Book Review

David's Book Club: What Are Liberals Thinking?

Let's engage and hear what the liberal side of the debate actually is saying. Two recent books provide an accessible entry to that discussion: Dean Baker's The End of Loser Liberalism and Suzanne Mettler's The Submerged State.

It must have been almost 20 years ago. A writer from the New York Times magazine organized a dinner for a sampling of Washington's then-young(ish) conservative subculture. David Brock attended, as did Laura Ingraham, David Brooks, John Podhoretz, and maybe a dozen others. At the dinner, one participant said a very interesting thing:

"We"—meaning we conservatives—"are bilingual. We understand both conservative and liberal. Liberals only understand themselves."

Whether or not that statement was correct even then, it seems emphatically incorrect now.

Even purportedly sophisticated conservative commentary likes to cast today's economic debate as pitting "free enterprise" against "socialism." Descend even very slightly downmarket, and a vote for Obama becomes a vote for a Soviet-style planned economy—or else possibly a reversion to Reconstruction as described by William Dunning and D.W. Griffith.

These characterizations certainly mobilize the base. They also insulate and isolate conservatives from real-world policy debates. If you don't know what your opponent is saying, you won't do a very effective job refuting him.

In the spirit of that long-ago Times magazine writer, let's engage and hear what the liberal side of the debate actually is saying, when speaking to itself in serious ways. Two recent books provide an accessible entry to that discussion: Dean Baker's The End of Loser Liberalism and Suzanne Mettler's The Submerged State.

Baker's subtitle tells his story: "Making Markets Progressive." Conservatives frame the debate as one between markets and government intervention. Baker wishes to repudiate that frame:

In reality, the vast majority of the right does not give a damn about free markets; it just wants to redistribute income upward. Progressives have been useful to the right in helping to conceal this agenda. Progressives help ratify the actions of conservatives by accusing them of allegiance to a free-market ideology instead of attacking them for pushing the agenda of the rich.

For the last three decades, the right has been busily restructuring the economy in ways that ensure that income flows upward. The rules governing markets, written by the rich and powerful, ensure that this gravity-defying outcome prevails. The right then presents the imposition of rules that it likes as the natural result of unfettered market forces.

Rarely does this upward flow of income require a government check to the wealthy. But when the checks are necessary, they come. The Treasury and the Federal Reserve Board gave trillions of dollars in loans, at below-market interest rates, to the largest Wall Street firms at the peak of the financial crisis in 2008. These loans kept Goldman Sachs, Citibank, and most of the other major Wall Street banks from collapsing, and the subsidies implied by the loans and guarantees to the world's largest banks were in the tens if not hundreds of billions of dollars. Yet somehow this massive intervention on behalf of these banks' executives, shareholders, and bondholders - some of the richest people in the country - is not viewed as an interference with the market.

While the bank bailouts are big news, there is no shortage of less-visible instances in which conservatives have long been eager for the government [to] step in to support the interests of the wealthy.

Baker then follows with a sequence of proposals to remold markets in ways aimed at equalizing incomes.

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From my point of view, some of these proposals are cures worse than the disease.

Baker wants to weaken patent protections for new drugs and instead rely more on direct government funding of medical research.

He wants more consistently loose monetary policy—even in non-recessions—to reduce the value of the US dollar and boost exports.

On the other hand, some of the ideas have merit: enhancing the workability of job-sharing as anti-recession policy; shifting immigration policy to favor highly skilled to compete with native-born upper-income professionals.

Uniting every argument is Baker's insistence: "the progressive agenda is about setting fair rules for the market. … It is not by luck, talent, and hard work that the rich are getting so much richer. It is by rigging the rules of the game."

The last two sentences quoted above seem to me needlessly bogey-hunting. The trend to inequality appears in every developed country, and it began to show up about the same time. The trend is driven by deep changes in the world economy, and we're guaranteed to respond perversely if we fail to understand that. But it's precisely because the progressive agenda is largely wrong that it's important to understand what that agenda actually is. Today's loose and lazy conservative talk about "socialism" is self-deceiving and therefore self-sabotaging.

The Submerged State presents conservatives with another unexpected and unfamiliar intellectual challenge. Mettles argues that the American social welfare system is distinctive because it does so much of its work in ways that bypass the formal structures of government.

In European countries, for example, university tuition is low because governments directly fund universities. In the United States, even state universities charge very high prices by European standards, but students are subsidized through a government-guaranteed loan system. Until recently, however, the largest portion of these government-guaranteed loans flowed through privately owned banks, which profited mightily from loans they would never have made absent the government guarantee.

To participants, the system looked and felt like a system of private finance. And when in 2009 the Obama administration changed the rules to put the private lenders out of business, critics accused it of a "government takeover" of a business that only existed because the government had brought it into being.

The vast American system of employer-provided healthcare exists only because the government declines to treat employer-provided benefits as taxable income—a subsidy worth almost $200 billion a year.

Retirement savings are supported by tax exclusions and tax credits that have conjured into being the vast 401K industry.

Before the housing crash, the typical new American home was almost 25% larger than the typical new Canadian home largely due to another government subsidy, the tax exclusion of mortgage interest—another $200 billion a year.

These subsidies provide greater benefits to higher earners, while sustaining in their beneficiaries a gratifying feeling of self-sufficiency.

Mettles' critique of the submerged state is both challenging and troubling. Challenging, because she's surely correct that this is a wildly inefficient way to run social provision, subject to capture by provider interests. Troubling, because she often writes as if inculcating a feeling of dependency on government were a valuable social project in itself.

The question is, can reform be considered successful if it goes unnoticed? In a system of representative government, the answer is no. A new law may reduce inequality by transferring resources to low- and middle-income people, but if it neglects to reveal to citizens what government will do or has done on their behalf, it may likely fail. It may not garner sufficient support from citizens to strengthen the resolve of enough elected officials to vote in favor of it, ensuring its passage. If enacted, it may prove unsustainable, as opponents dismantle it or undermine implementation. It may leave many of its proponents vulnerable at the next election, and if they lose their seats, it will be abandoned by its best defenders and may prove unsustainable. And it will surely mean that the policy does nothing to restore citizens' confidence in government, their awareness of the role government plays in their lives, or their engagement in the political process. [Italics added]

The slogan "Get your government off my Medicare" is ludicrous enough. You can understand why it vexes supporters of activist government. But to design an entire theory of the state with a view to correcting this mistake? That seems an over-investment, doesn't it?

Especially since, after all, Medicare is very much part of the unsubmerged state. Short of nationalizing the hospitals and conscripting all doctors onto the government payroll, it's hard to imagine how Medicare could possibly be more closely identified with government than it is. Yet that visibility has not only failed to mobilize the kind of pro-government constituency Mettles would like to see—it has not even prevented present Medicare beneficiaries from rallying to the Ryan plan to withdraw the Medicare guarantee from Americans younger than age 55.

As many commentators have pointed out, the key variable in Americans' thinking about government benefits is not visibility, but deservedness: benefits that have somehow been earned by those entitled to them (veterans, the elderly) versus welfare that is sponged by the unentitled.

If a program falls into the latter category, it does not gain support because it is more visible. What could be more visible than public housing? And when submerged benefits are made more visible, what seems often to happen is that those benefits become more vulnerable, not less. That seems to be the story of the Earned Income Tax Credit at least.

As a plea for a more rational structure of government provision, The Submerged State carries force. As a program for renewing liberalism's popular appeal—not so much.