Do Liberals Have to Be Losers?

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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

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August 31st, 2011 3:27 PM

Do Liberals Have to Be Losers?

National political discussion of the economics and budgets over the last two decades have been dominated by the debate over President Clinton's tax increase and President Bush's subsequent reversal of this tax hike. If we narrow down the focus to the hike on the richest 2 percent of the population, we are arguing over $50 billion a year, or 0.3 percent of GDP.

Meanwhile, we have seen the continuation of a massive upward redistribution of income that began under President Reagan. While Reagan cut taxes on the wealthy as well, the vast majority of this redistribution was due to policies that changed the before-tax distribution of income, not the reduction in tax rates on the wealthy.

My book, The End of Loser Liberalism: Making Markets Progressive, focuses on the set of policies put in place that affect the before tax distribution of income. This list includes a trade policy that is explicitly designed to put manufacturing workers in direct competition with low-paid workers in Mexico, China and other developing countries.

The downward pressure on their wages is amplified by the high dollar policy put in place by Robert Rubin during the Clinton administration. This policy makes U.S. exports more expensive for people living in other countries, while making imports cheaper for people in the United States. The high dollar policy has the same effect as imposing tariffs on our exports and giving out subsidies for imports. Meanwhile, the most highly-paid professionals -- doctors, dentists, and lawyers -- are largely protected by professional and licensing restrictions.

We also allow the largest banks to benefit from an implicit "too big to fail" policy. This allows them to take great risks with the government effectively providing the insurance. That means high salaries for top executives and big returns for stockholders.

The government has also adopted anti-union policies in labor relations whereby breaches of the law by management leads to a wrist slap. By contrast, unions that take actions in violation of the labor law can expect to see massive fines, with union officers facing jail time, as happened in the PATCO strike in 1981.

There has also been a massive strengthening of patent and copyright laws in this period. As a result of patent protection, we pay almost $300 billion a year for prescription drugs that would sell for about $30 billion a year in a free market. The difference of $270 billion is more than 5 times as large as the amount at stake with the Bush tax cuts.

These government policies, along with many others discussed in the book, have the effect of redistributing income upward. Yet, they are virtually never mentioned in political debates. They are not even on the agenda. Instead we seem destined to fight ever more rounds over the Bush tax cuts for the wealthy.

The End of Loser Liberalism is a call for progressives to step away from the children's table and to sit with the adults. The real battle is over how the rules are set that determine the distribution of before-tax income.

This is important for both policy and politics. If we have a hugely unequal distribution of before-tax income, even strongly progressive tax and transfer policy is likely to have a limited effect in ensuring that the bulk of the population benefits from economic growth.

Furthermore, the politics of relying on tax and transfer policy to reverse the inequities built into the design of the market are horrible. It plays into the conservative story that progressives want to tax those who are innovative and hardworking to provide handouts to those who are not.

The reality is that there is nothing efficient about the policies that conservatives have used to restructure the economy over the last three decades. Progressives can design policies that are every bit as efficient, if not more so, that lead to greater equality in the distribution of before tax income. This is where the money is and this should be the focus of our political efforts.

The End of Loser Liberalism: Making Markets Progressive can be downloaded for free.

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