On a number of issues, a bipartisan majority of the [economics] profession would unite on the opposite side from a bipartisan majority of Congress.
—Arthur Okun (1970)
Politicos and economists speak different languages. And that’s not all. Their differences go deeper and further. It is barely an exaggeration to say that politicians and economists live in two different, often clashing, civilizations.
One day long ago, I crossed the border from one strange land to the other as a fledgling member of President-elect Bill Clinton’s new economic team. At our first meeting at the governor’s mansion in Little Rock in January 1993, I felt like a duck out of water. The cast of characters gathered around the big mahogany table that winter day included titans of Wall Street like Robert Rubin and Roger Altman; experienced politicians like Lloyd Bentsen, Leon Panetta, and Ron Brown; and campaign figures like George Stephanopoulos, Gene Sperling, and Robert Reich. Apart from Bentsen and Brown, who have since passed away, those are all my friends now, but they were mostly strangers then. And I didn’t know the rules of engagement, which made me uneasy. Only later did I learn that nobody else did, either.
Two other fugitives from academia were present at that first meeting: Laura Tyson and Larry Summers. I had agreed to join Laura as a member of the Council of Economic Advisers (CEA)—a team of three economists, typically professors on leave from their universities, who advise the president on all matters economic. Larry was headed to Treasury.
I arrived early, via connecting commercial flights from Newark through Memphis, while most of the others came directly from Washington on a charter plane. As the number two person in the smallest and least powerful agency at the briefing, I knew enough not to take a seat until the bigger shots arrived to claim theirs. When Vice President–elect Al Gore walked in, he said a round of hellos. Then Gore and Bentsen, the Treasury secretary designate, sat at the end of the table closest to the door. Interpreting that action to mark the presidential end of the table, I modestly positioned myself at the opposite end.
Whoops. Moments later the photographers swooped in and hustled Gore down to my end of the table, practically sitting him in my lap. I slid down two chairs to make room for Bentsen and a honcho to be named later. But alas, when President-elect Clinton entered the room, he chose to sit at the opposite end—near Gore’s original seat—and it was musical chairs all over again. Thus did I receive my first lesson in hierarchy: where you sit depends on where you stand.
Exactly a week later, the team returned to Little Rock. This time I traveled with the others from Washington, thereby helping to overcrowd the little charter plane. Those with the highest ranks (Bentsen and Rubin) got comfortable seats in the front; we peons squeezed onto the sofas that lined the back of the bus, er, plane. Ironically, that morning’s Wall Street Journal had carried an article on some new OSHA rules on overcrowded workplaces. I joked to Reich, the incoming secretary of labor, that this was just the sort of thing that OSHA should prevent.
After a long delay—imagine, Bill Clinton was late!—we were ushered into the dining room and took our seats around the polished mahogany table. The decor had been transformed from early American to early transient—featuring cardboard moving boxes, crated mirrors, and the like—for the First Family would be moving to Washington in a few days. This time, Clinton’s end of the long table was clearly demarcated, so I headed dutifully for the opposite end.
As dictated by our respective ranks, Laura sat to my left, one seat closer to the president-elect. While we waited, I whispered to her to observe a pattern that, I predicted, would characterize all future meetings of the economic team: the Treasury would bring the most people, the Office of Management and Budget (OMB) would bring the most paper, and we (the CEA) would bring the best ideas. Snarky, but basically true.
Then Clinton arrived, followed by an orderly with a bowl of soup. I thought at the time that the poor man must not have eaten anything all day. I later learned that he ate all day long. Laura began the briefing with a quick review of the state of the economy and the basic rationale for reducing the federal budget deficit. Then it was my turn to hold forth with the details.
Armed with slides, tables, and numbers to bolster my deficit-reduction pedantry, I started. But barely three words had passed my lips when a young aide rushed in to announce that the press would be allowed in for a photo op—no reporters, just photographers. How exciting, I thought, my very first photo op! I’ve heard so much about them.
Realizing that I was an alien in his civilization, the president-elect looked up from his soup and instructed me graciously on proper photo op behavior: “Alan, now you’re supposed to say nothing and look profound.” The raucous laughter around the table gave me a much-needed moment to gather my wits, and I responded: “That’s funny, Mr. President-elect. In my previous job, I was supposed to look like nothing and say profound things.” (More laughter.)
Two seconds later, we were surrounded by a swarm of photographers, flashbulbs popping and cameras whirring. I thought to myself, It’s a new world, Tevye.
It was. To the untrained eye and ear, the political world looks and sounds chaotic. At first, I thought there was no logic to it at all. But if you pay attention, there is an underlying logic, as I learned during my time in the Clinton White House, after that (albeit from a distance) at the Federal Reserve, and subsequently working on several presidential campaigns. It’s just not the Aristotelian logic you learn in school and use in economics. Call it political logic.
Before going further, let me be clear: this book is not a screed complaining that those foolish politicians refuse to behave like us logical economists—and wishing that they would. Well, in all honesty, there will be a little of that—but not much, because the truth is that politicians cannot and should not follow Aristotelian logic. People who succeed at high levels of politics and government must and do have different personalities, talents, and weaknesses than people who succeed in business or in the academy. Their job applications are completely different from those in other occupations. They are chosen and succeed or fail on totally different Darwinian principles. They face dramatically different incentives. And, most important, the rules and objectives of the game are starkly different. Top government officials, especially elected ones, do not think or act like business executives or professors because they shouldn’t. The early presidency of Donald Trump helped prove that point.
In the university, policy discussions always start with the merits of the case—and often end there. General principles, especially high-minded ones, figure prominently in the debate, generally crowding out dreary details of implementation. What is this policy trying to accomplish? Are the goals appropriate? What are the pros, cons, and likely side effects of the various options under consideration? Which are most likely to succeed? Which seem most consistent with other policies and other principles? Such questions are all perfectly legitimate; indeed, they are indispensable. Policymakers who ignore them court disaster—and often get it.
The best policy debates inside the government start out in more or less that same place—on the substantive merits of the case. But, unlike debates in the academy, they do not and cannot end there. Instead, the unholy trinity of politics, message, and process all demand close and protracted attention—sometimes to seemingly ludicrous degrees, sometimes overwhelming any attention to substance. But there is a method to this apparent madness. Let me take up the unholy trinity in turn.
