Marketplace Progressivism

My brother -- the one with all the fancy polisci degrees, but who can't hit my devastating Wiffle Ball sinker -- posted yesterday about old-fashioned big-government liberalism, which he correctly says is no longer part of mainstream American liberalism or Democratic Party politics. He was writing, on Boston Tea Party day, in reference to the now-routine cries of socialism.

I want to pick up on the following point he makes, which I'll admit is a good one, even though he can't score a hoop if you overplay him to the left:

Liberals, dating back to the late 1979s, [sic] have come to accept that markets are incredibly powerful and can be harnessed to do great things. Where liberals differ from, say, libertarians is that liberals tend to be very aware that markets are artificial human creations, and therefore that setting rules of a market is, in their view, properly a function of government; and, that the power of markets is not absolute, and that another proper function of government is to be aware of potential market failure.

I want to stretch that further, and suggest that this lesson learned is a big reason that the Democratic Party and influential liberals (in think-tanks and so on) have become the font of relevant policy ideas, while the GOP and conservatives have become utterly devoid of ideas

When the left (reluctantly) gave up on their impulse to solve or improving things by supplanting the marketplace, they opened themselves up to the idea of solving and improving things by harnessing and directing the marketplace. Call it marketplace progressivism perhaps.

A good early lesson came in the 1960s and 1970s, with smog. That was a classic example of a social-cost failure of the marketplace; since automakers take no cost for it, there was no market incentive driving innovation for lowering emissions.

The classic big-government liberal response would have been to mandate that all autos sold in the US be made with whatever the government decided was the best emissions-lowering technology at the time -- which would have accomplished very little in the long run. Instead, government (led by California, across the Brown Sr. and Reagan eras) mandated the end result -- the quantity of emissions -- phasing the caps in over time. That provided the market incentive, not only for automakers to innovate to be able to keep selling their cars, but to innovate better and more efficiently than their competitors, so that they would add less cost to their cars along the way and gain market share and profitability.

That was a relatively clunky, unsophisticated way of directing the market, but it sure as hell worked: by 1975, those market forces resulted in the catalytic converter and unleaded gasoline, and from that, dramatically cleaner air.

I would argue that the"mainstream" left -- meaning those whose ideas have any actual influence -- and especially Democratic elected leadership in Washington, now routinely apply this idea of directing the marketplace to societal problems. They identify where the market doesn't function well, and think up ways to establish a market that will function well. I'll give you three recent examples, in sweeping, over-broad brush strokes.

1) Financial crisis. Without getting deep into the details, one of the key root causes of the crisis was that the market in a particular type of asset -- mortage-based securities -- ceased functioning, because nobody knew the value of any of those assets. Since financial institutions were so heavily invested in those assets, and so heavily leveraged against those assets, the absence of a market for those assets threatened total catastrophe. The old-fashioned liberal big-government prescription would have been to nationalize the banks, take over all the troubled assets, or some other full-scale government intervention in place of the market for those assets. Many on the left in fact called for such measures. Instead, Tim Geithner and the Obama economic team, working with Democrats like Chris Dodd and Barney Frank, implemented a range of measures designed to re-create a market for those assets -- such as stress tests, the public-private investment program, and the term auction facility.

2) Health care reform. A key reason why tens of millions of Americans are uninsured at any given time is that the insurance market, as it has developed, works reasonably well for groups (like corporate employees) but not well at all for individual consumers. The old-fashioned liberal big-government solution to the uninsured was for the government to take over the health insurance industry -- ie, single-payer. Many on the left still cry for that. But the Democrats instead have gone for a scheme that creates a market by pooling individual consumers -- in Massachusetts we call it the Connector, and in the federal plan they're called exchanges -- while subsidizing the premiums for those with lower incomes. That creates a marketplace where insurers want to compete by offering the best policies at the lowest prices to get those consumers to choose their 'pool.'

3) Climate change. The climate effect from use of carbon-based energy sources (and other effects, like national security) is another classic societal-cost problem, like smog. And the left is not proposing the kinds of broad, specific mandates that would be expected from old-fashioned big-government liberals. Instead, they want to implement a more sophisticated, complex, broader-reaching scheme than those old emissions standards -- call it cap-and-trade, or whatever the tweak ends up looking like in the Senate. The idea is to provide market incentives for reduction in carbon-based energy use by, literally, creating a market in that use -- and presumably unleashing the innovation and ingenuity of the great American marketplace to find the most efficient, cost-effective means of accomplishing reductions.

The point is not that these approaches are fantastic, or even necessarily good; just that they are novel and creative, and result directly from the notion that the marketplace can do the best job of reaching societal goals -- even classically "liberal" or "progressive" goals -- if the government sets the right conditions to direct it.

By stark contrast, the GOP and conservatives have absolutely no ideas. Instead of finding a similar hybrid government-market forces way, they have backed further and further into the pure marketplace solution for everything.

Consider the right's response to the three challenges above. On the financial crisis, they initially insisted on doing absolutely nothing to interfere with the marketplace. When Bernanke/Paulsen et al were finally staring into the abyss of total disaster, they had no idea what to do -- remember the famous initial 'bill' they proposed that essentially said 'hand us $700 billion and we'll see what we can do'? And from that point forward, the GOP and conservatives have essentially been split between the majority who say we should have let the 'marketplace' go ahead and collapse the world economy; and the minority (like Mitt Romney) who say we were right to have done something, but wrong to do what we did, without much further to say.

On health care, if anyone on the right has offered even a general idea for covering the bulk of the uninsured I must have missed it. And climate change? What climate change?

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