Jacob Hacker and Paul Pierson’s new book, American Amnesia: How the War on Government Led Us to Forget What Made America Prosper does four things. First, it makes the case for the mixed economy – the effort to make the market and state work together. Second, it makes the case that mixed government existed. The US used not to be as divided as it is now, and business, rather than being committed to a virulently anti-state agenda was often relatively pragmatic. Third, it tries to explain how this went South – how mixed government, and indeed government, became a dirty word. Finally, it asks how mixed government can be resuscitated again.
Hacker and Pierson’s political argument, as I read it, has a lot in common with that of old-style liberals like J.K Galbraith and Charles Lindblom. Hacker and Pierson don’t want an overweeningly powerful state – instead, they want a state and market that work together. They borrow Lindblom’s analogy of markets working like the fingers of a hand to provide dexterity, while the state works like a thumb, to provide authority and to help grasp things that need to be grasped. This does not imply that the state and markets should be guided by a single will so much as that they work, when they work well, in complementary ways. Indeed, like both libertarians and many leftists they are highly suspicious of what might happen when the state and private industry build relations that are too congenial. As they describe it (p.5), “Democracy and the market – thumbs and fingers – have to work together, but they also need to be partly independent of each other, or the thumb will seek to provide effective counterpressure to the fingers.”
In a mixed economy, government provides services and goods that will be underprovided by the private sector, or perhaps not provided at all. It also regulates market actors, obliging them to behave more honestly towards the consumers of their products. As the economy becomes increasingly complex, it becomes increasingly easy for private sector interests to take advantage of ordinary people. Regulators can help restrain business through regulation and antitrust (Hacker and Pierson acknowledge Woodrow Wilson’s racism but have kind words for his efforts to build the institutions that would regulate market competition). Unless business is restrained by the state, it is liable to behave badly.
Hacker and Pierson argue that a mixed economy – in which the state and markets worked together, but were also in a healthy tension with each other, existed for much of the twentieth century. A strong government helped to underpin prosperity – and did so through “extensive reliance on [its] effective political authority” (p. 97). During most of this period, they argue that the right was less crazy than it is now, confining lunatics to a fringe, rather than electing them as leaders. People like Vannevar Bush pushed for heavy government investment in research. After initial hostility, business reconciled itself to the New Deal, recognizing that the state had a useful role to play. It saw that government provided public goods, and gave some firms a competitive edge. The complaisance of business organizations was in part a recognition of the reality that business had no choice but to compromise with the government and with strong unions so that “[b]usiness leaders found themselves compelled to negotiate and seek mutually acceptable solutions within a system where other voices would be heard.” (p.146)
This world of moderate business and countervailing power is not the world of today. Hacker and Pierson discuss how right moderates have been drowned out, both in business and the Republican party. The crucial change, in their view, was one in both ideas and incentives:
Ideas were crucial, especially in the initial right turn. The emergence of “stagflation” – the combination of inflation and stagnation – strengthened the hand of economic thinkers who argued that government couldn’t manage the economy effectively. Had there not been vigorous critics of the mixed economy at the ready, had they not wielded a coherent and powerful set of arguments, these economic troubles surely would not have precipitated such a fundamental reversal.
Yet the rapid and durable repudiation of the mixed economy was hardly a “gradual encroachment of ideas.” Instead, new understandings swept the field because they intersected with and guided powerful economic interests that were becoming more and more influential within American politics. Facing meager profits and depressed stock prices, business leaders mobilized to lobby Washington as never before. Fatefully, they were also increasingly inclined to accept the diagnosis offered by the new market fundamentalists: The source of their woes was not foreign competition or deindustrialization or hostile financial players; it was government. The changing economy didn’t just change the conversation, in other words. It changed who had power and how those with power thought about their priorities. (pp.171-172)
Pete Peterson – kicked out of MIT for plagiarizing a paper by Roy Cohn, but vastly enriched by the sale of Lehman and creation of Blackstone – spent “a fortune to influence public debate.” His former partner in Blackstone, Stephen Schwarzman, complained that Obama’s relatively anodyne proposals were warfare against the rich. These figures represent a new economic elite, which is not monolithic, but is very different from the old one, less tied to locality, more tied to Wall Street and Silicon Valley, and very often skeptical of the mixed economy on principle. Some are hard Randians – convinced that they were members of a tiny minority of creators faced with a majority of moochers and government determined to steal their money. Others are soft Randians, disdainful of government and willing (as in Peterson’s case) to spend large amounts of money to push for limits in government spending and benefits. Both have found many people willing to help them make their case; as per Thomas Piketty’s sardonic quip:
We know something about billionaire consumption, but it is hard to measure some of it. Some billionaires are consuming politicians, others consume reporters, and some consume academics.
Business organizations such as the US Chamber of Commerce have become effective outposts of the Republican party. That party has itself become committed to a shifting combination of (a) rolling back the state, and (b) making it subordinate to commercial interests (leading sometimes to internal spats, as over the Export/Import Bank, when the two priorities come into conflict).
