In progressive and centrist circles, the publication of Abundance by Ezra Klein and David Thompson has been an event. According to the authors, the key problem with progressive economic policy is that it has been too concerned with redistributing purchasing power and has neglected the economic system’s ability to make and build things in the first place.
Critics on the Left have viewed Klein and Thompson’s “supply-side progressivism” as little more than repackaged neoliberalism. However, the core idea predates Reaganism by several decades. Each postwar Democratic administration vowed to solve distributional problems by generating growth. John F. Kennedy and Lyndon B. Johnson used supply-side policy instruments like tax incentives, subsidized credit, and regulation-lite zones to shape business investment.
Credit growth was always the most effective policy instrument to spur growth, and deregulating the banking sector became a key strategy for Keynesians. But the reliance on credit was always a double-edged sword. The more the financial sector grew, the greater its power to discipline how democratically elected governments could use the public purse. By the late ‘70s that contradiction came to a head, and Jimmy Carter’s decision to put his faith in inflation hawk Paul Volcker empowered finance in a way that would shape the American and global economies for decades to come.
Bill Clinton defined his supply-side program in opposition to Ronald Reagan’s cynical trickle-down philosophy. Soon after taking office, however, his own economic policy team vetoed the idea of using public investment to rekindle economic growth. But help came from an unexpected corner: when Volcker’s successor Alan Greenspan found that credit growth no longer fueled inflation, he saw no reason to stop lowering interest rates. The effect on industrial activity was limited, but economic growth was fueled by a wave of asset inflation and capital gains.
During…
Auteur: Martijn Konings
