Photo Courtesy of Bill Moyers Journal

The End of Economics?

Aug 21, 2008 | 01:32 PM

Cross-posted at TAPPED

Columnist David Leonhardt has a piece forthcoming in the New York Times Sunday Magazine that nytimes.com posted early. The piece asks the question: where does Obama really stand on economic issues. It's the right question--but along with some useful insights Leonhardt provides some odd answers.

In his view, Obama's economic ideology is hard to chart on the usual left-right spectrum because it's something new. Leonhardt refers back to the ideological battles of the Clinton years, which he calls the Battle of the Bobs, Rubin versus Reich. He writes:

"Bob Reich argued that the government should invest in roads, bridges, worker training and the like to stimulate the economy and help the middle class. On the other side was Bob Rubin, a former Goldman Sachs executive turned White House aide, who favored reducing the deficit to soothe the bond market, bring down interest rates and get the economy moving again. Clinton cast his lot with Rubin, and to this day the first question about any Democrat's economic outlook is often where his heart lies, with Reich or Rubin, the left or the center, the government or the market."

True enough. But Leonhardt goes on to argue that "The battle of the Bobs may not be completely over, but it has certainly been suspended"--presumably in favor of a more robust use of government to compensate for what markets mess up.

Well, you could have fooled me. There are fierce battles going on within the Obama campaign and outside it among Democratic progressives and centrists.

The consensus Leonhardt discerns is based on his conversations with Bob Rubin, Jason Furman, and Obama himself. It includes raising taxes on high income people--not to plug the deficit, but to restore public spending. So far so good. But the big battle will be over scale. The scale the campaign has proposed to date is too puny to generate a real recovery, or to fundamentally alter the trajectory of economic insecurity and inequality. Larger scale public investment would bump into the objections of the Rubinistas.

Leonhardt writes,

"Far more than many other policy advisers, economists believe in the power of markets. What tends to distinguish Democratic economists is that they set out to uncover imperfections of the market and then come up with incremental, market-based solutions to these imperfections."

Yes, but that's the beginning of the story, not the end of it. The few-left-of-center economists Obama has reached out to--Jamie Galbraith, Jared Bernstein, William Spriggs, Daniel Tarullo, would counsel much more substantial public interventions to redress market "imperfections," which are far more than minor blemishes. By contrast, the Goolsbee-Furman-Rubin camp would be for "incremental, market-based solutions" often too feeble to make a difference.

As Leonhardt acknowledges, there is also something of a dissensus in the Obama camp on trade. Leonhardt accurately quotes me--Bob #3--as praising Obama for his single gutsiest speech on the need to regulate Wall Street, delivered last March 27 at Cooper Union. But the devil is in the details, and as Leonhardt admits, "There is, plainly, a big potential conflict between the University of Chicago side of Obama and the regulator side."

"When Reagan was elected, in 1980, tax rates on top incomes were so high that even liberal economists now say the economy was suffering. There simply wasn't enough of an incentive for rich people to start new companies or expand existing ones, because so much of their profits would have gone to the federal government."

Not most liberal economists whom I know. This is just a walk on the supply side.

The big debates within an Obama administration--if we get one---are still to come. It would be nice if the major policy disputes over economic issues had been resolved, just as it would be nice if Fox were fair and balanced. Hasn't happened yet, probably never will, any more than "the end of history" happened.