What should Democrats and the Left do?

Thoughts on how to improve Democratic electoral fortunes

Replace Marxism with economic cultural evolution
Marxism is social and economic philosophy that promises to produce egalitarian prosperity. It has failed to do this everywhere it has been implemented. It should be replaced with a new theory of change to achieve this objective. As a candidate for such a theory, I propose the cultural evolutionary approach to economics featured on this blog.

I replace the Marxian conception of capitalism as exploitation of workers with capitalism as a cultural construct created by the state for state purposes. I start with Marx’s concept of capitalism as the accumulation of capital. Consider capital as a factor of production, defined as “that when combined with workers and resources produces sales (economic output) and profits.” I call this real capital. Real capital¹ acts as a “force multiplier” on workers, making them more productive and increasing economic output per person, i.e., GDP per capita (GDPpc). A rising trend in GDPpc is what we call economic growth. Thus, economic growth is a hallmark of capitalism. This figure shows English GDPpc began to rise in the late 17^th century after being flat for centuries, implying that capitalism first began to operate then.

Capital can be bought and sold in capital markets. The stock market is the chief capital market where shares of a firm’s capital are bought and sold. Supply and demand determine share price. Share price multiplied by the number of shares gives firm market capitalization, that is, the market value of the firm’s capital. The sum of all capitalizations gives the value of the capital in the economy as a whole. This value provides a measure of the amount of capital. I call capital measured in this way financial capital.

A capitalism that seeks to accumulate financial capital is shareholder capitalism. There is also stakeholder capitalism which seeks to accumulate real capital as something distinct from financial capital. That these two kinds of capital are different is shown by the P/R measure, a measure of the ratio of financial to real capital. I developed P/R as a stock market valuation measure and used it to identify multidecade oscillations since 1800 that I call the Stock Cycle.

Shareholder and stakeholder capitalism are associated with shareholder primacy (SP) and stakeholder capitalism (SC) business cultures, respectively. I use the theory of cultural evolution to develop a mathematical model that describes how SP and SC evolve into each other depending on how the economic policy environment selects for one or the other. What kind of capitalism we have is a political choice.

Under SP culture, the objective of business is shareholder value. I use the term neoliberalism to refer to the set of economic policies that select for SP culture through the cultural evolutionary process. I wrote a post exploring neoliberalism, in which I gave as an auxiliary definition as “builds bubbles rather than the economy.” I call the financial monuments SP culture builds “ziggurats of finance.” The critiques leftists apply to capitalism apply most strongly to the shareholder capitalism of today.

But there is a solution, rather than replacing capitalism with a theoretical socialism that has never been demonstrated, one replaces SP culture with SC culture by changing a handful of policies (tax rates, banning stock buybacks taxing dividends to encourage reinvestment of profits, federal budget balance, and pro-union policy), all of which were previously demonstrated to work for the US economy by the New Dealers. The economy remains solidly capitalist; it even grows faster, enabling investment in things like space exploration and futuristic infrastructure of the sort that Progress Studies fans desire, as well as generating the resources to pay for things like universal health care that progressives desire. SC culture is good for the working class, middle class and is acceptable for the affluent class—the only losers are the rich and their neoliberal apologists.

The progressive capitalism achieved under SC culture yields positive social dividends in the form of higher marriage rates and family formation. Society will still be far from ideal and there will be a need for social policy targeted to address social and economic problems remaining after SC culture is implemented such a broken health care system, crime, and a broken mental health system. Addressing these problems starting with an SC culture base will be far easier than tackling them under today’s SP culture, in which any tax increase on the rich is anathema to Republicans and neoliberal Democrats.

Why it is necessary for Democrats and the Left it rethink their cultural offerings?
The reason this is necessary is because the economic program just outlined takes time to work because it operates through cultural evolution, which is slow. What I proposed above will produce worse short-term outcomes. There is good evidence, as well as economic theory, that says the very high tax rates my conversion to SC program calls for will lead to slower growth. And yet, during the postwar era when these tax rates were in effect, growth was stronger than today. How could this be?

