Social-democratic vs market-friendly progressivism

I learn from virtually everything I read by Mike Konczal, and agree with much of it. But the essay he and Patrick Iber have written on Karl Polanyi, progressivism, and the 2016 Democratic nomination contest leaves me with more questions than answers.

Iber and Konczal aim to highlight a tension within the American left between a “social democratic” vision of how to address social problems and a “progressive but market-friendly” vision. They say Bernie Sanders, a social democrat, believes access to education and healthcare should be a right, available to all persons regardless of income or wealth, whereas Hillary Clinton, a market-friendly progressive, thinks education and healthcare should remain market commodities, with access hinging at least partly on a person’s ability to pay. Sanders, according to Iber and Konczal, “offers a straightforward defense of decommodification — the idea that some things do not belong in the marketplace — that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter.”

What does treating education or healthcare as a right imply for policy?

Though Sanders favors free college for everyone, that isn’t what he would provide. He proposes zero tuition (for in-state students at four-year public universities). But that wouldn’t cover room and board, which costs $10,000 a year or more for a typical student. Offering “free” college that doesn’t include room and board is a bit like offering “free” healthcare that covers the cost of surgery but requires patients to pay out of pocket for the hospital room. In the Sanders plan, low-income students, but not middle-income ones, “would be able to use federal, state, and college financial aid to cover room and board, books, and living expenses.” So for Sanders, like for Clinton, college education wouldn’t be genuinely decommodified.

That’s the case in Sweden too, which is why a large portion of young Swedes leave college with fairly large student loan debt despite paying zero tuition. Earlier in the life course, Swedes benefit from high-quality child care and preschool. But while public funds heavily subsidize the cost, parents do have to pay for this early education, up to 10% of household income. Is Sweden failing to treat education as a right?

How about healthcare? I share Sanders’ preference for a single-payer system, but that wouldn’t necessarily decouple access to healthcare from one’s income. Medicare pays, on average, only about two-thirds of elderly Americans’ total medical expenses, so “Medicare for all” arguably wouldn’t ensure everyone a right to what we think of as minimally adequate healthcare.

If we believe in a right to healthcare and education, shouldn’t the same be true for food and housing? If so, does that mean everyone should receive a basic food allowance? A housing allowance? What if providing a meaningful housing allowance to all Americans turns out to be extremely expensive? Wouldn’t we want to consider a policy that ensures housing for those least able to afford it but provides less help to those with higher incomes? That would be a “market-friendly” approach, in Iber and Konczal’s formulation, but it might also be the best one.

To me, labeling Bernie Sanders’ proposals “social democratic” and Hillary Clinton’s “market friendly” obscures more than it clarifies. And applying an overarching principle, such as universal right to access, doesn’t get us very far in figuring out the policy details for education (early, K-12, college), healthcare, food, housing, and more.

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Would Bernie Sanders’ policies give a huge boost to economic growth?

Gerald Friedman forecasts that if Bernie Sanders’ full set of policy proposals were enacted in early 2017, America’s GDP per capita would grow at a rate of 4.5% over the decade from 2016 to 2026. Is that plausible?

Figure 1. Growth rates of GDP per capita in 20 affluent countries
Average growth rate of inflation-adjusted gross domestic product per capita. The countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The data for 1900-1970 are from Angus Maddison, ggdc.net/maddison/oriindex.htm. The data for 1970-2014 are from the OECD, stats.oecd.org, National Accounts. The last two periods are business cycles rather than decades.

Figure 1 shows growth rates by decade for the world’s 20 rich longstanding-democratic nations since 1900. Only a handful of countries have achieved a growth rate of 4.5% or better over a full decade:

  • Countries rebuilding in the 1950s after the Great Depression and World War II devastation: Japan, Germany, Austria, and Italy.
  • Less-affluent nations catching up to the rest of the pack: Japan in the 1930s and 1960s; Spain, Portugal, and Italy in the 1960s; Ireland in the 1990s.
  • The Netherlands in the 1940s.

This is the basis of the widespread skepticism about Friedman’s forecast (Krueger-Goolsbee-Romer-Tyson, Krugman, DeLong).

But others (Klein, Mason, Konczal) point out that the 2008-09 economic crisis and sluggish recovery have left the American economy with a sizable output gap. GDP per capita fell well below its pre-2008 trend, and it remains well below. As figure 2 shows, after past recessions the economy has tended to sooner or later spring back up to the trend line. That includes the Great Depression. In the 1940s, GDP per capita increased at a rate of 3.9% (the closest we’ve gotten to 4.5%, as figure 1 indicates), eventually returning to the pre-Depression trend.

Figure 2. Trend and actual GDP per capita in the United States
Dots: natural log of inflation-adjusted GDP per capita. Line: linear regression line representing a constant rate of economic growth. Data source: Angus Maddison, ggdc.net/maddison/oriindex.htm; OECD, stats.oecd.org, National Accounts.

How did that happen? A key part of the story was the war effort from 1940 to 1945, which served as a massive economic stimulus package, boosting demand and economic growth. Friedman’s 4.5% growth forecast for 2016-26 hinges on the notion that Bernie Sanders’ policy package would achieve something similar.

Would it? My reading of Friedman’s paper is that the 4.5% number should be treated as an upper-bound estimate. It’s what could conceivably happen in the most optimistic scenario, rather than what’s most likely to happen. I’d want to see a lot more sensitivity analysis before giving that number any real credence.

Update: Romer and Romer.

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