Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion. Read more opinion SHARE THIS ARTICLE Share Tweet Post Email

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One of the great woes of economic policy is that it will always be inextricably bound up with politics. In engineering, you can design a crankshaft, and all you have to worry about is how well the crankshaft performs and how much it costs. If engineering were like economics, you would have to worry about how the crankshaft was going to redistribute income and about who would win and who would lose from the crankshaft. Naturally, that means that every political tribe is going to have its own preferred economic policy package, since every tribe represents a coalition of various interest groups, and each of those groups will demand economic policies that suit their interests.

Most economists would probably rather be technocrats -- just engineers, sitting in their offices and making their models. There was even a time when top economists hoped that this would become the case; John Maynard Keynes imagined a future where economists would be as boring as dentists. But that future never came to pass. Economic policy remains a politicized subject, and it probably always will be, and we’re all probably just going to have to reconcile ourselves to that fact.

So it’s worth asking which direction the winds of political economy are now blowing. With the Great Recession and the advent of Barack Obama's administration, there’s a widespread feeling that an old equilibrium is breaking down. Adam Ozimek, a right-leaning writer at Forbes, says that there’s a powerful “new liberal consensus” shaping policy:

Even some centrist economists like Larry Summers and Robert Rubin have been making [liberal] arguments...[T]his isn’t just a restatement of long-time core liberal commitments, but a conclusion that is drawn from recent trends in empirical research. For example, [one] strain of minimum wage research...suggests little to no impacts of a higher minimum wage. And [there's] a recent publication from the Peterson Institute for International Economics with empirical papers arguing for higher wages from Justin Wolfers, Adam Posen, Jacob Funk Kirkegaard and others.

Some commentators on the left are saying similar things. For example, University of California-Berkeley economist and blogger Brad DeLong declares that the policies of Ronald Reagan and Margaret Thatcher are obsolete, and that the watered-down free-market centrism of the Clinton administration is the most conservative economic doctrine worth taking seriously. Mike Konczal, writing in the Nation, goes further and says that economic centrism is dead:

[Economic] centrism as an ideological force has collapsed...Circa 2010, [centrists] argued for a “sensible” response to the Great Recession: reduce the deficit to fix the short-term jobs crisis, privatize Medicare, and focus on the long-term economy—since, they claimed, working Americans would eventually bounce back during the recovery. Democratic candidates took these positions seriously. Yet each element of the centrist story has turned out to be absolutely false... With inflation falling, the government faces a crisis of consistently weak demand, as opposed to a crisis of too much debt...[S]ix years into the recovery, wages are still down for most workers...Workers have never been more educated, but the result is just fiercer fighting for jobs...This failure explains why liberal politicians will sound more confidently liberal in 2016: The dominant ideology pulling them toward business interests has failed.

To this add that almost all of the most prominent economists in the public sphere -- Paul Krugman, Summers, Thomas Piketty, and the rest -- lean to the left, and lean significantly more to the left than in years past. Conservative economists are largely hiding out in academia, emerging only to write the occasional Wall Street Journal op-ed. That suggests that they are not optimistic about how their ideas would be received by the general public.

So is neoliberal, laissez-faire economics dead, and centrism discredited? Are we on the cusp of a new wave of liberal economic policy? I have my doubts.

The reason is that it just isn't clear what a liberal economic policy package looks like. Even the three articles I mentioned take very different views of what the new liberal consensus will focus on. Konczal emphasizes fiscal issues. Adam Ozimek discusses policies to boost wages. DeLong’s piece is mostly about regulation and globalization.

The powerful thing about the Reagan-Thatcher program was that it was unified and simple: If you see a government intervention in the economy, attack it. If there’s a regulation, cut it. If there’s a tax, lower it. If there’s a state-owned industry, privatize it.

But modern economic liberals are all over the map when it comes to deciding where to intervene in the economy. The whole animating idea of the new liberal economics is that free-market fundamentalism isn’t smart -- it ignores institutions, externalities, human behavior and a bunch of other market imperfections. But it isn't a trivial task to decide which of those imperfections the government should tackle, much less on which ones Democrats should spend their precious political capital.

Do economic liberals think the U.S. should put up trade barriers to try to reverse globalization? Or should federal policy focus on mandating higher wages, as cities such as Los Angeles and Seattle are doing? Should Congress tweak the laws to encourage more union membership? Or should the country adopt more aggressive fiscal and monetary policy to burn away the overhang of the Great Recession?

An easy answer for a dedicated liberal would be: “All of the above. The market fundamentalists had their shot, and now it’s our turn.” But more subtle and sober thinkers on the left will wonder if one or two of these policies would backfire. Would canceling trade agreements really bring factories back to the U.S.? Maybe, maybe not. Would higher federal minimum wages boost working-class incomes without causing a long-term rise in unemployment? Maybe, maybe not. Even if some of the new liberal policy ideas are good, some might overreach.

So although there’s a growing consensus that something about U.S. economic policy needs to be changed in a more liberal direction, there isn't any consensus on what. Laissez-faire may have reached the end of its shelf life, but we don’t yet know what is going to replace it.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:

Noah Smith at nsmith150@bloomberg.net

To contact the editor on this story:

James Greiff at jgreiff@bloomberg.net