The New Liberal Economics

Harold Meyerson writes that liberals are finally inching closer to a consensus on economic issues:

If there's one thing to which the world of Democratic economics is utterly unaccustomed, it's agreement. Democrats fight with each other all the time on trade. They disagree about whether to push for balanced budgets or increased spending. Some emphasize growth; others call for greater distributional fairness.

So the big news from Barack Obama's meeting Monday with 20 economic advisers is that there was far more agreement than disagreement about how to fix the nation's deepest fiscal ailments...

That doesn't mean that differing views weren't voiced in the meeting or that the party has reached a consensus on trade. But, adds Bernstein, Obama is "more of an 'and' guy than an 'or' guy. He's for growth and fairness."

One way to square that circle is to boost spending on repairing America's rickety infrastructure, an idea that has captured both the center and the left of the political and economic spectrums. Several participants recommended infrastructure projects as one way to help restore consumer confidence and boost the stagnating incomes of American families...

Some of the issues that have long divided key elements of the Democratic coalition are receding as America's economic landscape is reshaped. Nothing illustrates this change more clearly than the announcement by Teamsters President James P. Hoffa last week that his union would no longer support drilling for oil in the Arctic National Wildlife Refuge. The Teamsters had been a mainstay of the pro-drilling ANWR coalition and in the 2004 Democratic primaries attacked John Kerry for leading the opposition to drilling. But that was then.

"The times have changed," Hoffa told me yesterday. "We have to have a new energy policy; we can't drill our way out of this. We have to wean ourselves away from fossil fuels and explore such alternative sources as wind, water and solar."

In other words, liberal economic policy is shifting toward exactly what I've always argued it should be - public investment. Nerdishly speaking, this is called "government provision of nonrival production inputs." Or, more commonly, "competitiveness." (In fact, this approach really should be called "industrial policy," but that name is already used to refer to something very different...).

This kind of policy doesn't always work. If a country is already saving and investing too much, then new infrastructure just goes to waste (see: Japan in the 1990s). But there's ample evidence that the U.S. has been under-saving and under-investing for some time now. If that's the case, government investment in things like infrastructure and research can create a rising tide that lifts all boats, reduces inequality, and, eventually, more pays for the cost of that investment.

In other words, the ideal liberal economic policy.

In fact, this approach isn't new. Democrats did this kind of thing under Clinton, Roosevelt, Truman, Kennedy, and LBJ. That may be why economic growth is, on average, much higher during Democratic administrations than Republican ones, while inequality shrinks under Democrats and grows under Republicans.