Historical analogies are never exact. Yet many of the choices we have before us today are similar to ones that an earlier generation of progressives faced as the 1932 election approached. As we do today, progressives then confronted a society beset by a huge gap between classes and an economy laid flat by the bursting of the speculative excesses of the previous decade. To be sure, our economy is nowhere near Depression levels of collapse. But the choices New Deal progressives made are worth revisiting because they provide sound first principles for dealing with the economy and government today. Indeed, many of those principles are even more appropriate for today’s world.
The first lesson to be learned from this earlier era is that a large middle class requires an economy that generates a broad base of jobs paying middle-class wages. The New Dealers were not opposed to “rigging” the labor and financial markets to achieve this result. New Deal progressives believed the economy should exist to serve society, not the other way around, and that the government has a duty to shape the economy to meet middle-class aspirations. A high-wage, middle-class society would, in turn, be good for the economy: living wages would not only ensure adequate demand for the economy but in so doing would spur new investment and productivity growth, creating a virtuous circle of rising living standards.
The belief of New Deal progressives in an economy that could create good middle-class jobs stemmed in part from their resistance to large social welfare subsidies to individuals, on the grounds that this would encourage an unhealthy dependence on the state. Moreover, even though they favored progressive taxation, New Dealers were skeptical of a society dependent upon the permanent redistribution of income. The principal goal of many New Deal programs was not to relieve the conditions of poverty–although they often did so–but to build physical and human capital that would allow people to escape permanently from poverty. Thus New Dealers emphasized government programs that expanded education, spread property ownership, invested in America’s common physical and knowledge capital, and seeded the industries of the future. It was not perfect, in large part because it preceded the civil rights revolution and thus left out millions of African-Americans. But it did build the largest and most secure middle class America has ever known.
Today we see the consequences of a much different way of thinking about the economy and society. Over the past two decades we have been told that globalization is an immutable force and that we must bend to its demands, embracing the agenda of free trade, financial deregulation and less progressive taxation. The best we can do, we’re told, is to let globalization run its course and compensate the losers, even though no amount of new social welfare measures could compensate for the loss of millions of good-paying manufacturing jobs. Thus, without any real debate, America’s political elites have chosen for us a highly stratified, low-wage society with great costs to our middle-class way of life and to our productive economy.