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Michael Tomasky on the rise of progressive economic policy in Biden’s America


US President Joe Biden delivers remarks during a Democratic National Committee event at the National Education Association Headquarters in Washington, DC, 23 September 2022. Photo: IMAGO/Zuma Wire/Adam Schultz

The United States is not exactly known for its progressive economic policies. Steeped in the values of laissez-faire capitalism more so than perhaps any other country, the US stands out from its industrialized capitalist peers through its glaring absence of a mass workers’ or socialist movement and the dominance of two capitalist parties throughout most of its history.

Michael Tomasky is the top editor of the New Republic, an editor of Democracy: A Journal of Ideas, a contributing opinion writer for the New York Times, and a regular contributor to the New York Review of Books. His most recent book is The Middle Out: The Rise of Progressive Economics and a Return to Shared Prosperity (Doubleday, 2022).

Although the Socialist and later Communist parties made some political inroads in the first half of the twentieth century, no force to the left of the Democrats has managed to establish itself as a serious political competitor, and, consequently, the Democrats have continued to determine the horizon of progressive economic and social policy in the country.

Indeed, it was the Democrat Jimmy Carter who began to pivot towards neoliberal economics in the 1970s — a pivot that was extended and accelerated by his successor, Ronald Reagan, and became the foundation of economic policy for all subsequent administrations.

The results are plain to see: despite being the wealthiest country on earth, the United States is deeply unequal, with tens of millions of citizens trapped below the poverty line and, for the first time in its history, declining life expectancy for some segments of the population. Yet in the last several years, President Joe Biden has begun to initiate a gradual shift towards a more interventionist economic and industrial policy, going beyond the expectations of his detractors and supporters alike. Could the country be on the verge of a more fundamental change in economic policy?

The Rosa Luxemburg Foundation’s North America Fellow, Stefan Liebich, recently spoke with Michael Tomasky, author of The Middle Out: The Rise of Progressive Economics and a Return to Shared Prosperity, about where the American aversion to progressive economics comes from, what has changed since Biden took office, and how the United States could return to a vision of “shared prosperity” in the twenty-first century.

Why did you think it was necessary to write The Middle Out?

A lot of the ideas in the book have been in formulation for a decade, but the broader public doesn’t know about it. When I say “broader public”, I don’t mean the average person walking down the street in a small town in Kansas, because those people don’t pay that much attention.

They don’t have to.

No, they don’t have to. But even the average New York Times-reading liberal won’t have heard about all this stuff, the work being done among liberal economists, other social scientists, and activists to advance this economic agenda. So, I wanted to write it in a way that was accessible and clear, because economists and social scientists can’t always write it quite like that. I’m not a scholar, and I want to get these ideas into broader circulation, because I think they’re really important.

Let’s start with a little bit of history. I think most people in Germany wouldn’t believe that the question of redistribution, the question of equality, was part of the conversations of the Founding Fathers. Maybe you can explain that?

Remember, we’re breaking away from England, and England certainly had then, and still has, one of the most rigid class systems in the developed world. The Founding Fathers all were wealthy planters, speculators, even slaveholders. None of them was exactly a proletarian. They were wealthy men, but even by their standards, they understood that part of the project of the United States was an economic project.

Part of it was a political project, to found a country based on this idea of universal rights, which of course they did not really implement — that took two centuries. But it was also founded on an economic idea, which is not taught to people in schools, but has been discussed by many historians over the years. The economic idea was that wide disparities of wealth don’t sit well with democracy, and in fact inhibit democracy.

Not every politician can see that reality has changed, especially not those who are 80 years old.

Every American knows what Thomas Jefferson was doing in the summer of 1776 — he was writing the Declaration of Independence. But what did he do in the fall of 1776? Nobody knows that. He went back to Virginia, where he was a member of the state legislature, and took the lead in writing a law that prohibited the England-style handing down of large real estate from one generation to the next. Put those two facts together and that gives you a full picture, I think, of what most founders believed in.

Let’s move forward in history a bit. Franklin D. Roosevelt was one of the most popular presidents in your country. He was elected four times and implemented some progressive reforms. But as I understood, he didn’t do it because he was a socialist. Instead, he did it to preserve capitalism.