By politics I mean mostly obvious but vexing matters such as: Is this policy initiative consistent with what the president promised in the campaign? (That question, I learned, is amazingly important to most politicians, who—contrary to popular opinion—want to keep their words even when they wish they could eat them.) Who in Congress will line up with us, and who will be arrayed against us? What about the interest groups—especially those blessed with legions of foot soldiers and/or piles of cash to purchase advertising? Will we wind up expending too much of our precious political capital to win this battle? Worse yet, might we lose it? What will be the political costs and benefits to the president? A class of so-called political experts—a phrase I soon added to my lexicon of oxymorons—specialize in dealing with these less-than-lofty, sometimes downright earthy, but absolutely essential issues.
That political considerations are central to politicians is hardly a striking insight, although such matters are more frequently discussed by journalists and political scientists than by economists. But in my native habitat, academia, where we never have to answer to the voters, the politics is rarely if ever considered the heart of the matter. The substance always dominates.
Things look stunningly different if you work at the White House or on Capitol Hill. There, political exigencies are never far from center stage. Should we lament that fact of life or sneer at it? Economists and other technocrats often do both. But where else should a great democracy hash out its political differences and mediate among competing claims? Decisions in Washington are political and should be political. The trick is to make sure that they are not solely political, to the exclusion of everything else.
By message I mean the sales pitch, the sizzle. Like it or not, public policies must be marketed aggressively in our heavily checked and agonizingly balanced system of government. Policies will get nowhere if they’re not merchandised like smart phones or beer. Knowingly or not, James Madison and his friends saw to that in 1787, when they created a constitutional system that makes it hard to get anything done. I call it Madison’s Curse.
To push a policy initiative through the ever-resistant maze that is the US government, you must first convince the politicians that you can win the inside game, and then convince the voters, so you win the outside game. (Actually, it may work better the other way around.) Thus American policymakers are constantly preoccupied with such cosmic philosophical questions as: What is our message? How will it play in Peoria? Where are we vulnerable to sound bites? How do we counter the objections that will be raised against our plan, for there are always objections? Brilliant as Madison was, I wonder if he factored all that in. King George, in England, was not worried about message. Neither are modern despots. Even in parliamentary democracies, salesmanship is less important if the prime minister has a healthy majority.
Message gets short shrift, or even derision, in the academy. Professors frequently discuss whether a policy suggestion is good for America, but rarely consider whether it sounds good to Americans. When economists do opine on message, it is often with an astonishing admixture of disdain, naiveté, and ineptitude. Mostly, they know enough to practice abstinence. But message is vital in a vibrant democracy. It’s a big part of how politicians communicate with the electorate. So an entire chapter is devoted to salesmanship later in this book.
By process I mean such seemingly mundane questions as: How do we get organized to make this decision? Who should be at the table—both literally and figuratively? Who should be in charge? Which agencies of government, and which people within agencies, should be responsible for specific tasks? What is the appropriate timetable? How do we find the right legislative language—and the right legislative vehicle? This list is not exhaustive, but executing it skillfully can be exhausting. The litany of budgetary, political, legislative, and personnel constraints—to name just a few—often appears endless. But make no mistake about it, process matters because different processes can lead to quite different results. This is another topic that academic economists—and, I would say, the public at large—think too little about. If you really want to bore people, just start talking about the organizational structure of government or the details of legislative language. (Don’t worry—you won’t find much of either in this book!)
These three elements of the unholy trinity—politics, message, and process—are inextricably bound together. And each in turn is, or rather should be, closely tied to the substance of the policy. Process discussions inevitably deal with message and politics as well as substance. Political considerations involve proper processes (We can’t offend Senator Jones), consistency with message (Tell Ed he’s way off message), and, one hopes, even the substance of the issue (Is that claim actually true?). Messages are crafted with both substance and political strategy in mind. For example, politicians often sell international trade agreements as job creators, which is at best a half truth that came back to haunt supporters of open trade both after the North American Free Trade Agreement (NAFTA) passed and in the 2016 election. The full truth is that trade does create some (hopefully better-paying) jobs, but it also destroys other (lower-paying) jobs. But that’s a complex, even equivocal, message. Who would storm the ramparts under such a banner? How much easier to claim—falsely—that trade either creates or destroys millions of jobs.
Since all four elements of policymaking—politics, message, process, and substance—are apt to be in motion at the same time, the overall effect is something like a Marx Brothers movie shown in fast forward. The trick is to keep Harpo under sufficient control so the substance (Zeppo?) doesn’t get entirely lost in the antics.
After only a few weeks in the new Clinton administration in 1993, the appropriate metaphor for my new life dawned on me. Everyone knows the aphorism that you should never see a sausage being made—at least not if you ever plan to eat one. While the final product may be tasty, its preparation is a sight not to behold. I soon realized that we neophyte Clintonites were all learning what it feels like to be inside a sausage as it is being made. It’s tumultuous and exhausting.
As I first worked in and then watched political Washington in action, I realized that many factors conspire to produce the mess that economic policy too often becomes. Most of them fall under one of the Three Is: ignorance, ideology, and interest groups.
Economics is traditionally divided into two branches: macroeconomics, which deals with the national economy, booms and busts, inflation and deflation; and microeconomics, which deals with resource allocation decisions (how much does society devote to producing video games rather than growing tomatoes) and the distribution of income (who gets how much?). The Three Is play out differently in each domain.
The affinity for economic nostrums that seems to plague macroeconomic policy derives mainly from an unholy alliance joining scant understanding of basic economics to a distressing tendency to fly off on ideological tangents. This alliance is aided and abetted by rank disagreements among economists, who often don’t know the right answer anyway. Interest-group politics matters some in macroeconomics. (Doesn’t it always?) But when macro policies go astray, ignorance and ideology are normally the main culprits.
In stark contrast, interest groups are typically decisive when the best economic advice on a microeconomic issue—say, a “detail” of a trade agreement or a tax bill—is rejected. To be sure, ignorance and ideology help by obfuscating issues and ensuring that voters are confused. But they are normally bit players in these tragicomedies. After all, interest-group politics is often about fleecing the public, a fundamentally nonideological business. Politicians are unlikely to buck the vested interests if they perceive that pursuing sound economics will cost them votes. So principles routinely take a backseat to principal.
Let’s take up the Three Is in order, starting with the one that you might think is easiest to overcome—but isn’t: ignorance of basic economics.
Like merchandising, politics thrives on gimmicks that can be distilled into short, snappy slogans—often short enough to be emblazoned across a T-shirt or a baseball cap. (Example: “Make America Great Again.”) After all, politicians are competing with smart phones and five-hundred-channel cable TV services for the attention of people with short attention spans.
