Is there a progressive economics?

Posted on March 12, 2014

By highlighting income inequality, President Obama has opened the door to a serious conversation with voters. The problem is that persuadable voters support an idealized concept of conservative economics based on low taxes and free markets. And they strongly believe that “free enterprise has done more to lift people out of poverty, help build a strong middle class, and make our lives better than all of the government’s programs put together.”

And yet, as economists occasionally explain, no truly “free” markets exist. Every market relies on a dense web of laws and regulations, and rather than seeking free markets, conservatives use government to rig market outcomes in ways that redistribute income upward.

The argument for capitalism is that by harnessing individuals’ economic drive, all of society is enriched by their hard work and innovation. We are entirely for that. But society does not win—in fact, it loses—when people get rich by gaming the system, by exploiting tax or regulatory loopholes, by dismantling viable companies, or by creating scams that aren’t technically illegal but should be.

Mitt Romney got extremely rich that way, using leveraged buyouts to gain control of fairly healthy companies, loading them with debt made possible by federal tax law, extracting the cash, and selling the carcass or letting the company fall into bankruptcy. Thousands of workers lost everything and communities all over America were devastated.

Similarly, the economic crash of 2008 was caused by the same form of corrupt conservatism. Mortgage markets went unregulated, Wall Street created mortgage-backed securities that were essentially fraudulent, mortgage sellers had the incentive to provide loans without regard to borrowers’ ability to pay, housing prices were wildly inflated, and the crash sucked $8 trillion dollars from the pockets of average Americans.

This is conservative economic policy—to warp markets to benefit the rich and powerful, to use subsidies, loopholes, trade policy, labor law, and economic complexity to corrupt markets.

Progressives know enough to decry policies that “rig the system.” But it’s not enough to argue the negative—our side needs some simple language and concepts that allow us to explain a progressive economic system. We need language that embraces the market system and argues that it is progressives—not conservatives—who favor the idealized market concepts that Americans imagine in their minds.

I suggest that progressive economics should support “fair markets” (just as we support “fair trade”). By fair, we mean markets that are balanced—with government as a counterweight when necessary—so that weaker individuals and organizations compete on a reasonably equal basis against powerful ones. In many cases, balancing markets doesn’t require more government involvement, it requires less—taking away the subsidies and other unfair advantages that some individuals and businesses enjoy over other individuals and businesses.

In fact, it is fair markets, not the conservatives’ “free” markets, that are most likely to lower prices and spur innovations. Unbalanced markets weaken competition by giving special breaks to certain companies or specific industries. When a company makes its money through unfair competition, it has little incentive to “build a better mousetrap.” And when a company sells faulty mousetraps to the military at inflated prices, there’s even less incentive to change. In fact, the dominant free market ideology gives corporate leaders and their right-wing cheerleaders a strong incentive to corrupt the system. So that’s what they’ve done.

Because Americans accept unfair markets—in fact, take the unfairness for granted—we don’t consider the enormity of the special interest game-playing in Washington. But at least since the beginning of the second Bush administration, nearly every conservative economic proposal has been designed to make markets more unfair.

Progressive economist Dean Baker summarized the situation better than I can:

The market is just a tool, and in fact a very useful one. It makes no more sense to lash out against markets than to lash out against the wheel. The reality is that conservatives have been quite actively using the power of the government to shape market outcomes in ways that redistribute income upward. However, conservatives have been clever enough to not own up to their role in this process, pretending all along that everything is just the natural working of the market. And, progressives have been foolish enough to go along with this view.

Let’s muster a little cleverness of our own—reject the language of free markets and embrace the progressive principle of fair markets.