The power of populism – Business Standard

The Middle Out: The Rise of Progressive Economics and a Return to Shared Prosperity

Author: Michael Tomasky

Publisher: Doubleday

Price: $28

Pages: 304

For those who see the Democratic Party in turmoil, poised to lose its razor-thin congressional majority in November, and then the White House in 2024, Michael Tomasky has a message: Calm down.

The party is back in good hands, moving cautiously to the left, where Tomasky, the liberal editor of The New Republic, insists it belongs. Democrats are most successful, he believes, when they focus on the economy and the ways in which big government can make the lives of ordinary Americans fairer and more secure. Its been a winning formula since the days of Franklin Roosevelt, he writes in The Middle Out, an engaging, briskly paced mix of partisanship and history, and it has found a new champion in a president not previously known for his economic populism.

The story begins with FDR, the godfather of modern liberalism, whose New Deal programmes provided a vital safety net for the hungry and unemployed without actually ending the Great Depression. World War II did that by creating millions of high-paying but potentially short-term jobs in the defence industries. Could full employment be sustained in peacetime, or would the nation sink into another depression?

The coming decades would turn out to be the most prosperous in American history. Wages shot up, unemployment remained low, the middle class exploded in size. And the key reason, says Tomasky, was the governments unprecedented involvement in the economy the Keynesian approach begun by Roosevelt and continued by future administrations, Democrat and Republican, until Ronald Reagan took office in 1981.

It was a heady but imperfect time. Racial and gender discrimination kept large swaths of the population from sharing equally in the bounty, while the curse of McCarthyism was on full display. Yet for all its faults, notes Tomasky, the nation enjoyed a shared prosperity, compared with today. People may not have known much about John Maynard Keynes, but they did learn to trust the governments expanded role in their lives.

Tomasky pays particular attention to income inequality. Indeed, the books title refers to a middle out philosophy in which the government creates a more democratic economy, not a nanny state, by focusing on ways to enlarge the middle and working classes at the expense of the wealthy.

When did the forces of free market capitalism re-emerge? In Tomaskys telling, the first seeds were planted with the publication of Milton Friedmans Capitalism and Freedom in 1962, which argued that government had no business doing most of what it did be it running national parks or providing Social Security reached a much wider audience.

The tipping point came in the 1970s, when Friedmans calls for privatisation, tax cuts and deregulation gained political traction. Tomasky superbly reconstructs the ideas and personalities behind this neoliberal advance.

But he doesnt connect them to the devastating events that caused Americans to lose faith in the governments handling of the economy. There is barely a word about the OPEC oil embargo, the Iranian boycott or the appearance of stagflation. Even Paul Volcker, the Federal Reserve chairman whose draconian policies are credited with reversing the downward economic spiral, goes unmentioned.

While Republicans wear the dark hats in The Middle Out, Democrats to the right of Senator Elizabeth Warren fare poorly as well. He was, in fact, the most economically successful president of the last 60 years, Tomasky writes of Bill Clinton. Job creation surged, as did median family income. Inflation held steady and the massive deficit run up by Ronald Reagan disappeared. Indeed, Clinton handed George W. Bush the rarest of gifts: a $236 billion surplus.

So, whats not to like? Tomasky faults Clintons most touted policies welfare reform, financial deregulation, a balanced budget for widening the gap between the rich and everybody else. The consensus among the liberal economists and policymakers quoted in The Middle Out is that both Clinton and Barack Obama grew too close to their Wall Street and Silicon Valley donors, and that both feared the political fallout from being labelled big spenders.

Enter Joe Biden, whose 36-year Senate career had been spent in the centre lane of Democratic politics. Running for president in 2020, however, he moved decisively to the left. The Democratic Party apparatus had become more liberal in recent years, fuelled by activists and think tank intellectuals sympathetic to solving big problems through Keynesian means.

That included the pandemic that had upended the global economy. Only the federal government had the resources to confront it. Even the Trump administration had opened the coffers for vaccine development, while reluctantly supporting the $2.2 trillion CARES Act to keep the economy afloat. For Biden and his advisers, however, the pandemic exposed the inequities that Keynesian methods had mitigated in the past.

Biden responded with a $1.9 trillion rescue plan that included enormous outlays for schools, public safety, health care and infrastructure all geared to a future beyond the pandemic. Dramatic social change requires a catalyst, and in this case a deadly virus provided it.

Whether this will be enough to keep Democrats in control of Congress and the White House remains to be seen. Tomasky says the liberal vision for America will be a winner if Democrats can make the case that they are far better stewards of the economy by every major measure. It will be a tough sell, given current inflation and supply chain problems, but its an argument that has worked selectively in the past. On balance, history appears to be on Tomaskys side.

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The power of populism - Business Standard