Business and the Republican party have both been radically transformed. However, the Republican Party has paid only a limited price for its extremism, because it has advantages in turnout and because voters sometimes don’t understand what is going on, and because it enjoys the support of funders and donors. The corruption of politics has gone together with a corruption of market institutions, as businesses extract increasingly high profits, either because they have heavy political connections (as when members of Congress like Billy Tauzin become lobbyists) or because they know that they have nothing to fear from toothless regulators.
Hacker and Pierson want to see the return of the mixed economy. They are not leftist firebrands – their proposed agenda has a lot more in common with the ideas of Elizabeth Warren and the pro-free market populism of Lynn and Longman’s article in this month’s Washington Monthly than with the modal article in Jacobin. Specifically, they would like to see an America in which business moderation found its voice again, rather than one in which business as such was dramatically weakened. Even so, their proposals for how to bring the mixed economy back may seem utopian given current politics. They are noticeably weaker on detail in their prescriptions for the future than their description of what has gone wrong. They present an agenda – but also many reasons to expect implicitly that this agenda will be hard to realize. As they explicitly note, there are few signs in the Republican party that it is going to reconsider its anti-government position. Nor are Democrats nearly as much an opposing force as they ought to be.
Of course, politics has gotten more complicated in the last few months. It would be interesting to see how their argument might have changed after Trump (their book was written before it became clear that Trump was going to be the nominee). It’s plausible right now that the Republican party will pay a price for its extremism in the upcoming Presidential election, and perhaps in the accompanying Congressional elections too.
This might suggest more hope for change than Hacker and Pierson’s book suggests, although any optimism ought to be tempered. Even if Trump suffers a crushing defeat in November (which is by no means a given), the Republican party may not interpret this as a repudiation as such of their position. They may, indeed, be right not to – the Republican party could still end up doing quite well in the 2018 mid-terms, and what happens in 2020 is very hard to predict. What can be said is that any revolt for common sense Republicanism led by Bill Kristol and friends is not going to produce anything recognizable as actual common sense.
The book’s more interesting questions for me involve a longer time horizon. The book’s underlying claim – that one needs to understand the confluence of ideas and economic interests to get what happened in American political economy – marks a potentially important intellectual shift in broader debates about political change. Hacker and Pierson are both prominent historical institutionalists – and as Mark Blyth, Oddny Helgasdottir and William Kring vigorously complained in a new piece, recent work in historical institutionalism has tended to ignore how ideas can shape political trajectories. Figuring out how ideas and interests work together isn’t just important for academic debate – it is also important for thinking about long term political strategy. Indeed, academic debate and practical politics may intersect. As Hacker and Pierson (and, for that matter, Blyth’s first book) suggest, economists like Hayek and Friedman (and, in a quite different way, Rand) provided much of the cement that held the new coalition together. Any replacement for that coalition will need its own ideas.
Some of those ideas are provided by the book. It hardly needs mentioning that Hacker and Pierson are not looking to revive the mixed economy as an abstract intellectual exercise. They want to reinvigorate the poltiical fortunes of the idea of the mixed economy, and provide a politically usable history who might want to push it further. There may be a political audience for such a history among people like Warren, who used to be a Republican, and might still be had the party not changed so dramatically.
Yet I think that there are also some holes that need to be filled (unsurprisingly, my sense of what the big holes are is heavily biased by my own intellectual priorities). Here’s one. Hacker and Pierson identify how the economy has become vastly more complex, and how this makes it easier for businesses and others to take advantages of gaps of opportunity and information to exploit ordinary people. They make a compelling case that regulation could restrain this if it were appropriately intelligent. Finally, they sketch out a convincing negative story of how the Republican party and business have systematically sought to cripple the intelligence of government, depriving it of staffing and information.
What they do not do as I read them is to provide a strong positive case for how government will be able to come up with intelligent regulations if it only had the resources it was deprived of. Building such a case seems to me to be crucial. The attractions of markets are not purely ideological. Hayek’s defense of the market as a system of distributed informal intelligence is far from being entirely wrong; many of his arguments are indeed compelling and powerful. A defense of the government as same – and much better, arguments about the conditions under which the government can do better than market mechanisms – seems to me to be both important, and missing from Hacker and Pierson’s argument as it stands. Some of these arguments could be taken from Lindblom (whose work on how bureaucracy works is criminally neglected in modern political debate). Other arguments could and should build on the great changes, both in complexity of circumstance and availability of tools to deal with complexity, that have transpired since Lindblom wrote in the 1960s and 1970s.
Put a little differently, Hacker and Pierson provide us with a book showing that markets and the state can work together, building on historical example. This is both a rallying call and a proof of possibility. They also argue convincingly that we need a strong state more than ever in a world where the operations of markets have become vastly more complex. Yet putting these two together – to figure out how the state can work well in an economy that is very different from, and much more complicated than, the economy of the 1950s and 1960s, is both very hard and utterly necessary if their project is to succeed.
[Cross-posted at Crooked Timber]