Economists know that “structural factors” not captured by their models are also important because human societies are complex. They invoke structural factors to explain strong growth under high tax rates in the postwar period. Several explanations have been advanced for these, two of the most common I debunk here. My explanation for this structural factor is business culture, and that if we changed policy to reintroduce the SC culture responsible for that high-performance postwar economy, we could get back that old performance, which would produce something approaching the egalitarian prosperity that Marxist ideology promises but fails to deliver.

Economics deals with real-time effects of policies, it does not consider evolutionary mechanisms, as these do not operate in real time, making them difficult to study experimentally. The experiments used to derive empirical knowledge about the economy typically observe the immediate effect of a single variable change over a short interval during which the values of potentially confounding variables have not changed significantly. This allows for a determination of causal effects of the single variable that was changed independently of other variable effects. Because of the real-time nature of the causal effects studied by economics, it is unsuitable for evaluating the delayed effects of evolutionary processes.

Having said this, the short-term effect will be negative as economic analysis will show. Hence a SP to SC program cannot be enacted in normal times, but only in times of economic crisis, when economic conditions are rapidly getting worse, stimulus is being applied, and tax increases can be justified, not as a positive, pro-growth policy, but as a necessary evil to fight inflation—as was done in the 1930’s. I have discussed this previously. Because opponents can easily make a sound economic case against this program and the cultural evolution arguments supporting it are too unfamiliar (as well as untested), one cannot make the arguments I make here as part of political campaign.

The cultural take in economics would take the place of Marxian theory (which is also not used in political campaigns) to inform political activists on how things work. Assuming cultural economics is valid, its beneficial political effects would come after implementation, from the real-world positive change it delivers to working class voters over time and their associated electoral benefits, which Democrats will point to as evidence of their superior economic management.

But to get this Democrats need to stay in power to prevent Republicans from undoing what they are trying to achieve until the culture shift has taken hold. After this Democrats will have the dispensation, meaning Republicans will have to accept that it is too late to stop the new culture, as Eisenhower concluded.

This means Democrats will have to rely on the sort of non-economic appeals they have been using for decades to win the minimum of three elections in a row needed to enact this program. FDR used a specific economic program to do this, which directly established the turnaround in worker status I mentioned earlier.

Democrats will have to establish a dispensation based on governing competence and political messaging on second-tier issues that do not matter much materially and mostly operate as means of signaling identity and tribal membership. To this end, Democrats need to restructure their offerings as many ordinary Americans who are not progressives find some of them objectionable. There is no chance of obtaining the dispensation needed to achieve long-term Democratic/progressive goals with what they have offered so far. As I concluded in my previous post:

The focus needs to be on collection of ideas and policies that will produce tangible, immediately realizable, positive improvements for a wide swath of voters, without spending money we don’t have. If large numbers of voters come to believe that the nation is on the right track for a sustained period of time, this will generate the support that wins Rule 3 elections. If Democrats wish to be successful, they need new groups or better ideas from the groups they have.

To this end, Democrats and the progressive groups who provide the ideology from which Democratic policy arises must rethink their ideology to fit better with electoral reality. Below I provide an example using the immigration issue.

Rethink the leftwing position on immigration
In a wide-ranging discussion between Ezra Klein, then of Vox media, and Senator Bernie Sanders in 2015, Sanders was asked about open borders, to which Sanders responded negatively:

Open borders? No, that's a Koch brothers’ proposal…What right-wing people in this country would love is an open-border policy. Bring in all kinds of people, work for $2 or $3 an hour, that would be great for them. I don't believe in that. I think we have to raise wages in this country

Dylan Mathews, also of Vox, responded to Sander’s views with an article making the economic and moral case for open borders. The economic case is clear cut. Allowing people to go to where their labor would earn the most would greatly enlarge global GDP and make virtually all native-born Americans better off in terms of real income. For utilitarians who believe in promoting the greatest good for the greatest number, the moral case for open borders is airtight even when restricted to native-born Americans. Mathews argues that economic arguments supporting opposition to unrestricted immigration focus on relative effects (e.g. how high school dropouts are affected relative to college graduates). Given the strong gains in overall income, it is likely the absolute effect on low-income workers is positive, even if they gain less than others.

