The Two Populisms

Shortly after the 2006 election, Ross and I wrote a piece on the Democrats’ economic populism. We ended on the following note.

To date, Republicans have failed to come to grips with the issue of economic insecurity, offering table scraps and tax credits in place of real solutions. This signal failure is the reason that the Bush-Rove vision of a lasting Republican majority has hovered just beyond the GOP’s reach. It’s easy, however, to imagine a renewed “ownership agenda” focused on spreading capital ownership, freeing workers from employer-based health care, rewarding low-wage work, and defending the interests of hard-pressed parents. The question is whether Republicans, in their present state of drift and disarray, will be farsighted enough to embrace it.

This is as true as ever. But there’s a deeper issue at stake, and it gets to a fundamental difference between Democrats and Republicans. Republicans are the party of economic optimism. That’s not just true of country club Republicans, who have the world at their feet. It’s true of the downscale Republicans who’ve been turning this race upside down.

Feelings about the power of the individual are a major factor in this division. Pro-Government Conservatives are defined, at least in part, by their optimism in this area. About three-quarters (76%) believe that most people can get ahead if they are willing to work hard ­ and two-thirds (66%) strongly express that view. An even higher percentage of Pro-Government Conservatives (81%) say that everyone has it in his or her own power to succeed.

Disadvantaged Democrats have a gloomier outlook. Just 14% think that people can get ahead by working hard; 79% say that hard work is no guarantee of success, and 76% express that view strongly. Only 44% of Disadvantaged Democrats say that everyone has the power to succeed, while slightly more (47%) take the fatalistic view that success in life is determined by forces outside one’s own control.

I know plenty of smart liberals who consider this kind of optimism incredibly naive. They file this under “1 + X percent of Americans believe they are in the top 1 percent” and leave it at that. They used to believe that America was about to be surpassed by West Germany or Japan, and now they think America will be surpassed by China or Europe or both and that our only hope is to become more like one or all of the above. I tend to think that Danish or French or Bolivian solutions depend to a very large extent on context, and that a flourishing American work-ethic state will have to be very sensitive to what is most valuable in our own tradition. “American exceptionalism” is an idea that’s done as much harm as good, but American experimentalism has legs. We’ve done a good job of not embracing every economic and institutional fad, and that gives us room to maneuver, to adapt and flourish as economic changes we can’t possibly anticipate transform the world.

But I worry that that’s changing. Perhaps the most baleful legacy of the Bush years will be that a narrow clique of Republicans actually discredited economic optimism and openness by virtue of dimwitted decisions on taxes and national security and healthcare. What a tragic irony.

The message I’d love to see Republicans convey is a populism that speaks to the head as well as the heart, that doesn’t condescend or make easy promises but rather tells uncomfortable truths: A free economy offer risks and rewards. Government can’t miraculously guarantee that you’ll only experience flush economic times, or that you’ll never experience a serious reversal. But what government can help you do is become more resilient, by designing the right mix of bankruptcy and immigration laws and savings vehicles and social insurance programs and taxes. America has always been known as a frontier society, as a country that gives people a second and third chance. We celebrate those who take a chance and fail, and then dust themselves off and try again. Fear of failure is the mark of a hidebound society We can’t let that happen to us. And we can’t bail out every bank and every hedge fund that flies too close to the sun.

What we rightly consider unfair is when American families go bankrupt thanks to medical expenditures. We have good reason to believe that this is relatively rare, but it’s not nearly rare enough. The government should step in to deal with catastrophic medical expenditures. But there’s a tradeoff. If the government pays the bills, the government has a right to expect that it’s money — i.e., the taxpayer’s money — won’t be wasted. That means, say, that you’ll need to use evidence-based integrated care.

The great challenge for the country, and not just the government, is strengthening the capacity for self-help. The subtitle of Edmund Phelps’ brilliant Rewarding Work, in which he makes the case for wage subsidies, is “How to Restore Participation and Self-Support to Free Enterprise.” That is our challenge.

As Phelps argues, this is likely to be an expensive proposition. That’s why some conservatives and Republicans are inching towards more centrist economic positions, because it is clear that the things that are most important — free labor markets first and foremost — are in danger. So undoing some of the damage done by misconceived policies, like massive tax subsidies skewed towards the rich, is an imperative. That means some kind of economic activism is imperative. As Andrei Shleifer and Robert Vishny argued, there is a difference between the invisible hand and the grabbing hand, and in the real world we’re dealing with the grabbing hand.