The problem is that such superficially appealing slogans are generally based on faulty reasoning, ignorance of basic facts, rigid ideology, or folklore—maybe all of them. The more accurate versions are apt to be soporific, prolix, or both. But you gotta have a gimmick to sell the product when voters have the attention spans you’d expect from people raised on a steady diet of tweets and twenty-second TV spots. Decades ago, Newt Gingrich, as astute a politician as you’re likely to find, advised his House colleagues to “practice whatever the big truth is so you can say it in 40 seconds on camera.” That was in 1986. Today, the corresponding advice would be “10 seconds or 140 characters.” And accuracy doesn’t matter. In a political marketplace like that, complexity sells poorly—if at all.
Examples abound. Protectionists insist that restrictive trade practices “save American jobs.” And who doesn’t want to save American jobs from “unfair” foreign competition? But more sober and accurate analysis—which will be presented later in this book—points to a more complex reality in which import restrictions save some American jobs only by sacrificing others. The arguments leading to that conclusion, however, are subtle and somewhat involved. They even involve the exchange rate, a subject guaranteed to induce slumber in most listeners. And besides, there are numerous qualifications. Freer trade is not always the best policy, just usually. Every honest economist, I am afraid, is fundamentally two-handed. (Sorry, Mr. Truman.) But subtlety is a huge disadvantage in politics.
Another example: While economists have made important inroads, some environmentalists still recoil in horror at the idea of granting “licenses to pollute” via carbon taxes or cap-and-trade systems. On closer examination, however, those sinister-sounding licenses to pollute turn out to be an excellent way for society to acquire cleaner air and water at lower costs while imposing fewer regulations on industry. Sounds good, doesn’t it? But you need to do some quiet reasoning and sweep away some ideological cobwebs before reaching that conclusion. And even then, the superiority of market-oriented policies over direct controls does not emerge as an inviolable rule. There are important exceptions. For example, you don’t want to rely on pollution taxes in an acute smog emergency or when a chemical spill threatens lives.
And so it goes with other gimmicks. The supply-side boast that Ronald Reagan’s or Donald Trump’s tax cuts would actually raise tax revenue was a real knee-slapper. (Sorry, folks, but you don’t add by subtracting.) Yet supply-siders were right to point to the disincentive effects of high tax rates. Monetary policy hawks’ concern that the Federal Reserve’s huge creation of money in 2009–2014 posed inflationary dangers right away was a wild caricature of the truth. (We are still waiting for the feared inflation.) Yet no serious economist doubts the existence of a long-run link between money and prices. The need to shrink the projected long-run growth of the national debt is real. But can you imagine your favorite TV anchor coherently explaining any of the nuances in twenty seconds?
When economists disagree, the public, getting little or no help from either the mass media or social media, finds it difficult to tell sound economic advice from snake oil. Politicians add to the confusion by passing off the latter as the former—often to legitimize something they seek to do for entirely different reasons. And against this we have… what? A few economists who deign to enter the public arena speaking English? It’s a pitiful mismatch that goes a long way toward explaining why crackpot solutions with scant support among economists sometimes sweep to political victory.
What’s the answer? Knowledge, we professors fancy, is the unrelenting enemy of ignorance. In the long run, deeper, more reliable, and more quantitative economic knowledge—produced through painstaking research—will contribute to greater consensus among economists and thereby to better economic policy. Or so we hope. That process is painfully slow and inherently uncertain, however. Besides, the lack of knowledge that fosters bad policy is of a totally different nature. The critical problem is not that economists know too little, true as that may be. Rather, it is that society makes such poor use of what economists do know—in large measure because politicians routinely ignore it. Advice is met by dissent.
To influence public policy debates, economic knowledge must be made accessible, intelligible, and believable to the body politic—even if it’s just a matter of getting the basic facts straight. That is why people like me occasionally write books like this. There aren’t many of us, however, and the writings of economists reach only a tiny fraction of the electorate. Compare our meager audience to the recipients of the daily avalanche of cable news, blogs, tweets, and posts. The real need lies in rooting out the misconceptions that permeate mass public opinion like unsightly weeds in a garden. With economic illiteracy as widespread as it is today, a popular democracy is painfully vulnerable to the self-serving machinations and hucksterism of economic snake-oil salesmen.
What can be done to ameliorate the problem? A higher caliber of economic journalism, particularly on television, would help. So would more and better economic education in the schools—and I don’t mean mainly universities here, but high schools and middle schools. But those are tall orders that will not be filled soon, for journalists and schoolteachers proficient in economics are in perilously short supply. And individual citizens have little incentive to educate themselves on economics.
Meanwhile, a single US president in a single term can probably do more either to advance or to retard economic literacy than an army of economists can do in a lifetime. Presidential education sometimes works wonders. Fiscal policy was liberated from a crippling mythology by President Kennedy, and the economy boomed. Deregulation of air and truck transportation moved from economists’ dreams to political reality thanks in no small measure to the effective ways in which Presidents Ford and especially Carter (a Democrat yet!) sold the case to the American people. President Reagan’s indictment of the unfair and hideously complex tax system had been made a thousand times before. But when it came from his mouth, the words rang louder. President Clinton was dubbed the “explainer in chief” by President Obama. All that helped.
Unfortunately, the nation’s bully pulpit is used as often to deceive as to enlighten. Such as when President Johnson insisted that America could have both guns and butter without aggravating inflation. Or when President Reagan assured America that a supply-side miracle would produce a balanced budget even with falling tax rates and rising defense spending. Or when President Clinton sold NAFTA as a huge job creator. (Good policy, bad argument.) Each such episode sets back the cause of economic literacy.
And now we have President Donald Trump, who has ratcheted up the problem several levels. Not only does he deny fundamental economic ideas such as the gains from international trade, but his claims often defy logic (example: his “terrific” health care plan was going to cover everyone at lower costs—how?) and reject even basic facts in favor of what we now (sadly) know as “alternative facts.”
So the good and unsurprising news is that enlightened presidential leadership can and does lead to better economic policy, in part by harnessing the power of symbols and imagery to worthy ends. The corresponding bad news is that presidents are as likely to inscribe shibboleths as verities on their banners. So this road to better policy is easier to describe than to travel. We need good presidents. What else is new?
The second of the Three Is, ideology, is almost always a formidable foe of sound economic policy. To be clear, I do not believe that philosophical considerations and moral values should be banished from economic policymaking. Far from it. Many of the most profound economic issues have critical moral aspects. To cite just two current examples, think about reducing inequality or protecting the planet from ruinous climate change. Unfortunately, ideology often becomes the handmaiden of mythology. The problem with true believers is that they believe too easily.