Another argument immigration proponents make is the well-documented, positive effect of immigration on housing prices. Economist Bryan Caplan argues “most Americans own homes at some point in their life, so even if they lose out from immigration in the labor market, they could make up the loss in the housing market.” This is a curious argument. Higher housing prices is a good thing for existing homeowners, but a bad thing for first-time buyers priced out of housing. It seems to me that those losing to immigrants in the labor market are the same low-income people who will be priced out of the housing market. This argument also implies most Americans will be better off with a minority worse off, which indirectly implies that increased immigration can lead to increased inequality.

In my recent analysis of working class economic concerns, I suggested that the material prosperity of workers (measured by real wage) doesn’t seem to be the source of working class political discontent. Rather it is loss relative to others, which I measure using GDPpc-adjusted wages.² In other words, even if mass immigration delivers higher absolute income, if it leads to worse relative incomes the political effects could be negative. Also, as inequality is a chief driver of political stress (PSI) leading to political crisis and of financial stress leading to financial crisis, it is itself a problem. When looking at the larger picture, the case for open borders may have drawbacks its proponents have not considered.

In general. the economic case for expanded immigration is based on absolute benefits occurring for most Americans, but with no concern for relative effects. It is similar to the case made forty-five years ago for tax cuts on upper income people, which economic theory forecasted would make the country richer. The country has indeed become richer, at the cost of higher inequality and financialization. Today there are many complaints about the high cost of housing and how it is degrading life satisfaction for young people. This same phenomenon was touted as a positive argument for mass immigration a decade ago. The declining trend in GDPpc-adjusted wages I have argued serves as a proxy for working class dissatisfaction with Democrats is basically a manifestation of rising inequality. Inequality is a concern for economic progressives, which is at odds with concern for migrants as an oppressed minority by social progressives.

I believe it would behoove progressives, liberals and Democrats to consider the issue of immigration/border crossing from their effects on inequality as well as benefits to immigrants and average Americans. Although I tend to favor the immigration arguments and do not believe increased immigration would have a substantial impact in inequality, I also observe that the New Deal culture shift was achieved during a period of immigration restriction; there is no precedent for this with unrestricted immigration.

Democrats/progressives would be better served to accept the current status of low numbers of border crossings as a positive outcome from the Trump administration while condemning efforts to do mass deportations because of their gratuitous cruelty and their obvious negative economic effects. Something along the lines of “Trump has already solved the border crisis, so why is he still fighting the last war with these counterproductive ICE actions?”

Given Trump’s achievement of border security, advance a positive agenda where the US should follow the Australian model, strict prevention of unauthorized entry, with a reformed and streamlined legal immigration system—that is, comprehensive immigration reform. The stumbling block on achieving this in the past has always been a conservative mistrust of liberal promises to restrict unauthorized entry. By praising Trump’s achievement of such restriction (something akin to root canal without anesthesia for progressives) and the acknowledgment of how the large spike in border crossings when Biden was president led to the horror show (for progressives) of a second Trump presidency, it may be possible to convince conservatives that Democrats have gotten religion on this open borders issue. If Democrats are still saying this under conditions in which a Democratic victory in 2028 is likely (and they don’t need to) this could make an even deeper impression on non-MAGA conservative-leaning independents.

Democrats need to “do a Buckley” with their radical progressive left flank.
The mainstream ideology of the Republican party after the Reagan Revolution finished remaking the party was “movement conservatism.” One of its founders, William F. Buckley, sought to exclude extremists like the John Birch society from his conservative synthesis. I believe Democrats and liberals need to do a similar thing with the extremists of the Left. Some of them will be unable to get on board with an immigration stance along these lines of what I suggested in the previous section, just as some right-wingers could not get on board with movement conservatism. Democrats should throw them under the bus as Buckley did with the Birchers.

1. I use a concept I call business resources or R to provide a proxy for real capital.

2. This measure has been declining for decades, during which working class voters have left the Democratic party. A similar decline had happened in the late 19^th and early 20^th century that was reversed under the New Dealers, which led to strong working-class support for Democrats. Presumably, if Democrats repeated this, they could again enjoy working class support.