In the once-popular arcade game, Whac-a-Mole, the object was to smack down as many moles, emerging from their dens, as possible with a mallet. By design, the game rewarded those with the quickest reflexes.
Whac-a-Mole did not involve strategy, nor analysis. It was merely a game of quick reactions.
Among both major US political parties, whac-a-mole has become the apt metaphor for economic policy. Gone are the days when the political right and left could be distinguished by competing theories: free market, monetarist, or Keynesian. Today, economic policy is mostly a grab-bag, from which policy interventions are found to address specific economic grievances. No over-arching economic theory guides either party’s approach to policymaking.
That might sound like a pithy complaint from an economist about the poor state of US politics. And perhaps it is. But even more, it is an indictment of the economics profession, which has struggled for more than a decade, without success, to offer compelling narratives about how citizens, and those whom they elect, should consider the conduct of economic policy.
In the immediate postwar era, the mission was clear—avoid the mistakes of the 1920s and 1930s that led to ruinous conflict. In the West, as well, the rising threats posed by communism, the Soviet Union, and its presumed allies were also important considerations.
The economic prescription focused on growth, stability, and openness. The policy imperatives to ensure growth focused on low taxes and light regulation, except for banking and finance, which were more heavily regulated. Stability was to be assured by sound fiscal and monetary policies, as well as Keynesian tools to smooth business cycles. International trade was promoted, underpinned by new international organizations, including the General Agreement on Trade and Tariffs (GATT), the International Monetary Fund, and the World Bank.
Over time, differences emerged along political lines. Republicans favored lower taxes and less regulation, whereas Democrats promoted policies aiming for greater equality of opportunity. But the differences were arguably minor, epitomized by Richard Nixon’s famous 1971 adage that ‘we are all Keynesians now’.
‘Stagflation’ in the 1970s (the coincident outcomes of high inflation and high unemployment) initially created an opening for new approaches to economic policy, one resoundingly won at the polls and in the narrative by Ronald Reagan, who argued for sound money, low taxes, and light touch regulation. But by the 1990s, Democrats, led by President Clinton, adopted many of those same policies, plus fiscal discipline. Underscoring the re-convergence of economic ideology across party lines, by the end of the 1990s all the talk was of the ‘Washington Consensus’, an approach that argued prosperity and stability could be achieved via orthodox monetary and fiscal policies, alongside vigorous engagement in international trade.
The ‘Washington Consensus’, however, was never quite as widely fancied within the economics profession as it was amongst politicians. It is not that economists disagreed with the merits of independent central banks tasked with keeping inflation low, deregulation, or increased globalization. Rather, the economics profession noted that those pillars, while necessary for growth, shared prosperity, and stability, were not sufficient to achieve those outcomes.
By the early 1980s, for example, many economists (alongside their scientific brethren) were beginning to sound the alarm about climate change, biodiversity loss, and other important ‘externalities’. By the 1990s other economists were beginning to question growing financial imbalances in the global economy. And by the early 2000s yet other economists were beginning to speak of ‘winner-take-all’ industries, concentrated at the cutting edge of innovation, outcomes that might lead to greater income inequality.
The 2008-2009 global financial crisis and the 2010-2013 Eurozone crisis shattered the ‘Washington Consensus’, in the US and abroad. Faith in free markets, in the singular focus on inflation-fighting monetary policy, in globalization, and in the overall ‘rules of the game’ was ripped apart by the crisis, as well by the policy response to it, which largely bailed out rich financiers but not ordinary homeowners and workers. In Europe, its financial crisis led many to question the wisdom of ‘Germanic’ fiscal orthodoxy, as well as in the efficacy of the EU itself.
The rest, to use the worn refrain, is history. A history now 15 years in the making, where political parties, as well as ordinary citizens, having rejected the broad postwar and millennium consensus ways of thinking, have struggled to find overarching economic credos upon which to base policy-making decisions.
And, as noted at the outset, the economics profession has similarly failed to come up with a compelling narrative, one that could provide a framework for addressing today’s challenges.
With orthodoxy in tatters, it is not surprising that economic policymaking has become ad hoc, responsive to problems as they emerge. In other words, it has become akin to ‘whac a mole’.
And so it is with the two US presidential candidates.
Kamala Harris responds to concerns from voters about high prices for food or housing by proposing to punish grocery store ‘price gougers’ or by promising $25,000 down-payment grants to eligible recipients, helping them get on the (expensive) housing ladder.
Donald Trump is more transactional, seeking votes by offering to end taxation of tips (which Harris has also endorsed) or by supporting deregulation for industries likely to donate to his campaign (e.g., fossil fuel energy companies).
But the simple truth is that it is difficult to discern in either candidate’s proposals a consistent economic framework akin to the belief in free markets, globalization, independent central banking, or fiscal orthodoxy that once-upon-a-time were the hallmarks of the two dominant US political parties.
Partly, that is the fault of the economics profession. The discipline of economics is tasked not only with the analysis of what makes economies work, but also with the development of narratives that convey solutions to those who make policy.
Partly, too, the world is more complex, less amenable to simple answers. Gone are the days when outpacing the Soviet Union was the sole economic challenge. Climate change, rising inequality of opportunity and outcome, winner-take-all sectors, monopolistic industrial behemoths, the financialization of politics, and many more facets make it challenging to offer simple economic maxims as panaceas for what ails our economies and societies.
So, welcome to ‘whac-a-mole’ economic policymaking. Don’t expect either candidate to harken to Friedman or Keynes, much less Smith or Ricardo. Today it is all about reflex, not sweeping ideology.