Here's something I've been trying to write about in a forthcoming review of the new Galbraith biography, but it's not coming out quite right, so I'll put up a rough draft here in the hopes of clearing some things up. A while back Jon Henke of QandO and I had a brief exchange that started when he suggested that liberals just want to raise taxes willy-nilly. (Okay, he was more thoughtful than that, as he usually is, but bear with the slight strawman here.) In response, I said, "No, no. What happens is that first liberals think of the policies they want—like universal health care—and then figure out what level of taxation would be appropriate to fund them."

Now in a sense, that's exactly what today's liberal wonk-types do. It's more or less what John Kerry did on the campaign trail, even if his proposed tax increases weren't quite enough to fund all his proposed programs. But c'est la... The main point is that Democrats tend to have a decently-developed policy vision—in terms of the sort of programs they'd like to see enacted—as well as a budgetary vision. On the latter, some Democrats endorse the Clinton approach (or rather, the approach forced on Clinton) and call for a balanced budget and paying down the debt. Personally, I prefer the Max Sawicky approach—keeping the debt-to-GDP ratio stable and running moderate deficits. But eh, whatever floats your budgetary boat. Note too, that most of the current debate over the aging society is essentially a fiscal debate: i.e. "Do we cut benefits, or raise taxes, or borrow..."

But here's the problem. What Democrats don't have, quite notably, is an economic vision, and that seems to me a critical lapse. On this point, then, I think John Kenneth Galbraith can teach us quite a bit, since he was laying out grand economic strategies all the time.

To see what I mean by "grand vision," just look at the Republicans. If you read and believe Daniel Altman's Neoconomy, as I do, it's clear that key conservative economists have a basic idea of what they want the economy to do. They think that high economic growth and price stability are more important than anything else, that they should be pursued at any cost, and that the key to doing both is to boost savings and investment. The way hence is to cut taxes on wealth, slash corporate taxes, keep government small, and nominate Fed chairman who will focus more on reining in inflation than boosting employment. (The latter, mind you, follows from the theory of monetarism, which implies that the Fed can control inflation but not employment or output.) Hand in hand with this grand vision is the idea that markets work marvelously well, that growth is best achieved when corporations can do their business unfettered, and that Americans are rational actors who make the wisest of all possible economic decisions when left alone.

(P.S. It's important to note that Bush's "ownership society" is neatly overlaid on this macroeconomic vision, both as a political message and as a guide to appropriate policy-making. But the economic vision, to some extent, is logically prior.)

In practice, of course, the Republican "neoconomist" vision is an abject and utter failure for all sorts of reasons. Conservatives, as it happens, are in the grips of a supply-side theory claiming that cutting taxes won't produce massive deficits. But of course, that's false. Thus, the buckets of red ink Republicans do end up creating put upward pressure on interest rates by crowding out national savings. If conservatives had any success in shrinking government, perhaps they could fix this problem, but they don't. Hence, deficits. Moreover, most conservatives simply fail to understand that massive defense expenditures create big government. Duh, right, but for some reason they don't get it. So more deficits and spending. And finally, the modern Republican Party has been wholly subjugated by corporate America, which wants not free markets but patronage and protectionism. And what big business wants, it gets. Strike three for the grand vision.

Nevertheless, the vision is there. And Democrats don't quite have anything comparable. Basically, we tend to believe that all we have to do is enact our preferred policies (health care coverage, education spending, labor regulations, etc.), increase taxes to tame the resulting deficit, and everything will then take care of itself. Usually we end up pointing gleefully to the Clinton years, in which a balanced budget supposedly led to low interest rates and high productivity, and hence, super-charged growth. But of course we don't know that that's what happened. Lots of things may have been responsible for the boom in the '90s: Low oil prices, a strong dollar, a surge in R&D spending surrounding Y2K fears, certain ICT technologies coming into their own, the "peacetime" decline in defense spending. It was the perfect storm, in many ways. But tax increases in the future may not be so benign.

More to the point, the Clinton economy was very, very far from cozy and posh. Yes, full employment in the late '90s helped boost wages for all income groups, but inequality also rose to gag-worthy levels, and exuberant speculation in the stock market eventually led to a very severe bust and recession. Lest we forget. Meanwhile, levels of personal debt surged. The ever-churning "creative destruction" in the economy that led to 30-some million jobs destroyed (and another 30-some million jobs gained) was very painful for many families. And, taking our nationalist-colored glasses off, do remember that countries across the globe suffered one financial wedgie after another throughout the decade. The "Bretton Woods II" international currency system may or may not be catastrophically unstable, but it's certainly had a number of chest-bruising hiccups. [EDIT: Oops. As Brad Setser points out, BWII wasn't Clinton's creation.] Now maybe some people still think we ought to try to replicate the roaring Clinton years, maybe that's their idea of economic utopia, but even if that's possible, let's not pretend it didn't have real costs, or was some progressive paradise.

So an alternative macroeconomic vision, I think, is needed. Not because it will automatically help Democrats win elections, but because it will form the basis for a comprehensive worldview that will dictate what policies to pursue, what sort of budgets to set, and ultimately, what sort of political message to craft. Eventually, that will lead to winning elections, but more importantly—because, please remember, winning elections is easy and a relatively trivial problem in the grand scheme of things—it will help liberals make the country (and world) a better place.

So what kind of topics would this vision encompass? Well, first, we ought to recognize that there may well be important trade-offs here. There are probably no "free lunch" policies, and many liberal ideas may well conflict with the sort of growth and productivity growth we've seen in the past (or think we can expect in the future). For instance, Dean Baker and Jared Bernstein argue that we should pursue a policy of full employment in this country. Presumably, doing so may come at the cost of some growth, or stock market growth, or productivity growth. But that's exactly the sort of question one ought to ask. Is the tradeoff worth it? Is it worth reining in long-term growth a bit in order to compress inequality levels, or to allow workers to work fewer hours, or what have you? Are higher taxes worth the potential drag on the economy? Do we think job security is important, or is the basic churn of jobs the way to go, and the best response is to stay out of its way, offering basic safety nets—universal health care, wage insurance, mobile pensions—to cushion the shocks?

It goes on: Should the government spend large amounts of money to create jobs by, say, infrastructure spending? (Assuming, as is probably true, that infrastructure spending doesn't boost international competitiveness as much as sometimes claimed, and the main reason to pursue it is mainly job-creation.) And what about monetary policy? Do we think, as Baker and Bernstein do, that the NAIRU is basically bullshit, and there's no reason the Fed can't step on the gas until we get to full employment (say, under 4 percent)? Should we manage aggregate demand through other means—say, perhaps, a tax on excess profits—that don't affect employment as much? Should we prefer that the Fed sets long-term interest rates below the long-term real growth rate, so that we have a redistribution of wealth away from lenders and towards debtors? Should we tax speculation in the stock market? What role should corporations play in this nifty capitalist system we've got going on?

Now clearly I can't answer all of these questions. In all likelihood, I won't always like the answer to many of these questions. They're exceedingly difficult, this post is getting way too long, and I'm not an economist, though I have some, uh, "ideas". Luckily, though, the blogosphere is filling up quite nicely with incredibly smart liberal economists who are, like Galbraith once did, writing for a popular audience, and they can certainly play a role in developing this vision. Perhaps. Nevertheless, it seems awfully important. Maybe it's just me, but I'm not satisfied with saying, "Well, the structure of American capitalism is basically fine, so let's just add health care and more education spending and all will be cool." At the very least, that ought to be argued, not assumed.