Left-wingers who harbor hostilities to free markets want to believe that free trade is folly, that repealing Glass-Steagall caused the financial crisis, and that market-oriented approaches to environmental protection should be shunned. And so they do. Right-wingers want to believe that reducing tax rates on the rich will accelerate growth, that tax breaks for favored corporations will spur productivity, and that financial markets are stunningly efficient. And so they do.
But rigid ideological positions rarely lead to sound economic policies grounded in logic and fact—especially when valid but misplaced ideological concerns are applied to means rather than to ends. Pragmatists care less about whether a policy works by means that are labeled “pro-market” or “anti-market.” They are more interested in knowing if it works at all and, especially, whether the economic benefits outweigh the costs.
Good economic policy exploits the market mechanism where it shines (like keeping trade mostly free and minimizing tax loopholes), helps it along where its flaws are easily remedied (like limiting pollution and fighting monopolies), and overrules it by government fiat where it fails (like distributing income fairly and keeping the banking system safe). Such eclecticism requires a results-oriented attitude that elevates facts and logic over myth and ideology. Unfortunately, too many people see the world through distorting ideological prisms and substitute incantation, or even “alternative facts,” for rational debate.
Ideology dies hard. Across continents and over centuries, it has proven itself remarkably resistant to both logic and fact—especially when it’s used as a smokescreen for promoting special interests. As Upton Sinclair sardonically noted, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
Fortunately, ideology is not always the enemy of good economics. Sometimes, by sheer luck, ideological crusades strike out in constructive directions. The strong lip service paid to free trade in the United States over many years has surely been a useful counterweight to all the special pleading for trade protection. It kept us (almost) in the vanguard of free trade for decades, though that has changed recently. Similarly, the American attachment to free markets has limited the spread of rent controls, even though tenants greatly outnumber landlords everywhere.
In some other instances, good economics triumphs by harnessing ideological appeal to its own advantage. Deregulation of trucking and air travel caught on in part because the idea appealed to both the populist, pro-consumer sympathies of the left and the right’s adoration of the free market. It was also sold, rather misleadingly, as anti-inflationary at a time when inflation was running high.
But such events are serendipitous, not systematic. When they occur, the credit almost always goes to some astute politicians who seized the right issue at the right moment and knew how to market it. That’s wonderful, but we cannot count on it happening regularly. The general rule is that good economic policy flourishes in a pragmatic atmosphere and wilts under ideological heat. But I have no recipe for cooling ideological fervor, and politicians often rise to prominence by fanning ideological flames.
The third and most powerful of the Three Is, interest groups, derives its power from the fact that economists and politicians work with profoundly different versions of arithmetic. Economic scorekeeping is simple, direct, and politically naive. If a proposed policy change promises, say, to cost ten million people $2 each while each of ten people stands to gain $1 million, it takes no great genius to calculate that the nation as a whole loses $10 million, net. Economists have a built-in hostility to such proposals. We cannot prove that each such idea is ill advised, for society may have some good reason to favor the ten winners over the ten million losers. Nonetheless, economists reflexively view such claims with deep suspicion. And we are confident that society will ultimately be poorer if it adopts such negative-sum policies repeatedly.
But only a dull economist with his hand on a calculator would fret over mundane arithmetic like that. Politicians have their hands on the political pulse instead, and receive entirely different signals. Who, after all, can get worked up over a puny $2 loss? Politicians understand that ten million tiny, quiet losers are a less potent political force than ten big, noisy winners—some of whom may give you large campaign contributions. Because so few effective political voices speak up for the broad national interest, negative-sum economic policies are often positive-sum political policies.
This little numerical example may seem contrived, but it is actually indicative of a deep-seated and pervasive problem: the two types of arithmetic, each logical within its own domain, frequently point in opposite directions. The strong political allure of protectionism derives precisely from this source. So does the pernicious politics of tax loopholes. In both cases, the benefits are concentrated, highly visible, and well understood, while the costs are diffuse, subtle, and barely visible—sprinkled like a light rain across the electorate, where it falls mostly unnoticed.
The conflict between political and economic calculus goes a long way toward explaining why economic logic so rarely prevails in Congress or in state legislatures. Policies that pair diffuse gains with concentrated losses make economic hearts beat with joy but may put political hearts into cardiac arrest. This being a democracy, such ideas are routinely rejected.
Part of the problem is that politicians in our great republic are myopic; their horizons are short in time and narrow in space. As David Stockman, Ronald Reagan’s first budget director and a former congressman, put it years ago: “The politicians rarely look ahead or around. Two years and one Congressional District is the scope of their horizon.”
Consider again the choice between free trade and protection. Quotas on textiles are likely to be good for textile workers in South Carolina but bad for consumers in every other state. Quotas on Japanese cars help Michigan but hurt most of the other forty-nine. Protection for the steel industry helps Ohio at the expense of states that buy steel rather than produce it. And so it goes, item after item, state after state. So South Carolina’s congressional delegation wants textile quotas, Michigan’s seeks automobile quotas, and Ohio’s wants limits on imported steel. Soon the political logs are rolling. The vaunted art of compromise does the rest. It’s all very democratic.
The process runs amok because no one pays enough attention to the economic well-being of the United States of America. No one dwells on the reality that caving in to one special pleader lowers our resistance to the next. If we would keep the national interest more firmly in mind, we would see that all protectionist measures, taken together, add up to a big net loss for the country as a whole. While some South Carolinians undoubtedly gain from the expanded employment and profits afforded by textile quotas, they lose when they pay more for cars, steel products, and so on.
Nonetheless, it remains in the self-interest of South Carolina, and therefore in the electoral interest of its congressional delegation, to seek protection for its textile industry. Likewise, any state can gain at the expense of the others if it succeeds in getting protection for its leading industries while out-of-state industries must fend for themselves. The joys of competition are particularly joyous when it is only the other guys who must compete.
Naturally, if every state and district plays the protectionist game, the country as a whole must lose. But try to explain that little piece of arithmetic to a member of Congress from a district whose principal industry is threatened by imports, and you will quickly understand the wisdom of the legendary former Speaker of the House Tip O’Neill’s (D-MA) famous dictum: all politics is local.
The elusive missing ingredient is a sense of national community, a feeling that all Americans are in the same boat in the long run, a realization that it does no good for the United States if South Carolina or Michigan or Ohio reaps gains at the expense of its neighbors. Members of a family regularly resist temptations to advance their own parochial interests at the expense of the wider group—on the expectation that other family members will accord them the same respect. But members of Congress display such community spirit only at their electoral peril. We frequently witness cooperation in the national interest, sometimes even bipartisan cooperation, in foreign affairs or defense issues, where particularist local interests are far less significant. (One prominent exception: locating military bases.) But members of Congress rarely adopt the national perspective when economic conflicts arise. Patriotism apparently stops at the pocketbook’s edge.