In the US, the tension between socialism and liberalism is built around whether it’s worth preserving the capitalist structure, or whether the structure should be socialist in the old sense, meaning state ownership of production. That’s not what Alexandria Ocasio-Cortez means by “socialism”, by the way.

That’s more like social democracy.

Right. But, you know, that’s what socialism used to be. Liberals, and liberalism, have a very strange history in this country, as I described in the book. Those tensions between preserving or tearing down capitalism existed on the broad American Left from the 1880s into Roosevelt’s time, and they continue today to some degree.

Roosevelt was from a very wealthy family and he was a rich man. He saw the capitalist structure as worth saving. American socialists disliked Roosevelt as much as the capitalists. The capitalists, like the Du Pont family, who gave their name to this big chemical conglomerate based in Delaware, funded all these projects to defeat Roosevelt and undo portions of his New Deal. The socialists from the Left thought Roosevelt was a sell-out because he was saving capitalism. There’s a very famous quote from Norman Thomas, the socialist candidate for president: in 1936, he said, “Mr. Roosevelt did not carry out the Socialist platform, unless he carried it out on a stretcher.”

Socialism of that sort, of the British Labour Party, never really took hold in the US, because both of our main parties were capitalist, and we have a two-party system. But a lot of what Roosevelt did was effectively social democracy for sure, and a lot of what Joe Biden is trying to do is social democracy. A lot of what the Democratic Party has historically tried to do since Roosevelt is, to me, social democracy. That took a turn in the 1970s when the neoliberals took over.

What made Roosevelt and Biden think that they have to do social-democratic stuff to save capitalism? From what?

To save capitalism from excessive immiseration of working-class people. At the dawn of the Industrial Revolution, Franklin Roosevelt’s lifetime, working people had no rights. So, this was a major change in history. Up to that time, people were basically farmers and artisans. Some people worked in manufacturing, but not that many. Most people were in charge of their labour.

After the Industrial Revolution, most people weren’t in charge of their own labour anymore, the boss owned it. That was a big, big change. That’s why the trade union movement came into being along with American liberals like Roosevelt. Whatever their flaws, they saw that capitalism needs buffers and needs regulation, so the workers don’t just get completely overrun.

Roosevelt’s Secretary of Labor, Frances Perkins, the first female cabinet secretary in the US, was the woman who oversaw the writing of very aggressive labour laws in New York state after the infamous Triangle Shirtwaist Factory fire. What Roosevelt and Perkins and Harold L. Ickes and people like them saw was that capitalism, unrestrained, was kind of immoral. Now, they also didn’t want a collectivist society along the lines of Stalin’s Soviet Union, and they obviously didn’t want a fascist society along the lines of Hitler’s Germany.

People my age grew up in the era of neoliberalism. In your book, you describe that everything is actually based on a lie, the “Laffer Curve”. Can you explain how this could happen, that an economic theory which is not true became the leading economic wisdom for four decades?

Arthur Laffer was an economist, so he wasn’t a complete charlatan. The time was the mid-1970s. This was a kind of a bleak time in the US. The Vietnam War was still going on, and people were tired of it. Richard Nixon was a corrupt president, and people didn’t like him.

Then, the OPEC oil crisis happened and gasoline prices exploded. Inflation hit, but much worse than today’s inflation. There was deindustrialization. Factories were beginning to close in New York, Pennsylvania, and Ohio. Crime was rising rapidly in the cities. It looked like America was in this state of collapse, and economic figures, which had been great since the end of World War II, suddenly weren’t so great.

There was a class of wealthy people who hated Roosevelt’s ideas, the New Deal, and John Maynard Keynes. There also happened to be a Republican in the White House, Gerald Ford, after Nixon, and he had two aides who later became famous for something else entirely: Dick Cheney and Donald Rumsfeld. Arthur B. Laffer set them down at a restaurant in Washington not far from here, and explained to them that there’s this thing that he named after himself, the Laffer Curve. It showed that there isn’t one optimal point of taxation, and there are low points and high points of taxation that produce identically reduced revenue.

Now, this was never true. I think Arthur Laffer probably believed that it was true, but a lot of the people who took up the cause knew that it wasn’t true. They didn’t care, because it meant lower taxes. That is exactly what rich people wanted to hear.

