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Historian Christopher Lasch insisted that in considering “contention as the essence of education” one is “defending democracy not as the most efficient but as the most instructive form of government”.
I doubt many Americans these days think our politics is even a halfway decent grade school. Lasch’s hope seems particularly lost in a week that will be marked by the raucous schoolyard noise triggered by the indictment of a loudmouth ex-president.
For that reason I would like to highlight a much quieter event, namely the departure on Friday of Cecilia Rouse as Chair of the President’s Council of Economic Advisers. She returns to Princeton to resume her work as a professor of economics and public affairs.
If you’re to believe that Lasch’s insight into democracy is correct, a good place to start is the apprenticeship Rouse, the first black CEA chair, received while in the White House.
Part of her job was to advance and defend President Biden’s policies. But in her lectures, testimonies, and writings, Rouse also attempted to make a public argument about the proper role of the state in a well-functioning market economy. Views on this issue influence all sorts of political judgments (and much empty rhetoric as well). We rarely go into the basics.
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In an interview at her office the day before she left, Rouse spoke as a good economist, insisting she didn’t see the government crowding out the market. In a $25 trillion economy, she remarked, “the idea that a central planner can actually allocate all of these resources efficiently is just too much, isn’t it?”
But the market alone is not enough, she said, and not just because, as we recently learned again, government regulation is essential to prevent banks and other private institutions from going haywire. Which government tasks are really important?
“The first is for macroeconomic stabilization,” she said. In a recession, “we don’t have a lot of economic activity from the private sector, but people still have bills to pay. They still have to eat.” The “automatic stabilizers” such as unemployment insurance and food stamps, which they believe are in need of reform, not only help people directly, but also accelerate the recovery in an economy in which almost 70 percent of gross domestic product is based on consumption.
“The second is the more classic one — where there are market failures,” Rouse continued. On many issues, market participants are “concerned about their own benefits and costs” and “do not consider the benefits and costs to the rest of society”. Pollution in general and the climate crisis in particular are classic cases of this.
The third area is public investment, when there is no immediate incentive for market players to take risks. “The government is investing … in basic research. Some of them work, some of them don’t work. Private companies may not be willing to bear the costs of this research.” She noted that government investment accelerated the production of vaccines by private companies. The foundations also include infrastructure, education and public health – along with childcare and elder care, which enable more people (especially women) to participate in the economy.
“I’m a labor economist,” she said. “I think we need to understand that when people go to work, they need to be able to make sure their children are taken care of, their parents are taken care of.”
Finally, the state can reduce the inequalities created by the natural workings of the market and by discrimination, including socially and politically divisive regional economic differences.
Rouse’s broader view of the administration and her particular interest in labor markets underpin her insistence that Biden’s $1.9 trillion bailout plan is the right pandemic strategy, despite inflation, which she notes has also hit other advanced economies. bet was.
She doesn’t dismiss critics of the spending plan like her old school adviser, former Treasury Secretary Lawrence Summers. Rather, she argues that at a moment when the future was very difficult to predict, the government had to weigh the risks of overspending or provoking a deeper recession. In her opinion, the dangers of doing too little are much greater.
“We didn’t know how effective this vaccine would be,” she said. “We didn’t know how long the immunity would last with that. We didn’t know if it reduced transmission. We didn’t know what new variants might emerge. … Hunger began to rise again. Food insecurity started to rise again.”
She grabbed a small, milky ball that she keeps on her conference table. “That’s my cloudy crystal ball,” she said with a smile. In the face of “a lot of uncertainty,” the question before administration was, “Where did you want to put your weight?” Her choice, she said, was on the side of “individual welfare and the welfare of workers.”
Rouse’s colleagues, back in Princeton and elsewhere, will spend years debating the decisions made over the past 26 months. But in a crisis, I take an economist who knows that crystal balls are mostly cloudy, is transparent about her values and does her best to make democracy educational again.
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