Wikimedia Commons/Amy Swan Credit: Wikimedia Commons/Amy Swan

In the immortal Federalist No. 10, James Madison wrote,

The most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government.

That was back in 1787, before there was a ratified Constitution, when the U.S. government barely existed. But Madison’s framing is instructive in a number of ways. He evidently assumed that the main source of political strife in the new nation would be clashes among economic interests, and that the main task of government would be adjudicating these disputes. Anybody who has ever spent time in a legislative body at any level will recognize the rough ongoing truth of Madison’s observation. Back in the early days of the republic, globalist slave-holding plantation owners battled over trade policy with protectionist northern manufacturers. The First and Second Banks of the United States gave rise to fights over centralized financial power. There were disputes over taxation, territorial expansion, and “internal improvements” like roads and canals. Today, economic interest groups are still fighting each other: over trade, over the role of unions, over the power of Big Tech, over the transition to clean energy, and over a zillion other issues.

There is a disconnect between this version of politics and the version we typically get in contemporary public conversations. We are in the habit of thinking of noneconomic issues (abortion, immigration, policing) as being debated on their merits, often as fundamental moral questions, but of economic issues as being properly understood in terms of the technical management of “the economy” by experts, not of power struggles between interests. What’s the unemployment rate? The inflation rate? The strength of the dollar? The trade deficit? How much is the Federal Reserve going to raise interest rates at its next meeting? How will the financial markets react? These are the kinds of economic questions one is likely to see addressed on front pages and on television news. The Madisonian version of the American political economy still goes on—not exactly behind the scenes, just insufficiently noticed—but it doesn’t command our primary attention.

As the 20th century wore on, a series of venerable political-economy tools came to be seen, at least in elite circles, as counterproductive—almost silly. On this list would be trade restrictions; price controls; industrial policy; attempts to break up big economic concentrations; attempts to shore up specific cities, towns, and regions; and policies aimed at promoting unionization.

How did this happen? It seems fair—especially in the light of recent historical work that understands slavery as a form of capitalism—to say that economic issues were at the center of American politics, and were understood and debated as power struggles, from the founding until World War II. These debates were particularly intense as the economy became industrial and this generated mass immigration, urbanization, and unprecedentedly large concentrations of wealth (in individual hands) and power (in the hands of trusts and corporations). The early decades of the 20th century saw the advent, in response, of federal regulatory agencies, central banking, a government-enabled mass union movement, and a modern welfare state.

The war ended the Great Depression, and postwar prosperity softened American politics’ focus on economic battles. The progress of the welfare state stalled. The postwar years were full of assertions, including by liberals, that the United States had developed a workable economic order, dominated by heavily regulated industrial corporations that provided their employees with many of the welfare state functions that governments provided in other industrial democracies. The rise of Keynesian economics was a part of this story. In 1946, economics became an academic discipline with an official permanent presence in the White House, the Council of Economic Advisers. This was a manifestation of the new faith that by monitoring and managing fiscal and monetary policy, the government could keep the economy growing, inflation and unemployment under control, and future depressions at bay. This idea had the political advantage of not automatically entailing conflict in the way that, say, labor law or antitrust actions did. And it placed the focus on macroeconomics, instead of the endless jostling for advantage among economic interests. One could see “politics” and “interest groups” as the enemies of government management of the economy, rather than as its essence.

As the 20th century wore on, a series of venerable political economy tools came to be seen, at least in elite circles, as counterproductive—almost silly. On this list would be trade restrictions; price controls; industrial policy; attempts to break up big economic concentrations; attempts to shore up specific cities, towns, and regions; and policies aimed at promoting unionization. Many of these play out in politics as contests between economic institutions (Ida Tarbell battled Standard Oil on behalf of small-scale oil producers, like her father), but both academic economics and economic policy had become uninterested in the interplay of institutions. The overall health of the economy, and the welfare of consumers, became the only proper targets of economic policy. Inequities and disruptions could be addressed after the fact, through redistributionist tax policies. These were not just conservative ideas. Liberal administrations enthusiastically participated in the deregulation of airlines, trucking, energy, telecommunications, finance, and other industries. In 1987, The New York Times published a lead editorial (which it has since renounced) calling for the abolition of the minimum wage. The establishments of both parties supported NAFTA and a long series of succeeding free trade treaties.

This economic regime produced a steady rise in inequality, of both income and wealth, beginning in the early 1980s, that has not abated. That was change on the boiling-a-frog model: gradual rather than in the form of unmissable events. It took the 2008 financial crisis and the subsequent Great Recession to produce a strong political reaction against the economic certainties of the late 20th century. Since then, the unexpected rise of populist and nationalist movements—some on the left, more on the right, sometimes with a strong cultural element, always rooted in economic discontent—has dominated politics all over the world, sometimes in ways that fundamentally threaten the ongoing health of democracy. As happened in the early 20th century, in the early 21st voters have forced policy makers to pay much closer attention to the political economy than they had been paying. We are in the early stages of that period now.

Political economy becomes visible when life isn’t going so well for you. When the factory in your town moves offshore, you can see that trade policy has adversely affected your life. But if you’re well educated, living in a prospering metropolis, and you get a good job, it’s because free markets work. A necessary first step in reawakening our long-dormant awareness of political economy is realizing that economies are made, not born. There are many capitalist countries, each with a distinctive version of capitalism, shaped by law and custom and subject to ongoing modification. Individual companies—farms, hedge funds, auto manufacturers, social media platforms, pharmaceuticals—prosper (or not) based not just on their own work and ingenuity, but also on the way government has laid out the shape of the playing field and the rules of the game for them. Phillip Longman’s essay in this issue (“Everyday High Prices”) calls attention to this aspect of political economy: the vicious, but not publicly visible, struggles for advantage between retailers and their suppliers. These always involve government as a not always impartial referee. The economic prominence of private equity, a field that didn’t exist 50 years ago, rests on a series of little-noticed changes in federal regulations. The consolidation into “Big Four” or “Big Five” firms that has swept across industry after industry would not have happened with more robust antitrust policies. The mega success of tech companies like Google and Facebook was enabled by their exemption from legal responsibility for the content they carry. All these policies are the kind that happen in courts and hearing rooms, with lobbyists but not the press or the public paying close attention.