A senator is elected by the people of New Jersey, or Kansas, or Oregon. A member of the House is elected by people in the fourth district of New York, or the twenty-eighth district of California, or the twelfth district of Texas. No one should be surprised if elected representatives champion the causes of the folks who sent them. That is only natural, whether they are selflessly devoted to serving their constituents or selfishly devoted to promoting their own reelection. In either case, a legislator with a narrow constituency will instinctively favor parochial views over the national interest. If you doubt that, ask yourself why the US Navy has installations in Indiana and Tennessee. The problem is not that we fail to send good people to Congress. It runs much deeper than that. It’s in our geography-based system.
Still, special interests do not always get their way. Pleas for trade protection are not always granted. Some tax loopholes are never opened; others are closed. Industrial polluters cope with onerous environmental regulations they bitterly opposed. Even though “that’s where the money is,” bankers were subjected to heavy regulation even before Dodd-Frank raised the regulatory bar higher. To understand why the interests of the majority do sometimes rule, we must look to the players in our political system who have national constituencies. That means, in the first instance, looking to the president.
The political perspective of the president differs fundamentally from that of members of Congress. Only he is elected by and responsible to all Americans. Even if narrow political self-aggrandizement is his only goal, the president is—or at least should be—chastened by the knowledge that only limited gains can be reaped by robbing one region to pay another. More likely, a president will have loftier motives—like a desire to serve the nation, or the constitutional duty to promote the general welfare, or concern for the verdict of history.
The institutionalized difference in perspective between the president and Congress is more critical in economic policy than it is in, say, foreign policy because the foreign policy interests of the various states and districts differ little, while their economic interests sometimes differ much. Someone once jokingly derided the members of a Senate committee as Senator Steel, Senator Chemicals, Senator Agriculture, and so on. There was more than a little truth to the insult. But rarely do such sobriquets apply to presidents. The job demands broader horizons.
In principle, the president is not the only political actor with a national constituency. The leaders of the two major political parties are forced by the laws of survival to worry about what the majority—albeit rejiggered by gerrymandering—thinks. Thus the much-discussed decline in the power of leaders, and the corresponding rise in congressional entrepreneurship, probably did little good for national economic policy. Similarly, the special responsibilities thrust upon the chairs of the key congressional committees demand a more national perspective—which they only sometimes supply. But they, too, have lost some power in recent decades. The federal courts should also serve the broad national interest, not the narrow interests of Illinois, or Kentucky, or Florida. We all know about our vaunted system of checks and balances. One thing it checks is naked pandering to particular industries or regions. One thing it balances is the public interest against the special interests. Madison got that part right.
The unsurprising conclusion here is that greater statesmanship—a focus on what’s best for the nation—produces better policy. Statesmanlike behavior by political leaders nourishes, and is in turn nourished by, the public-spirited citizenship that is so vital if a democracy is to produce sound economic policy. Each contributes to the broader perspective we so desperately need.
But please don’t misinterpret me. I am not arguing that our wonderfully pluralistic political system exquisitely balances special interests against the public good. On the contrary, interest groups, aided by politicians, fare much too well. And although statesmanship and public spiritedness reinforce one another nicely, so too do small-mindedness and pork-barrel politics. I am merely pointing out that there are some countervailing forces that keep the system from flying apart.
Can we do anything concrete to weaken the power of interest groups? Perhaps. After all, special pleaders do not always prevail. But all the potential answers lie in politics, not in economics. Economists instinctively champion the broad public interest and rebel against special pleading. It’s practically a Pavlovian response. We do so even when the promised benefits from a policy, like a broad trade agreement, are diffuse and barely visible to the general public while the costs imposed on affected industries are concentrated and palpable—clear signposts of political losers.
Politicians see things differently. Naturally, everything must be portrayed as being in the national interest. But few politicians succeed for long without performing constituent service, which means focusing on the parochial interests of their state or congressional district. Unlike economists and other technicians, successful politicians never forget who sent them to Washington.
Ironically, both politicians and economists understand the essential truth of political cost-benefit calculus: policies that confer large and visible benefits on the few, paid for by small and mostly invisible levies on the many (such as special tax favors), probably win you more votes than they lose. Policies that hurt identifiable interest groups in order to sprinkle small, diffuse benefits on the amorphous public (like free trade agreements) are apt to be political losers.
But the two sides diverge sharply on the policy implications of that observation. Unless they are in the employ of special interest lobbies, economists invariably take principled if naive stands against special pleading. After all, it costs nothing to be noble if you never stand for election. Politicians, who do so regularly, are naturally less inclined toward self-sacrifice and more concerned with self-preservation. As I said, they hail from different civilizations.
The differences between good economics and good politics are basic and profound—and make life in Washington incredibly frustrating for an economic adviser. It is not that we policy wonks hold wrong-headed views on these matters. Mostly, I believe, we have it right. Politicians’ time horizons really are too short. The substantive merits of a policy ultimately will matter more to the public than the slogans that helped sell it—because citizens will wind up living with the outcomes. (For a recent example, think about Obamacare.) The broad public interest really is more important than narrow special interests. Evidence normally beats hunches as a basis for policy formulation. All true. But the vagaries of politics often do not permit such tidiness of thought.
Formulating intelligent social policies that take proper account of the myriad of relevant factors is challenging enough in this complex world. Precious few policy analysts can do it well. Then layer on top of all that such “details” as political horse-trading, the frenzied pace of decision making, the need to generate ideas with superficial sound appeal, the maddening intricacies of navigating a path through a balky Congress, and more. Now you really have a tough problem, one that requires extraordinary perseverance and political horse sense.
But that’s the nature of the game. Those seemingly extraneous political considerations are not extraneous at all because almost every significant policy decision is and must at bedrock be political in a democracy—which means that the people rule, not the technocrats. Politicians surely internalize the beliefs and aspirations of ordinary citizens far better than any group of technocrats can. If you rely on experts to take the case to the public, you are apt to be sorely disappointed.
Start with the role of slogans, which academics view with disdain, if not contempt. One implication of Madison’s Curse is that prodigious political energy is required to get anything meaningful accomplished. You must somehow rouse the slumbering electorate and mobilize the relevant interest groups. In such campaigns—and they really are campaigns—slogans and symbols are more effective than learned dissertations, for mass politics displays little tolerance for complexity. So elected officials must care at least as much about what sounds good as about what is good.
Next, take those short time horizons. Politicians are surely guilty of myopic concentration on the here and now. In many meetings when I was in the Clinton administration, I muttered to myself, “There is no election next Tuesday.” There wasn’t. But the politicos often behaved as if there was.
