Press, features commentary on economic reporting.
One of the main points of your books The Conservative Nanny State and The End of Loser Liberalism is that conservatives are not as laissez-faire as they represent themselves as being. You bring up patent and copyright laws, anti-union laws, asymmetric free trade agreements that protect high earners from competition, and other examples. On your view, conservatives are not categorically opposed to government interventions and distortions like they say they are; instead, they pick and choose which interventions and distortions that they like, those being the ones which favor the rich. Why do you think the right wing has been so successful presenting themselves as laissez-faire, and obscuring the ways in which they call upon the government to intervene in ways to distribute income upwards? What should be done — beyond of course publishing books like yours — to debunk that right-wing laissez-faire narrative?
I think that the right has been successful because progressives have largely ceded the high ground. They have accepted the right’s framing of the debate in case after case. In the case of patent protection, progressives are as likely as conservatives to treat patents as a natural feature of the market. Rather than attacking patents as an enormous distortion of the market created by government intervention, they say that it is immoral to allow drug companies to charge such high prices, especially when it can mean in many cases that people cannot afford life-saving drugs.
It may well be immoral, but why not just start at the more basic level and say that this is an incredibly inefficient form of government intervention that has enormous economic costs, including pricing drugs out of the reach of many patients. We should start by arguing over whether this is a good form of intervention, which is the question, not whether the government should over-ride the market.
To take another fairly recent example, there was a big debate over bankruptcy reform about 5-6 years ago. The conservatives wanted to tighten up rule on bankruptcy while liberals were opposed. Here also the issue was presented as conservatives being on the side of individual responsibility, whereas liberals were sympathetic to the people facing bankruptcy, noting that health care issues were often the driving factor.
Of course the real story here was the extent to which the government is willing to act on behalf of creditors to help collect their debts. The issue of personal responsibility could just as easily been posed the other way. Lenders are supposed to know their borrowers. A lender that makes too many bad loans is supposed to go out of business, not ask the government for help in collecting his debts.
One more part of this that was especially outrageous is that the new bankruptcy terms were applied retroactively. This meant that people who took out credit card and other debt under one set of bankruptcy rules were then required to pay the loans back under another set of rules. Conservatives would jumped up and down screaming that this was interference with the sanctity of contract if the change had gone in the other direction. If any progressives made this argument, I sure didn’t hear them.
Basically, conservatives have been smart in concealing their efforts to have the government rig the rules in their favor, and progressives have generally not sought to challenge them.
By combating the notion that one side prefers the market while the other does not, you undercut the idea that there are market outcomes that are not affected by intentional government policies. Understanding this fact forces us then to contemplate what kind of intentional government market constructs we should put in place and why. I take this to be what you are aiming at when you remark that the market should be understood as a tool, not an end in itself. On your view, what sort of ends should we be pursuing when we construct our economy? Are there any books, philosophers, or other thinkers that have affected the way you think about economic justice and the ends of economic policy?
I have been influenced by a wide range of political philosophers over the years, but I suspect that most of us really would not disagree very much on the ends that we would want to see pursued in designing the market. We would want to see an economy that allows everyone to share in the benefits of economic growth, that preserves the social and natural environment for future generations and gives people the opportunity to fully utilize their talents. The latter means that we want a society in which people are encouraged to be innovative and hard-working, but that doesn’t mean that they become ungodly wealthy as an outcome.
Your books are reminiscent of a famous Noam Chomsky speech in which he talks about “really existing free market theory.” Here is an excerpt:
And the principle of really existing free market theory is: free markets are fine for you, but not for me. That’s, again, near a universal. So you — whoever you may be — you have to learn responsibility, and be subjected to market discipline, it’s good for your character, it’s tough love, and so on, and so forth. But me, I need the nanny State, to protect me from market discipline, so that I’ll be able to rant and rave about the marvels of the free market, while I’m getting properly subsidized and defended by everyone else, through the nanny State. And also, this has to be risk-free. So I’m perfectly willing to make profits, but I don’t want to take risks. If anything goes wrong, you bail me out.
Chomsky is of course an anti-capitalist, and he argues that maintaining any kind of capitalist structure will unavoidably lead to this “really existing free market theory” which seems to be in line with what you understand the current state of the U.S. economic structure and policy to be. Do you think there is something to Chomsky’s political critique then of reform-minded liberalism? Might it be the case that although a well-regulated capitalism with aggressive policies to fix some of the bad consequences of capitalist systems would be very valuable, that such a system is not going to be politically achievable because of the way corporatism and money in politics necessarily operates? Is there any plausible story that you could think of which would allow political power in an economic structure like ours to be captured and made to work for people other than the wealthy (e.g. through implementing some of the reforms you propose)?
For better or worse we are operating within the system we have and we can’t just wish it away if we don’t like it. That means that we better hope that reforms from within the system can move it toward being a more just sustainable system.