Now Trump is very weak in the Republican Party, so democracy is in better shape than I expected. But that doesn’t mean the Republican threat to democracy has gone.

So, Jimmy Carter lowered the capital gains tax, which is what we call taxes on investment, income, and the stock market, but he never really lowered income taxes. Then Reagan came in, and the first thing he did big cuts in were income taxes, especially rich people’s income taxes. Of course, rich people were pretty happy about that, and they’ve been happy about it ever since.

It’s really taken root in our culture in such a way that you hear rich people say time and time again: “I’d much rather give my money away than have the government take it.” Sam Bankman-Fried said this, too. But then you also have middle- and working-class people believing this, because it’s been said over and over for 50 years. The Democrats haven’t been very good at saying, “No, that’s not true. Here’s what’s true.” That’s what my book is about: it’s a progressive answer to supply-side economics.

Unfortunately, that not only happened here, but in the UK with Tony Blair and in Germany with Gerhard Schröder, too. What happened to Joe Biden? He was around promoting neoliberal policies for decades, but now he’s giving speeches in Congress saying “trickle-down economics has never worked”.

I think he probably always believed that. Yes, he voted for the Reagan tax cuts, but he was never a devout economic centrist. He was always a union guy, but he was never over here on the Left, either.

I think what changed with him was the pandemic. He announced his presidential candidacy in 2019, and for the first few months, his basic message was, “We just need to go back to the way things were before Trump, the way things were under Obama, and we’ll be fine.” Then the pandemic came, and Biden genuinely had what we call a “Come to Jesus” moment. He realized that the pandemic revealed a lot of the structural deficiencies and inequities in our economic system, and he started talking about it like that: “This is a 1932 moment, this is like the New Deal.” That's when he embraced “Build Back Better”, which was originally three-and-a-half trillion dollars — a massive amount of money.

So, he changed. I say, good for him. Not every politician can see that reality has changed, especially not those who are 80 years old, and he responded to it.

He’s even surrounded himself with different types of people — not the Larry Summers types, but people like Janet Yellen. Does this signal a structural change within the Democratic Party?

We’ll see. I think it’s about two-thirds a structural change.

We have two different economic teams advising the president, the National Economic Council and the Council of Economic Advisers. The National Economic Council usually has more power. The Council of Economic Advisors describes the reality, and then the NEC puts options before the President. The NEC was more powerful, because when Larry Summers headed that he made it more powerful.

The people that Biden has put on both of those have been really different than the people Obama put on. And yes, Janet Yellen at the Treasury. There was a time when there was a battle about who would be the next head of the Federal Reserve Bank under Obama. The centrists wanted Larry Summers and the progressives wanted Yellen. So, to choose her was a clear signal to the progressives.

I think that this is going to keep being the case, although it wouldn’t surprise me now to see the first wave of appointees leave, and since he's worried about a recession, he's going to name a couple of Wall Street people. I think it depends on what kind of Wall Street people. Janet Yellen is a Wall Street person to some extent, too, but I don’t think we're going to go back to people like Robert Rubin, Larry Summers, or Tim Geithner. I think that has mostly changed.

I hope you’re right. In your book, you wrote that the 2022 midterms could either be about saving democracy, or could lead to an outcome where we can focus on economic changes. What do you make out of the results?

Democracy is in a stronger place than I thought it would be. Now the media is going a little overboard. They’re saying all the election deniers lost. That’s not true. The high-profile election deniers lost, and they cost the Republicans the governorship of Arizona, which is a very important state in presidential politics. They also cost Republicans the Senate. But 145 election deniers were elected.

Now Trump is very weak in the Republican Party, so democracy is in better shape than I expected. But that doesn’t mean the Republican threat to democracy has gone. Trump put something in their DNA. Even if Trump is off the scene, there is still a little “Orbánism” in the Republican Party — maybe more than a little bit.

In some ways, this is going to be a greater concern now, because people’s guards are going to be down. They may think, “Trump is gone I don’t have to be worried about democracy anymore.” I don’t think that. Preserving democracy is the first fight.

If the Democrats win in 2024, I think democracy will be okay for the foreseeable future. Once that’s happened, we can really turn to this economic fight in earnest. But I’m not saying Democrats should drop the economic front — we have to do both.