The quest for a new New Deal

Howard Davies appraises the sound economic and political sense behind Paul Krugman's latest work

April 24, 2008

For a top-rank economist who can still turn an elegant equation, Paul Krugman processes a lot of words. For five years his New York Times columns have been a running commentary on the Bush presidency, and much else besides. So with that degree of regular exposure can there be much new for him to say on US politics, between hard covers?

It is fair to say that large parts of The Conscience of a Liberal reprise material in his weekly columns. No one will be surprised to learn that he recommends a vote for the Democratic candidate in the upcoming presidentials, or that he is a proponent of universal healthcare. But there are two important arguments, one economic and one political, that amply justify the book.

The first relates to the rise in inequality of income and wealth in the US over the past 25 years. From the early 1920s until, roughly, the early 1980s, America became a more equal society. The change did not proceed in a straight line: Roosevelt's New Deal produced a step change, but the trend was clear. Republican Presidents such as Eisenhower and Ford did not reverse it. In the last quarter century, the tide has turned. Middle-income families have scarcely benefited from the past two decades of rapid economic growth, and the share of total incomes taken by the top 1 per cent and 10 per cent of the population is now as it was before the Depression in the 1920s: 17 per cent and 44 per cent respectively. Other developed countries have experienced nothing like this - not even the UK.

Why has this happened? The conventional answer is that technological change and new competition from low-wage economies have been the main drivers of growing inequality. Krugman argues forcefully that the sharp fall in unionisation in the US has been a far more important factor. Not everyone will agree, but the case is well put. His second argument includes his answer to a political mystery, which has concerned political scientists for some time. When a president such as George W. Bush promises tax and spend policies that are likely to make this income distribution even more unequal, and that benefit only the richest members of society, how does he nonetheless manage to get elected on a popular vote?

Krugman's answer is blunt: race. Whites in the Southern states have turned Republican, since desegregation and Lyndon Johnson's Great Society project. So nowadays, when a Democrat advocates policies of redistribution, Southern Whites hear that the blacks will be the beneficiaries and vote Republican, even though their own economic situation is such as to make them likely gainers too. This Republican shift in the South has been large enough to give Bush the White House, along with a swinging chad or two.

These two arguments provide the background to Krugman's policy prescriptions. Universal healthcare is not only a promising route to greater equality of outcomes in America, it is also a policy that has a reasonable chance of achieving majority support, while progressive tax changes will still be politically difficult. And only if Democrats can show some progress on healthcare will they be able to reinvigorate the agenda that informed the New Deal.

So, even if you have read every Krugman column in the New York Times in the past five years, The Conscience of a Liberal will repay your modest investment. It provides important background to the campaign of 2008, which promises to be the most interesting for a generation. A black Democratic candidate will make the South an even more crucial battleground than it was in 2000.

The Conscience of a Liberal: Reclaiming America from the Right

By Paul Krugman

Allen Lane, 304pp, £20.00

ISBN 9781846141072

Published 6 March 2008

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