The problem with making public policy through consensus is that it contains so much that the purpose is no longer clear. I don’t pretend to know what is in the Build Back Better bill, but from what most of us have heard dripping out, its purposes are so many that they clearly stand for nothing. Ideally a bill with that name should be about strengthening the labor market, creating good paying jobs, and bolstering the middle class.
One might have thought that the bill was about bringing manufacturing jobs back to the county. But with the emphasis on green energy and the administration’s war on fossil fuels in the name of combating climate change, it is fair to say that the manufacturing jobs that were once the backbone of the American middle class are long gone. But if the purpose is just more social provision, then this bill is nothing more than another example of distributive politics.
The late political scientist Theodore Lowi famously distinguished between three types of politics: regulatory, redistributive, and distributive. Regulatory politics involves regulating the activities of one group for the benefit of another. Both groups are clearly identifiable, and neither group believes that it should bear the costs for the benefit of the other. In redistributive politics one group is taxed to pay for the benefit of another. Public assistance for the poor paid for by a tax on high earners is a classic example. Again, both groups are identifiable, and neither group believes that it should bear the costs for the benefit of the other.
In distributive politics everybody gets something, especially in a budget bill, and all of us bear the costs. This is the principal reason that budgets balloon, and, of course, it is the reason that we can never control public spending and get rid of our deficits. Build Back Better appears to be partly that. Those who are concerned about green energy want billions of dollars for green energy. Those who want open borders want to include amnesty for undocumented workers. Those who want new entitlements are pushing for pre-k and paid parental leave. And on and on it goes.
Although the language so far is that it will cost nothing because only the very wealthy will pay for it or because it will create new jobs thereby bringing in new revenue, most astute individuals know this not to be true. The wealthy can always find ways, and they always do, to evade paying taxes; so the burden invariably falls on the middle class. As far as generating new jobs, we used to hear this argument from the Reagan administration when it claimed that we could lower taxes, increase defense spending, and still reduce the deficit. Well, that didn’t quite work out so well.
If the political class really wanted to end the divide between blue states and red states, they would focus more of their efforts on shoring up the middle class. The real difference between them is that blue states have a wide gap between the top and the bottom and red states still have some semblance of the middle class. There are still remnants of a manufacturing base in red states, while the economy in blue states revolves around finance and information technology. Whereas is red states there are more skilled blue-collar workers, in blue states there are more very skilled workers at the top and unskilled workers at the bottom, with fewer skilled blue-collar workers in the middle. Polarization between red states and blue states is very much a tale of two economies. Moreover, there is mining in red states and very little of it in blue states. Of course, inequality is greater in blue states than in red states
How, then, does this affect perspectives on public policy? As red states don’t see the same extremes between the top and the bottom, they don’t see the need for the type of redistributive policy that appears to be promoted by those in blue states. As many are still employed in fossil fuels, policies that destroy their industry and replace it with lower paying green energy jobs are simply not viewed favorably.
If we want to build back better, then we need to focus on those policies that strengthen the middle class. Also, by focusing on the middle class, a base of political support can be built, which is known as targeting within universalism. To do this, the bill should only focus on those items that could strengthen the labor market. Child care policies and pre-k programs that enable more people to be in the labor market strengthen the labor market, and ultimately the middle class. If instead of all the climate change and immigration items which only balloon the costs, there was Medicare for all, the end result would again be a strengthening of the labor market.
Health insurance really needs to be severed from employment. Employer based insurance only gives employers more control over their workers and effectively suppresses wages. Employees who could more easily change jobs because they would no longer have to worry about health insurance, would be in a stronger position to negotiate better wages. Contrary to the popular misconception about universal health insurance raising taxes, employees already pay premiums for coverage for themselves and their families. In reality, they are already paying a hidden tax. They would only be substituting one for the other.
For Progressives who argue for taxing the wealthy, how does a $7,500 subsidy to purchase electric cars help the middle class? Only the wealthy in the first place can afford a Tesla at $90,000. Of course, red states see this as a subsidy to overspending blue states. Only the wealthy will derive benefit from raising the cap on state and local tax deductions. And the principal winners from green energy will be those on Wall Street who trade shares of green energy companies, as well as involved high tech firms.
The problem with building consensus for policy is that it gets larded with a lot of stuff just to buy political support. The Democratic party that used to represent the working class now represents the well-educated elites, most of whom are located in blue states. In this vein, the Build Back Better bill may not even fit the distributive politics model because while we all pay for it, there is not something for everyone.
The nature of the American political system militates against good focused policy. Because most policy appears to be a grab bag of goodies to special interests, critics can easily make the case that no policy would be preferable to bad policy. But doing nothing is still putative public policy which still makes a statement about our priorities.
There is no easy fix for this problem. Perhaps some transparency would be nice. Instead of making the vacuous claim that restoration of SALT deductions is good policy that justifies raising effective marginal tax rates, politicians should be honest and say that they are the necessary price for purchasing the support of some blue state representatives and senators who otherwise would not be on board for Build Back Better. Is it then any wonder why nobody trusts the government anymore?