In this respect I am in complete agreement with this quote from Chomsky. The rich currently manipulate the rules to ensure that the money flows upward and that they are protected from bad outcomes. This was never more apparent than in the bailouts in the financial crisis. If we want to combat this sort of corruption the first step must be the clearly call it out.
As it stands, we have many progressives who think that we are fighting the market or “market fundamentalism.” This would be like fighting the wheel. It is an impossible task that makes no sense in any case. Our efforts have to be devoted to fighting the way in which the wealthy have structured the market so that they get all the money. It obviously is not easy — they have the money, enormous control over the media, academia and other key institutions — but if we don’t even know where we are trying to go, there is no way that we can get there.
The institutions that you talk about in your books — in particular the Federal Reserve — are somewhat complicated and are not well understood. This of course is beneficial to those who presently benefit from these institutions in their current form, as bankers do with the Federal Reserve. You advocate certain democratic reforms to the Federal Reserve which you think would be better than the current way the decision-makers in the Federal Reserve are selected. Specifically, you prefer presidential appointments. Do you think that this would be a successful way to fix the anti-democratic problem of the Fed given the way executive nominations have recently fared in the Senate, and been used to obstruct the Executive? What do you make of efforts like those of Dennis Kucinich to put the Federal Reserve under the Treasury?
If we could just change the Fed tomorrow so that all the people with say on monetary policy were appointed through the democratic process it would be a positive, but still very limited step. We have to go much further and make Fed policy a central feature of political debate.
As it stands, the media treat the Fed as being like a church where the priests decide what the true word is from on high and the rest of us just bow down and respect what we have been told. When Governor Perry entered the presidential race and made his attacks on Bernanke, the criticisms directed toward Perry were based less on his seeming ignorance of Fed policy and the implicit threat of violence against the Fed chairman, than the fact that he would criticize the conduct of monetary policy.
It is 100 percent appropriate for a presidential candidate or other candidates for public office to bring monetary policy in political debates. The Fed should be treated just like any other regulatory agency. We don’t want members of Congress deciding which drugs get approved by the Food and Drug Administration (FDA), but we absolutely do want Congress and the president to be setting up a framework in which the FDA makes its decisions. That means that if it goes years without approving a new drug, then it should have to explain its rejections to elected officials, just as it would have to explain a pattern of approving drugs that proved to be harmful.
Congress should dictate to the Fed the extent to which it should place a priority on combating unemployment or containing inflation or coordinating with the Treasury to reduce the value of the dollar. On a day to day level, the specific policy decisions must be left to the Fed, but the goals that it pursues are given to by democratically elected officials, not handed down directly from the heavens.
I am sympathetic to Kucinch’s goal of making the Fed more accountable. I’m not sure that his proposal is the best way to do it.
Lastly, there are various policy prescriptions in this latest book. If you had to pick one that you thought was most important, which one would it be, and why?
I would probably put bringing the dollar down. The reason is that accounting identities are very powerful.
Specifically, if the United States has a large trade deficit, then it MUST either have a large budget deficit or have negative private savings, or some mix of the two. There is no way around it.
In other words, if we have trade deficits in the range of 6 percent of GDP ($900 billion), as we did before the recession, then we absolutely must have some combination of budget deficits and shortfalls in private saving that is equal to the $900 billion trade deficit. In the years before the recession the budget deficit was relatively small. Most of this gap was filled with negative private savings that was driven by the housing bubble. Families spent huge amounts because they thought they had all this equity in their home, as a result of bubble-inflated prices. When the bubble burst, they were left with nothing.
This points to the urgency of getting the trade deficit down to a more sustainable level. There is no realistic way to do this other than a sharp decline in the value of the dollar. The Obama administration’s route of more NAFTA-style trade agreements is ridiculous. These have a track record of increasing our deficits with the countries in question. Furthermore, one of their main effects is likely to be an increase in the cost of drugs in our trading partners, something that none of us should be anxious to see.
On the other hand, the idea that we will move to more balanced trade with competitiveness policies or industrial policy is also silly. We can hope to improve the performance of various sectors with good policy, but even the most optimistic scenarios would still imply very limited gains compared to something like a 20 percent decline in the value of the dollar — and they would take much longer.
Also, since trade has been focused so much on sectors of the economy that employ non-college educated workers there is a huge class dynamic to the trade deficit. If we get the dollar down we hugely improve the situation of non-college educated workers relative to the highly-educated professionals (e.g. doctors, lawyers, dentists), who have managed to rig the deck so that they still are largely protected from international competition.
Dean Baker’s latest book is The End of Loser Liberalism: Making Markets Progressive, and more of his work is available at the Center for Economic and Policy Research.
Matthew Bruenig is a syndicate contributor to The Firebrand and the author of MattBruenig.com. You can follow him on Twitter @MattBruenig and subscribe to his work via RSS. This article was publicized on CEPR.net.