This post introduces a symposium on Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy. Read the rests of the posts here.
In 2008, Barack Obama was elected president on a promise of “hope and change.” Many of Obama’s supporters anticipated that he would usher in substantial policy change, and progressive Democrats, in particular, were energized by the results of an election that had once seemed so unlikely.
But while Obama had some major legislative accomplishments, what stands out in retrospect about his presidency is not its disjuncture, but its continuity with the recent Democratic past. Truly ambitious new policies—ones that might have been top-of-mind for Democrats in 1970, or 1935—were never seriously considered. And the policies that were proposed shared some characteristics more commonly associated with Republican administrations: a focus on leveraging choice, competition, incentives, and the power of markets in the pursuit of outcomes that would be not just effective, but efficient.
Take Obama’s signal accomplishment in social policy, the Affordable Care Act. Modeled after Mitt Romney’s 2006 Massachusetts healthcare reform bill, it established a complex system that sought to harness competition between insurers to keep costs down, and incentivized the purchase of insurance with subsidies for the lower income. While some Democrats advocated for universal, single-payer healthcare—the party’s platform in the 1970s—the insider consensus was that this was both unrealistic and undesirable because it would fail to keep costs down. In its final form, Obamacare looked not so different from the healthcare reforms proposed by Richard Nixon in 1974.
Similar observations could be made about the administration’s approaches to financial reform, climate policy, education policy, and antitrust. Obama was, of course, faced with many constraints that shaped what he was able to accomplish. But what is so striking about Obama’s time in Washington is not that he sought to achieve fundamental change and failed. It is how constricted the very horizons of possibility seemed to be.
Why have Democrats remained committed to an incrementalist, modestly ambitious vision of governance, even as the country has faced unprecedented challenges? And how does the answer to this question help us understand the Biden administration, which has inherited Obama’s legacy, along with many of his advisors? There are no simple answers. But a critical, yet underappreciated, piece of the explanation for Democrats’ apparent lack of ambition is the rise of a distinctive way of thinking about policy—what I call the “economic style of reasoning”—that has become prevalent in Washington.
The economic style of reasoning is a loose approach to policy problems that is grounded in the academic discipline of economics, but has traveled well beyond it. It starts with basic microeconomic concepts, like incentives, various forms of efficiency, and externalities, and looks at policy problems using models to simplify, quantify, and weigh costs, benefits, and tradeoffs. It is often perceived as politically neutral, but contains values of its own—values like choice, competition, and, especially, efficiency. Today, its dominance as a framework for thinking about policy is often taken for granted, but that has not always been the case.
Between the 1960s and the 1980s, two intellectual communities introduced this distinctive way of thinking to Washington. While the 1970s are often associated with the rise of supply-side economics and Milton-Friedman-style monetarism, the economic style of reasoning originated not at the University of Chicago, but in Santa Monica and Cambridge. First, a group of systems analysts from the RAND Corporation offered new answers to the age-old question, “How should government make decisions?” And second, a loose network of industrial organization economists asked, “How should we govern markets?” Though these communities included both liberals and conservatives among their members, their modal representative was a centrist, technocratic Democrat.
Between the Kennedy and the Carter years, these two groups built their ideas into the policymaking process. The systems analysts, who advocated for evaluating policies on the basis of their cost-effectiveness, started at the Defense Department, then found their way into social policy just as the Great Society was taking off. The industrial organization economists, who wanted market governance to promote allocative efficiency, introduced economic reasoning to law schools and agencies like the Antitrust Division, and built hubs at the Brookings Institution and beyond. These approaches appealed to policymakers for reasons ranging from their promise of apolitical rationality to their tendency to serve as a counterweight to liberals’ preferences. Over a period of about fifteen years, the economic style was gradually institutionalized in Washington through organizational change, legal frameworks, and administrative rules.
As this new style of reasoning spread, its previously unthinkable approaches to policy problems began to seem obvious, even intuitive. Deregulating railroads stopped seeming “heretical,” as economist and deregulation advocate John Meyer declared the idea in 1959, and became the conventional wisdom. Democratic members of Congress no longer saw the taxing of emissions and effluents as providing a “license to pollute,” but as the most reasonable way to manage environmental quality—unless, even better, it might be possible to create a market for emissions credits. And bureaucrats increasingly made social policy decisions through a lens of cost-effectiveness, in which it seemed only sensible to restrict access to public programs to those with limited means.
This new conventional wisdom had real consequences for the Democratic Party. The economic style made efficiency its cardinal virtue. But the pursuit of efficiency frequently conflicted with commitments to competing values traditionally associated with Democrats. Advocates for national health insurance, for example, made their case by defining medical care as a right, and arguing for universalism on both moral and political grounds. But if efficiency were the measure of good policy, the optimal healthcare program would involve means-testing and cost-sharing, not universalism. Similar conflicts between efficiency and competing values—equality, stability, democratic participation—played out in many different policy domains.
By the 1980s, Democratic advocates of the economic style typically preferred—on grounds of efficiency—housing programs that provided vouchers to low-income families over investment in public housing. They opposed universal health insurance, advocated against a universal family allowance, and thought tuition-free higher education was misguided—all policy positions that had, in the past, been associated with Democrats. Their commitment to efficiency often placed these advocates in opposition to other members of the Democratic Party, and aligned them with moderate Republicans.
The rise of the economic style did not take place in a vacuum. These new ideas gained favor in the context of broader political, cultural, and economic changes. But once the new way of thinking took hold, policies grounded in competing moral frameworks found it harder to gain political purchase. The advancement of the economic style reinforced a conservative turn in politics by undermining some of Democrats’ most effective language—of universalism, rights, and equality—for challenging it.
The institutionalization of the economic style, and the marginalization of alternatives, helps explain why the universe of options considered by the Obama administration seemed so impoverished to those on the left. The economic style inspired their new policy options—from Obamacare to the Race to the Top, which encouraged states to compete for federal education dollars. And when outside voices mentioned more ambitious possibilities—from Medicare for All to breaking up big tech—the policy establishment tended to dismiss them as unreasonable, which in part meant incompatible with the economic style. The legacy of these dynamics continues to shape the options available to the Biden administration.
But 2022 is not 2008, and today, all this seems up for grabs. The Biden administration has sometimes challenged the conventional wisdom of the economic style, selecting antitrust appointees who take a more expansive view of their role and, notably, cancelling a meaningful amount of student debt despite the opposition of many economists. This is the result of an energized left wing committed to a different set of values.
But translating this grassroots movement into policy impact will require reckoning with the dominance of the economic style—with its elevation of efficiency over economic democracy, its faith in the power of choice and competition, and its power to define the space of “reasonable” policy options. The boundaries of the economic style are not fixed, and at times it may be possible to expand or open them. But when this is not enough, or when deeper political values conflict with the economic style, we must be willing to advocate, without apology, for alternatives, and work to build influence that circumvents it. The alternative is allowing pursuit of our own political values to be limited by the values of economics.