What Kind of Economy? | The Nation


What Kind of Economy?

  • Share
  • Decrease text size Increase text size

This is the first in a series of essays outlining a new progressive economic policy. The series, we hope, will offer an alternative to the neoliberal thinking that has dominated economic policy within the Democratic Party leadership over the past decade. That thinking is responsible in part, we believe, for an economy of rising inequality that no longer works for ordinary Americans.   --The Editors

About the Author

James K. Galbraith
James K. Galbraith is author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should...

Also by the Author

Economists and wonks respond to Thomas Geoghegan's Nation essay “What Would Keynes Do?”

In a debate over the Democratic future, no one should confuse the Hamilton Project with the Republican past. Robert Rubin and his associates have invited a broad dialogue on economic inequality and strategic investment, and on many specific policy questions--including education, health, taxes and wages--they will define the high-profile, wholly respectable neo-Clintonian position in the season ahead. There's nothing wrong with that.

But these advances come at a price, which will be exacted in two areas: the world trading system and domestic fiscal policy. Both of these are far more fundamental to the Hamilton mission than any particular social policy reform. Indeed, one purpose of the Hamilton Project, it seems clear, is to propose just enough creative social advances--such as wage insurance, better teacher pay and healthcare reform--so as to divert discussion from the bedrock commitments to free trade and a balanced budget.

Progressives shouldn't let this happen. And yet we have our own work to do: Our trade position is obsolete, and there is for now no clear progressive fiscal policy. We need to be talking trade and budgets, not simply because they are too important to bargain away, and not just to contest Rubin's worldview, but to build one of our own that is realistic, compelling and also serves larger purposes, including environmental survival and social justice.

On trade, the Hamiltonians favored the North American Free Trade Agreement, while most populists and progressives opposed it. This fight has been replayed endlessly, and it continues to color the arguments over the Central American Free Trade Agreement and the bilateral free-trade agreements now under negotiation. But as some NAFTA opponents, notably Jeff Faux, have recognized, it's time to get over it. Whether NAFTA created or cost jobs initially, the economies of Mexico and the United States are now about as integrated as they are going to get, and the effect is basically finished. As a result, Mexico's economy grew with ours in the late 1990s and went bust when ours did in 2001. Almost all discussion of outsourcing now focuses on China and India, two countries with whom we do not have, and will not get, free-trade agreements.

More broadly, the late 1990s showed two things about trade agreements. First, they don't prevent full employment in the United States: We went smartly to a full employment economy in 1998 and stayed there for three years. Second, they don't do much good either. Compared with the productivity gains engendered by full employment in the boom, those brought on by NAFTA in the mid-1990s were trivial if detectable at all.

So what's the debate these days really about? Why are the Hamilton Projectors so passionate about "free trade"? Perhaps the reason has something to do with the industries they come from. US finance, insurance and the "intellectual property" trades want "free-trade agreements" (and a successful conclusion of the Doha Round of World Trade Organization negotiations) because they want access to other markets and stiff enforcement of trademarks, copyrights and patents. In addition, agribusiness--another sector at the forefront of current trade talks--wants every wheat, corn, rice and cooking-oil consumer it can find.

Trade agreements pushing this agenda don't cost American jobs. The problem is that they are predatory. Thus a main effect of forcing open agricultural markets in Central America will be to displace small corn and bean farmers from the land, increasing migration: As food moves south, people move north. A main effect of the TRIPS regime--the international agreement on intellectual property rights--is that it has obliged poor countries to pay extortionate prices for medicines. A main effect of open financial markets is capital flight and tax avoidance. All of these are well worth opposing, without the crutch of a pretext, and a new agenda might start with this slogan: "Get the fraud out of free trade."

  • Share
  • Decrease text size Increase text size

Before commenting, please read our Community Guidelines.