On the other hand, however, we economists are often equally guilty of hypermetropic concentration on the distant future. Our particular brand of analysis is wont to focus doggedly on long-run consequences, to the exclusion of the many transitional problems that loom so large in the lives of ordinary people. As Keynes wryly put it, in the long run we are all dead, meaning that many of us will not live long enough to see the heralded “long run” arrive. So it is neither foolish nor selfish for voters and politicians to worry about what may happen in the next one, two, or five years. Economists sometimes miss that important though obvious point. And when they do, the policies they advocate may be political disasters.
Some economists have a second blind spot: distributional consequences. When contemplating changes in, say, tax, trade, or regulatory policies, economists generally think first—and sometimes last—about questions of efficiency. Will the policy make our market system function more or less smoothly? Will it raise or lower the gross domestic product? Is it a cost-effective way to achieve the stated goal?
These are all fine questions—and highly relevant, too. Politicians regularly squander the national treasure by ignoring them. But economic efficiency is not uppermost in the minds of the citizenry, nor therefore of their elected representatives. John and Jane Q. Public want to know who gets the gain and who gets the pain. They want to hear reasons why the losers from a proposed policy change should be asked to sacrifice for the good of the winners—especially if they may be among the losers. Some of the answers might be deemed acceptable; people are not always 100 percent selfish. But others will not be. Such questions are entirely legitimate, and economists who refuse to entertain them are not contributing to better economic policy. They are ensuring their own irrelevance.
So, for example, in selling international agreements that expand the realm of free trade—such as the late lamented Trans-Pacific Partnership—politicians understand that they must address fears of job loss and community disruption. (Who can forget that after Donald Trump’s victory?) Economists may assure you that the new high-wage jobs created by enhanced export opportunities will outweigh the low-wage jobs lost to foreign competition. That’s nice. But the folks who lose low-wage jobs in San Antonio will not secure new high-wage jobs in San Francisco. Why should these unfortunates be asked to pay the price? The case for free trade is not airtight unless something is done to compensate its victims—and it rarely is.
Similarly, economists who make elaborate efficiency arguments for switching from an income tax to a consumption tax, or who advocate privatizing Social Security, should pause more than they do to consider how changes like that would affect the progressivity of our tax-transfer system. (Each would reduce it.) The public will surely think such matters apposite.
While the analytical aspects of the calculus of pain and gain involve numerous difficult technical issues, they at least fall squarely within the realm of mainstream economic analysis. But when it comes to actually deciding who should reap the benefits and who should pay the bills, technicians must yield the floor to politicians. It is not for economists to say whether one group of people should be favored over another. That’s for elected politicians.
Madison’s Curse was not an accident. Our vaunted system of checks and balances was designed to be frustrating. American constitutional democracy is, in this respect, quite different from parliamentary systems in which the majority party can pretty much do as it pleases. No president of the United States ever has the kind of control that, say, a British prime minister with a working majority has. Even Lyndon Johnson, whose landslide victory in 1964 swept waves of Democrats into both houses of Congress, had to beg, cajole, and threaten the congressional barons. Even Franklin Roosevelt was thwarted by, among others, the Supreme Court.
Compromise is often said to be the essence of politics, and nowhere is that truer than in America. Major policy initiatives—say, overhauling the tax code or making large changes in Social Security—have traditionally required broad, bipartisan support. That tradition broke down in the 1990s, starting with Bill Clinton’s first budget in 1993. It broke down spectacularly with Barack Obama’s attempts to pass health care reform in 2010, and even more with Donald Trump’s health care and tax proposals in 2017.
Bipartisanship means coalition building, vote trading, logrolling, difference splitting—and compromise, compromise, compromise. Policies that emerge from such political deal making are unlikely to follow the neat contours designed by economic technicians. More likely, they will be ungainly creatures whose central organizing principles are hard to discern, if any exist. Sort of like attaching the head of a horse and the tail of a monkey to the body of an elephant. But policy wonks must learn to live with such ungainly creatures, even if they never grow to love them.
For example, the Dodd-Frank financial reform legislation passed in 2010 was, in my view, a sterling legislative accomplishment. It fixed, or at least ameliorated, a long list of problems that had left us vulnerable to a devastating financial crisis. Yet it left the crazy quilt of multiple financial regulators largely intact. Why? Because both Representative Barney Frank (D-MA) and Treasury Secretary Tim Geithner decided not to start an unwinnable war with congressional barons who could be counted on to protect their home turfs. Similarly, if we ever get immigration reform, it will likely be forged in a series of political compromises with no coherent principles or philosophy. If the final products of such legislative battles leave some not-very-political policy wonks feeling frustrated, that’s a trivial price to pay. The work of government must be graded on the curve.
While policy without politics is neither feasible nor desirable, politics comes in degrees. The trick for any society is to maximize the high politics—the mediation of competing interests and ideas—and minimize the low politics—politics as gladiatorial combat. This is something America has been doing poorly for years now, with the 2016 presidential campaign taking us to new lows.
High politics is what we were taught in civics classes. It is the politics of Roosevelt versus Hoover, of Lincoln versus Douglas, of Hamilton versus Jefferson (though those last two guys got pretty nasty). High politics is about clashes between competing philosophies and visions of government. It is about how the champions of alternative policies duke it out in the public arena. The combat may be rough- and-tumble—ideologically driven conflict can be particularly bitter and humorless—but the focus is squarely on the ideas.
However, purists and saints don’t get elected, and successful politicians are neither. Political battles, like political motives, are apt to be less than pristine, political debates less than lofty. Message, parliamentary maneuvers, and raw political power all probably play bigger roles than expertise and evidence. Deals are struck. Logs are rolled. Compromises are forged. The whole process resembles a heavyweight boxing match more than the Oxford-Cambridge Debating Society.
Even when the politics sticks to the high road, the economic merits of an issue normally take a backseat in Washington debates. Sometimes they are not even invited along for the ride. After all, economic policy has always been considered far too important to be left to the economists. Still, this situation is a good deal better than when low politics holds sway. Then the economic merits get treated like roadkill.
If high politics is like boxing, low politics—which is what crowds our TV screens and dominates blogs and Twitter feeds—is more like mud wrestling. Here, competing philosophies are smothered by political gamesmanship and name-calling. The contest among ideas degenerates into battles for partisan or individual advantage. Argument and debate give way to invective and lies. Legitimate mediation of competing claims turns into an unseemly squabble over who will feast at the public trough. It is not a pretty sight.
