America's Checkered Past: Not a Model for the Future

Brink Lindsey replies to Matt Yglesias's criticism of his paper:

I think Matt misunderstands both my argument and what Krugman has been doing. I quite agree that Krugman doesn’t want a full-scale reinstatement of the corporatist, cartelistic policies of yesteryear. I say as much in the paper. What Krugman does want, however, is to portray the economic policies of the early postwar decades as an inspiration for progressives today — an example of how activist, interventionist government can simultaneously promote growth and reduce inequality. To quote Krugman’s Conscience of a Liberal: “During the thirties and forties, liberals managed to achieve a remarkable reduction in income inequality, with almost entirely positive effects on the economy as a whole. The men and women behind that achievement offer today’s liberals an object lesson in the difference leadership can make.”
To get to that ideologically convenient punch line, Krugman is forced to systematically misrepresent the policies and culture of the early postwar decades. He has to leave out all the things he doesn’t like, all the things that virtually all his fellow economists and fellow progressives don’t like, about the supposedly good old days — for example, the widespread cartelization efforts of the thirties, farm supports, price and entry controls on large sectors of the economy, restrictions on retail competition, high trade barriers, racist immigration laws, and the sexist confinement of working women to a pink collar ghetto. All of these contributed to the compression of incomes, yet they don’t serve Krugman’s ideological purposes. So he ignores them. That’s nostalgia-mongering, plain and simple: the selective recall of the past to make it seem better than it really was.

I think Brink is exactly right, and that earlier periods of American history simply aren't usefully comparable to the present. The so-called Great Compression was singular and, as Brink notes, it was driven in no small part by policies and social  norms that decent, well-informed people should now consider completely off the table. When it comes to policy to address inequality, the relevant comparison is to other contemporary liberal democracies. I think the evidence is strong that a high level of spending on welfare and social insurance is consistent with high levels of growth, as long as the economy is not hampered by excessive regulation, restrictions on trade, and large amounts of unproductive public spending. American progressives would make a lot more sense if they concentrated almost exclusively on reconfiguring the composition of curent levels of American spending–for example, moving money from defense to social insurance–rather than arguing for additional tax-financed spending. When progressives push for, say, more heavily regulated labor markets and trade barriers, it shows that they're looking back to an era that wasn't as good as they think, while failing to grasp what makes contemporary high-growth, eqalitarian social insurance states work relatively well.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center