Just as the making of the current American political economy—featuring high inequality, dramatic regional and racial disparities, and a great deal of disruption of ordinary people’s lives—was too little noticed as it was happening, so too is its remaking, which is already well under way. One of the most underreported stories in America is the Biden administration’s dramatic departure from the economic policies of the past several administrations, including the Democratic ones. This administration is the most aggressive on antitrust in decades. It has made strong regulatory moves in the financial sector. It has made major forays into industrial policy, by, for example, trying to strengthen the domestic semiconductor industry and to jump-start the green energy industry. Barry Lynn’s essay in this issue (“Manufacturing and Liberty”) tells that story, and urges the administration to do more.

One should resist the temptation to believe that Republicans’ taking back control of the House of Representatives means that the age of significant Biden administration economic policy making has come to an end. It may be that a full revival of the multitrillion-dollar Build Back Better bill is not possible, but elements of it, like enhanced programs in education, training, and apprenticeship, and an in-effect industrial policy for “care work,” may well reappear. That is partly because the Republican Party is betting its future on its ability to continue taking working-class voters away from the Democrats, and doing this will require delivering more than just relentless rhetorical assaults on wokeness. Also, because so much of economic policy is made by courts and agencies, the Democrats’ continuing control of the Senate means that the administration can keep getting appointees confirmed who can carry out its mission.

Political economy becomes visible when life isn’t going so well for you. When the factory in your town moves offshore, you see the adverse effects of trade policy. But if you’re well educated, living in a prospering metropolis, and get a good job, it’s because free markets work. A necessary first step is realizing that economies are made, not born.

If you had to take a test on your familiarity with the Biden administration’s American Rescue Plan, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act, down to the level of spending programs of $50 million and up, would you pass? I don’t think I would. These major initiatives tend to be covered as if they were championship games that the White House wins or loses, rather than for their content. It’s vitally important right now for liberals and progressives to pay attention to the enormous changes happening in economic policy. Especially on issues like antitrust, financial regulation, labor policy, and the future of what conservatives call “the administrative state,” the people on the other side are going to be in the room where decisions are made. Will they be there alone?

Along with a closer focus on these economic issues—in general, and in detail—liberals need to develop a new economic vocabulary. If you ever took an introductory economics course, you were probably taught that government attempts to reshape economies are doomed to failure, that any economic burden placed on businesses will just be transferred to consumers, that deficit and debt are irresponsible, that industry concentration is not a problem as long as it doesn’t directly harm consumers, that trade restrictions are always a bad idea, and that creative destruction is an inevitable and healthy aspect of a market economy. Attempts to push back against these bromides are often dismissed as the tiresome and counterproductive activities of politicians trying to get pork barrel projects for their districts, as opposed to good public policy. A new set of guiding principles for economic policy would help to reframe a wide range of issues, to communicate with the many voters who feel left behind and ignored in the current economy, and to guide our assessments of specific proposals.

The Biden administration has made a dramatic departure from the economic policies of the past several administrations. This administration is the most aggressive on antitrust in decades. It has made strong regulatory moves in the financial sector. It has made major forays into industrial policy, by, for example, trying to strengthen the domestic semiconductor industry and jump start the green energy industry.

I’ll propose just a few of these principles now. First, great concentrations of economic power are not healthy, either for people’s well-being or for the health of our democracy. Economic power converts itself into political power, and that upsets the balances and the protections of minority rights that the Constitution aimed to establish. Princes of property (that’s Franklin D. Roosevelt’s phrase) don’t have to be ill-intentioned to do harm—only excessively influential and blind to the concerns of ordinary people. A country with large and growing gaps between people depending on their education levels, on their race, on where they live, on what kind of work they do, can become unjust and unstable unless the gaps are corrected. In economics as in politics—to quote James Madison again, from another of the Federalist Papers—ambition must be made to counteract ambition.

Second, the economy should be designed and managed not only to promote its overall health and growth, but also to minimize the harms to lives, to health, and to communities that constant economic disruption can bring. When large economic entities swallow up smaller ones, often through taking on debt that puts enormous pressure on them to lay off employees and otherwise behave in socially destructive ways, we should stop believing that as long as it was a free market transaction, it’s good for the country. Capitalism always produces dislocation along with dynamism. A model for how to deal with them is that prevention—the job not lost, the benefits not cut, the neighborhood not allowed to wither—is far preferable to correction after the fact.

Third, economic politics, like all politics, fundamentally entails conflicts between interests. Madison had that right back in 1787. Political economy isn’t technical. It isn’t nonpartisan. It isn’t best left to experts. It isn’t best handled by applying broad universal concepts. Sweeping assertions about the virtues of markets have often served to shut down discussions that we should have had, and that we need to have now. The future of the American political economy is in play, and that means that we need to engage in the specifics, with our closest attention. That is what this package of stories aims to do.

Nicholas Lemann

Nicholas Lemann is a professor at Columbia Journalism School and a staff writer for The New Yorker. His most recent book is Transaction Man.