Gamesmanship has been elevated to absurd heights in contemporary Washington, where politics may eclipse professional football as the town’s favorite sport. Political clashes nowadays are often not over ideas at all, nor even about policy. They are simply about winning and losing. Winning and losing what is considered less important than hurting your opponents. Here are two examples of this curious contact sport from the first term of the Obama administration.
With the economy nearly in free fall in early 2009, and the public terrified about what might come next, President Barack Obama followed his economists’ sound advice and proposed a large fiscal stimulus—meaning more government spending and lower taxes—to boost demand and stem the economy’s slide. It was his first major legislative proposal. Putatively, the president’s party controlled both houses of Congress at the time. But the Democratic Party is congenitally fractious, as Will Rogers famously knew (“I don’t belong to any organized political party. I’m a Democrat.”), and the ever-present threat of a filibuster means that a “majority” in the Senate actually requires sixty votes. Furthermore, Obama had run as a postpartisan candidate, eager to paint America purple rather than red and blue. All this made political compromise the order of the day. Or so he thought.
In fact, congressional Republicans basically objected to everything but tax cuts, forced the White House to include more business tax cuts than it wanted (even when they packed little stimulus punch), and then voted against the bill anyway—almost to the person.* Apparently, the loyal opposition was more interested in tarnishing the new president than in designing a better stimulus package. As Senate Republican leader Mitch McConnell (R-KY) later admitted, his main objective was to deny President Obama a second term.
Obama’s second big initiative was the aforementioned health care reform. Once again, the president entered the debate in a compromising mood, but the Republicans adopted the “just say no” (to everything) strategy they had used successfully to block health care reform in the Clinton administration. This time, however, it didn’t work because they were outmaneuvered by then Speaker of the House Nancy Pelosi (D-CA), and a bill supported only by Democrats squeaked through both the House and the Senate in March 2010. Nonetheless, Republicans arguably won the outside game by creating an anti-Obamacare meme that resonated with (segments of) the public while the Democrats were asleep at the message wheel.
The main point here is not that Democrats were right about health care, but that Republicans never offered a serious alternative. They just sought to hang a political defeat around the neck of the young president. In fact, over the remainder of the Obama presidency, the House voted to repeal Obamacare more than sixty times—a pledge that was echoed prominently by Donald Trump in his campaign rhetoric. Yet by his inauguration day, Republicans (including Trump) had never offered a single plan they preferred.
That plan arrived with a thud on March 7, 2017, but didn’t last long. The original Trump-Ryan plan to “repeal and replace” Obamacare died in the House within days. Democrats didn’t have to lift a finger. The second try passed in May by an underwhelming 217–213 vote. Then it was on to the Senate, where Republicans could never agree on the “replace” part, despite copious deal making and arm-twisting by Majority Leader Mitch McConnell—and several failed attempts, the last in September 2017.
I realize I’m sounding partisan myself here because, in these two examples, I cast the Republicans as the villains of the piece. But that’s mainly because it was a Democrat who won the presidential elections in 2008 and 2012, making the Republicans the potential blocking party. But Democrats can and do play this game as well. Without really enunciating it as such, they played the “just say no” strategy effectively early in the Trump administration—beginning with his replacement for Obamacare, which struggled through the Republican-dominated House without a single Democratic vote and then died in the Senate. Democrats similarly opposed the broad attack on the social safety net proposed in the president’s first budget. Neither was meant to help President Trump politically!
Low politics manifests itself in other unattractive ways as well—such as name-calling, personal attacks, and scandal-mongering. These tawdry aspects of contemporary political sport did not begin with President Trump, of course. As I mentioned, Hamilton and Jefferson really had at it. But the sport is growing nastier. Washington observers who are far more experienced than I report that the level of vitriol has been rising like the tide for more than two decades. One major effect of all this mudslinging is to make more and more viewers want to change the channel. Better to watch Survivor—it’s kinder and gentler, and the rules are clearer. Or to elect a complete outsider with no political experience and no respect for political institutions—nor even any manners.
If you want to know why more and more of our citizens are tuning politics out, ask yourself this simple question: What do you think would happen to the national appetite for hamburgers if McDonald’s and Burger King constantly bombarded us with ads condemning the other’s products as vile and hazardous to your health, rather than extolling the virtues of their own? That, by the way, seems to be an apt metaphor for the 2016 presidential campaign.
But all this is surface stuff. Many of the truly deplorable aspects of low politics are kept off the TV screen and, indeed, are barely visible to the public at large. What happens in the shadows is known only to the participants: the politicians themselves, their staffs, and the K Street lobbyists.
Start with the zaniness induced by the congressional committee structure. The all-important House and Senate Appropriations Committees—the ones that spend our money—are divided into twelve subcommittees, each with jurisdiction over a portion of the budget. Did I say jurisdiction? When they can—less often now than formerly—the chairs of these subcommittees treat their bailiwicks more like private fiefdoms than public trusts. Presidents and even congressional leaders are expected to appear as supplicants bearing gifts, like medieval monarchs seeking the support of local knights and lords. Favors are dispensed or denied. Turf is protected. Just try cutting highway demonstration projects (have you ever seen one of those roads that leads nowhere?) or maritime subsidies.
The power wielded by certain members of Congress is sometimes quite amazing. And the public hardly knows it exists or who these people are. Neither, it appears, did the neophyte president Donald Trump before he met up with members of Congress—some from his own party—who opposed his agenda in 2017.
Then there is the public feeding trough, access to which is granted mainly to the politically powerful and well connected—and in a bewildering variety of ways. The accepted euphemism for such things is “members provisions,” a sanitized phrase that translates roughly into highway robbery. Some popular examples are inserting tailor-made clauses into tax bills in the dead of night—and passing them without debate. Or writing special protectionist provisions into the 583rd section of a huge trade agreement. Or granting exceptions to regulations that, somehow, seem to benefit a single company. (Just a coincidence, of course.) The vaunted end of “earmarks” in 2011 did not do away with any of this; it just demanded more ingenuity.
My all-time favorite example was unearthed decades ago by Jacob Weisberg, then a reporter for the New Republic, while Congress was working on tax reform in 1986—ironically, one of the most principled bills Congress ever passed. On page 651 of a monstrously long draft, a list of exceptions to the general crackdown on abuse of municipal bonds contained a cryptic reference to “an area of a city described in paragraph (4)(C).” If you turned to that paragraph, you did not find the city’s name, but you learned that it had more than 2.5 million inhabitants and an American League baseball team. Hmm. That left New York (the Yankees) and Chicago (the White Sox). More information awaited you in section 145(d)(3), if you could find it. (Try page 569.) It located the city in a state whose new constitution took effect on July 1, 1971. Bingo (if you were among the cognoscenti): the state was Illinois, and the city was Chicago.
