Do progressives have to be loser liberals?

The downturn we are suffering is the result of government policies that benefit powerful interest groups.

tax the rich
“Whatever [the government] does or does not do by way of redistribution is trivial compared to the actions it takes to determine the initial distribution” says Dean Baker [GALLO/GETTY]

Washington, DC – Last week, Thomas Edsall had a column in the New York Times where he directly stated that the difference between conservatives and liberals is the extent over which they were willing to reverse market outcomes to redistribute money from winners to losers:

“The two sides are fighting over what the role of government in redistributing resources from the affluent to the needy should and shouldn’t be.”

This was annoying not only because it is so seriously wrong, but also because this statement came from one of the more astute observers of US politics alive today.

Anyone trying to understand the role of the government in the economy should know that whatever it does or does not do by way of redistribution is trivial compared with the actions it takes to determine the initial distribution. Rich people don’t get rich exclusively by virtue of their talents and hard work; they get rich because the government made rules to allow them to get rich.

We spend close to $300bn a year on prescription drugs. If drugs were sold in a free market … we would spend around $30bn.

To take an obvious example, according to the Centres for Medicare and Medicaid Services, we spend close to $300bn a year on prescription drugs. If drugs were sold in a free market, without government granted patent monopolies, we would spend around $30bn a year.

The difference of $270bn a year is more than five times as much money as is at stake with extending the Bush tax cuts to the wealthy. By making us pay far more for drugs, the government’s patent policy is redistributing a huge amount of money from ordinary people to the shareholders and top executives of the drug companies. We need a way to finance drug research, but there are far more efficient mechanisms than patent monopolies that don’t redistribute income upwards in the same way.

In a similar vein, our policy on labour unions is incredibly one-sided in management’s favour. If a company illegally fires a worker for trying to organise a union, the complaint would go to the National Labour Relations Board. It is likely to take months – and possibly years – before the complaint is settled. Even if the worker can prove their case (employers rarely admit that they fired someone because they were organising a union) the fine to the company is trivial. As a result, breaking the law and getting rid of agitators can be very profitable for the company.

Rich first, everyone else… later

On the other hand, if workers stage a strike that violates the law, for example a wildcat strike at a time when a contract is in force or a secondary strike in support of other workers, a company can typically get an injunction immediately. If the workers continue their strike, their assets will be seized and their leaders thrown in jail.

Needless to say, this incredible asymmetry tilts the field in management’s favour. It is difficult for workers to organise unions and it is often difficult for organised workers to push for better wages and working conditions. That is not just a market outcome; it is the result of deliberate government policy.   

A lower-valued dollar would create millions of new jobs … however, because an over-valued dollar benefits powerful interest groups … [they] have been willing to allow the dollar to remain over-valued.

The downturn we are currently suffering through is also the result of government policy. This is for two reasons. First, we got here because of the ineptitude of top policymakers in failing to recognise the housing bubble and the risks that it posed to the economy. The Federal Reserve Board just stood back and let the housing bubble grow to a size where its collapse would inevitably wreck the economy.

Furthermore, once the bubble burst, the Fed, Congress and the White House opted not to take the actions needed to restore full employment. While the Fed has taken steps to boost the economy, it certainly could have done more. Similarly, Congress did not approve a large enough stimulus package to offset the hit from the collapse of the housing bubble.

And, President Obama and the Fed have not tried to push down the value of the dollar to make US goods more competitive in world markets. A lower-valued dollar could create millions of new jobs, most of which would be in manufacturing. However, because an over-valued dollar benefits powerful interest groups, such as the financial sector, policy makers have been willing to allow the dollar to remain over-valued – at the cost of millions of jobs for ordinary workers.

There are many other ways in which government policy has acted to redistribute money from ordinary workers to “the one per cent”. This was done through the setting of the rules. And the amount of money at stake in designing these rules dwarfs the amount of money that we might fight over when we talk about a tax policy that redistributes “resources from the affluent to the needy”.

If progressives restrict ourselves to fighting over the tax code, then we are playing in the sandbox. This is classic “loser liberalism”.

The real battle is over setting the rules, not shuffling around a few crumbs after the fact. The issue is not, as some have put it, leaving our neighbour by the side of the road. The issue is that our neighbour has been thrown off the bus. The first step towards getting him back on the bus is to say as loudly and clearly as possible exactly what happened.

Dean Baker is co-director of the Centre for Economic and Policy Research, based in Washington, DC. He is the author of several books, including Plunder & Blunder: The Rise and Fall of the Bubble EconomyThe Conservative Nanny State: How the Wealthy Use the Government to Stay Rich, Get Richer and The United States Since 1980 and The End of Loser Liberalism: Making Markets Progressive.