A Democratic Economic Philosophy
Fri Nov 02, 2007 at 04:55:49 PM PDT
Democrats are the party for people who work for a living -Kos
I decided to take a stab at some unifying economic principles for Democrats leading to this slogan.
Both parties seek prosperity for the nation. I will define prosperity as a sense of economic well being held by a large majority of the voting public. The two parties represent different sections of the electorate and their notions of prosperity reflect this.
Both parties are capitalist parties.
Both agree that the primary engine of prosperity is economic growth, defined as the accumulation of capital. They differ on their notions of what is capital.
Republicans believe that capital is wealth. This means economic growth = accumulation of private wealth. Hence, their favorite economic nostrum is tax cuts on the wealthy (the investing class). In particular, they argue for low or even zero taxes on investment income. The deficits these create are looked at favorably because they create new investment vehicles (government bonds) for the excess money the tax cuts inject into the investment pool. They favor a Fed policy that places an emphasis on low inflation over full employment because this maximizes investment return.
Democrats believe that capital is what makes workers productive; it is not the same as wealth. Thus capital includes things like education (human capital), public works (roads, mass transit, airports etc.), regulatory infrastructure (FDA, OSHA, SEC, FTC etc), and an unspoiled environment (clean water & air, national forests and park lands, unchanged climate etc.). Technical knowledge possessed by legions of scientists, engineers, programmers and other technically trained personnel has created much of our modern world (and a great deal of conventional wealth).
Capital held collectively can be employed to create wealth just as can plant and equipment. For example, the interstate system helped make the US goods distribution system the most efficient in the world. Regulatory agencies like the FDA and SEC reduce the liability risks of doing business, aiding productivity. An unspoiled environment provides opportunities for industries requiring such an environment (e.g. tourism) and reducing lost productivity caused by lawsuits over competing claims for use of the environment (e.g. toxic torts). Without a robust regulatory apparatus, excessive numbers of such torts would paralyze economic activity relating to the environment.
Democrats believe that putting more money in the hands of investors merely increases the price of assets, producing financial bubbles. It does nothing to encourage economic growth. Democrats favor high taxes on the wealthy in order to soak up surplus cash that would otherwise cause asset inflation. They favor a Fed policy that seeks full employment and low inflation in both investment assets and consumer goods. Democrats believe both high employment and low inflation can be achieved when the government maintains a budget surplus during periods of economic expansion, as was demonstrated during the Clinton presidency.
The parties differ on what sort of policy best promotes prosperity
Republicans are supply-siders; they believe in Say’s Law, that supply creates its own demand, that is, reducing prices increases the affordability of goods and services. Republicans favor maximum freedom of businesses to lower costs and so support free trade (e.g. outsourcing) and minimal business regulation. That such policy leads to increased income inequality is not reason to discontinue it. For Republicans, prosperity does not require that income growth be distributed equally.
Democrats are demand-siders; they believe that economic growth comes from increasing demand, which Business exploits, resulting in expanded output and employment. Demand is a need or want coupled with the ability to pay for it. Demand growth is achieved by (1) the development of new needs or wants through innovation and (2) increasing the ability to pay of all households by making sure that the benefits of economic growth are distributed amongst all workers (economic fairness). Economic fairness means workers should see percent gains in compensation roughly equal to the percent growth in the economy. Over the last 30 years this has not been the case and Democrats believe our prosperity has suffered as a result.
The Democratic emphasis on innovation means that the people creating new demand should reflect the population they serve so as to have the widest possible palette from which to create new things. This requires that people with diverse backgrounds (e.g. race, class, religion, nationalities, gender, sexual orientation etc), tastes, and beliefs must interact productively, making diversity a Democratic value. Democrats are social libertarians and promote civil rights for disenfranchised groups.
Both parties believe in an important role of government in the economy; they differ on what that role should be.
Republicans are conservatives; they believe in the bird in hand over the two in the bush. They believe government should act to help expand existing economic activity. If resource shortages threaten an industry (e.g. oil) Republicans believe in using the nation’s military might to secure preferential access to these resources. Republicans are more concerned about non-capitalistic economies restricting access of US firms to operate abroad. Hence they were always more fervent anti-Communists than Democrats.
Democrats believe the government has an important role in fostering innovation and the development of new industries. Thus Democrats believe in using subsidies and laws to encourage new industries and new products (e.g. CAFE standards that promote development of high mileage cars, alternate fuel subsidies). Because Democrats believe we can grow our economy right here at home—through innovation—they do not believe that wars for oil are necessary or even useful.
Republican preference for existing economic activity makes them the party of economic winners. They believe those segments of society not currently contributing as much should continue to act in their traditional supporting roles (women should stay at home and raise their children, gays should keep to their place and not try to make waves by trying to marry). They see no benefit in maintaining more than the minimum safety net consistent with traditional notions of almsgiving.
Democratic notions of what is capital and the emphasis on innovation motivate government efforts to develop human capital by promoting education in populations that might otherwise not have pursued higher education (e.g. GI Bill, Student Loans, NSF Fellowships). Similarly, Democrats have usually been greater proponents of public investments (e.g. Apollo project, Amtrack, WPA) as well as stronger defenders of the environment. Republicans acknowledge the Democratic interest in this type of capital, through epithets like tree huggers and by referring to Democratic boondoggles.
Economic fairness forms the basis for Democratic support for a strong economic safety net (e.g. Social Security, universal health care, unemployment insurance, Food Stamps, EIC, etc) Democrats desire to increase the ability of those currently contributing less through childhood interventions like WIC, Head Start, and SCHIP. This policy reflects both innovation and economic fairness.
Conclusions
Democrats believe that prosperity is best ensured through innovation and economic fairness, and that government should actively promote both. This belief goes hand in hand with the Democratic conception of capital as "worker tools". Although some worker tools are provided by business owners, others are possessed by the worker (e.g. education) or held in common by all workers (e.g. physical and regulatory infrastructure, unspoiled environment). Thus, economic fairness can be considered as making sure capital is optimally applied to labor to maximize productivity. The Democratic focus on the accumulation of capital by workers, by making sure capital created by workers is applied back to the workers, makes the Democratic party the party for people who work for a living.
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