What a surprise. Representative Dan Rostenkowski of Chicago then chaired the House Ways and Means Committee. Turning back to page 651, you found that the law exempted redevelopment projects approved before July 1, 1986, in a neighborhood that the city council declared to be blighted on November 14, 1975. Now how many projects do you think fit that description? Do you think the developers knew Dan Rostenkowski? Do you think any of them worried about the national interest?
I could go on and on with further examples, but I am a rank amateur in such matters. The real pros can, and do, run circles around me—and, more important, around the voters.
In the small, outrages like these are invisible to the average person on the street, who is unaware of the bizarre special interest favors that Congress routinely bestows. But in the large, people get the message. Some scams are unmasked by intrepid journalists, as in the example just above. Others get revealed by clumsiness or accident. A few come to light because of sheer chutzpah. As a result, people come to believe that unseemly shenanigans take place on a daily basis. The public may see only the tip of the iceberg, but that tip is big enough to convince most Americans that the governmental deck is stacked against them. “Rigged,” if you like Donald Trump’s word. And it is more than enough to turn people off politics.
My examples so far may give the impression that all this pilfering of the public purse emanates from Congress. Far from it. Many state legislatures are worse. And the executive branch knows how to play the game, too. In fact, unless the White House stops them, many of the departments and agencies of government misconstrue their mission as defending the vested interests of their constituencies against possible encroachment by—perish the thought!—the public interest. Here’s an ancient example that I experienced firsthand in the early months of the Clinton administration.
Looking for budget cuts in 1993, we economists trained our eyes on (among other targets) maritime subsidies. The economics were all with us. The United States once had a large and thriving fleet of merchant vessels. But times had changed, and we no longer had a comparative advantage in this industry—to put it mildly. Other nations could and did provide commercial shipping services far more economically than we could. What remained of the US shipping industry was largely on life support—including generous subsidies from the federal government and restrictive legislation like the Jones Act (of 1920!) and cargo preference (which originated in 1904) that mandated the use of US carriers. The annual bill to American consumers ran into the billions every year to save a paltry number of jobs, making maritime one of America’s clearest examples of what Europeans call “lemon socialism.” It was protectionism at its worst.
Why, you might wonder, was the taxpayer being asked to shoulder such a burden? The putative answer was what it often is in such cases: national security. (Tip for taxpayers: Whenever you hear the phrase “national security,” reach reflexively for your wallet.) The United States may have the greatest navy in the world, but the Pentagon feared it might not have enough shipping capacity should a major war break out—and I mean the old-fashioned kind that requires armadas of supply ships. Yes, Virginia, we may live in an age of electronic warfare, but your navy was afraid it didn’t have enough frigates. The suggested solution? Keep the American flag flying over the decks of privately owned merchant vessels so the navy could commandeer them in time of need.
Okay, let’s accept that. After all, ships actually were commandeered in preparation for the Gulf War in 1991. Besides, who were we economists to question the national security judgments of the Pentagon? So let’s imagine a war massive enough to exceed the supply capabilities of the entire US Army, Navy, and Air Force and yet proceeding at such a leisurely pace that commercial ships can be refitted for military use in time. Even then, there must be some limit on the number of ships we need to hold in reserve for this purpose. At a large interagency meeting on the question in June 1993, I suggested a simple principle: the Pentagon’s own estimate of its maximal requirement ought to be an upper limit on the number of vessels we even think about subsidizing. Surely everyone could agree on that.
Well, not quite everyone. The representative of the Department of Transportation reacted with horror. No, we need to maintain subsidies for at least ninety-two ships, not just for the thirty-four the Pentagon says it might require in time of war.* And besides, a couple of senators would be greatly distressed by the loss of jobs in their states—a fact they have already communicated to the president. You can probably guess how this debate turned out. Maritime subsidies survived. They are with us still.
Trade policy is another favorite conduit for doling out special favors. In the large, America before Donald Trump stood for free and open international trade. Not only did we talk the talk, but we were generally at the vanguard of multinational trade liberalizations from World War II until recently—regardless of whether the president was a Republican or a Democrat. Presidents Clinton and Obama, in fact, promoted trade steadfastly, despite much opposition from within their own party. When trade liberalizations succeed, they are almost always in the broad national interest, even though some particular groups lose.
But American trade policy looks quite different when seen up close and personal. There, it seems, every plaintive industry seeking protection gets a sympathetic ear—at least if it has congressional patrons. (And don’t they all?) It’s one special interest provision after another. We may have entered into a free trade agreement with our northern and southern neighbors, but just let those Canadians try to ship us too many logs or those Mexicans sell us too many tomatoes. Quicker than you can say, “NAFTA,” the administration will have the Commerce Department and the US trade representative on their backs with antidumping statutes, countervailing duties, laws against import surges, Title VII proceedings, section 22 actions, section 301 investigations, and so on. America’s protectionist toolbox is generously equipped. And its use is, of course, dictated by domestic politics.
It’s a nonpartisan affair, by the way. At least before President Trump, Republicans favored free trade more than Democrats. Yet it was Ronald Reagan who put a sharp limit on Japanese auto imports in the 1980s and George W. Bush who granted protection to the steel industry that Bill Clinton had earlier refused. Donald Trump, of course, pulled us out of the Trans-Pacific Partnership, began to renegotiate NAFTA, and blamed all manner of economic woes on “unfair” imports. It wasn’t just China and South Korea. Even Australia, Canada, and Germany became—in Trump’s mind—trade adversaries.
Bismarck had a point—perhaps a better point than he knew—when he advised us not to watch either laws or sausages being made. By adding rank partisanship and political dysfunction to the system of checks and balances that Madison cleverly designed, the contemporary United States has created a recipe for stasis. Problems arise; solutions don’t.
When you combine all that with the need for clever, if misleading, slogans and the Three Is (ignorance, ideology, and interest groups), you have a potent mix that can be lethal to sound economic policy, even when the policy should be nonpartisan. You have an environment in which politicians opt to use economists the way a drunk uses lampposts—for support, not for illumination. You have an atmosphere in which even good economic advice is met with political dissent.
Part of the problem, which I’ve mentioned but not emphasized thus far, is that politicians are myopic; their time horizons are too short. It’s true. But economists’ time horizons are probably too long. Might there be a golden mean? We’ll search for that in the next chapter.
* The package garnered just three Republican votes in the Senate and none in the House.
* The numbers are fictitious. They were classified at the time, and by now I have forgotten them anyway.