Is there anything left to argue about in economics? Anything interesting, to be more precise, or important? Some say no. One hesitates to mention "The End of Economics," remembering that "The End of History" turned out not to be. But glide past that. Maybe a stronger case can be made for the idea that all of the big economic quarrels are settled than could be made for the idea that political evolution has reached its end-state.
On the face of it, the notion of a prevailing economic consensus is plausible. The Western market-based economy had only one real rival—socialist central planning—and we know what became of that. The Communist implosion of the late 1980s was felt beyond the borders of the Soviet Union and its empire. Even though, by this time, communism was not much advocated anywhere else, its abject failure sapped the confidence of the Left worldwide, and as a result, the political-economic center of gravity, especially in Europe and in the developing countries, nudged perceptibly to the right.
At home, President Reagan had embarked on a program of deregulation and tax reform earlier that decade. Even before that, Prime Minister Margaret Thatcher had begun to privatize Britain's nationalized industries. Both found the results to their liking, in both political and economic terms. After the fall of the Berlin Wall, this invigorated conservatism met up with a suddenly diminished conviction on the left. Before long, the economic frontiers of the state were being rolled back all over the world. The idea that the government was good at running steel mills, or power stations, or telecom companies—up to then widely accepted in much of the world—was mostly abandoned.
This shift coincided, especially in poor countries, with a new emphasis on foreign trade (which, like privatization and deregulation, is another form of exposure to market forces). In 1991 even India, up to then run by dogged central planners, slowly began to open itself to the world economy. China, despite its official loyalty to Communist ideology, had already moved a long way down the same path. A new age of globalization was at hand, with a stirring triumphalist literature close behind. Today, much the larger part of the world's population is ruled by governments that accept, or say they do, prevailing mainstream thinking on trade and on a comparatively modest role for the state in managing industries.
A smaller role for government, a greater role for markets and international trade in guiding the economy—this is the new orthodoxy. So, yes, you might well ask, what remains to argue about?
Plenty, unfortunately. Look at this another way. The argument between communism and capitalism was as dramatic as one could wish, and it was extraordinarily important—literally a matter of life and death for millions of people. But at the same time, it was intellectually frivolous. Nobody paying attention needed 1989 to tell them that communism was a failed and bankrupt system. It was already well known by then that central planning was a self-deluding pathology. To state the obvious, in Western Europe and in parts of Asia (as well as in the United States, of course) the modern market-based economy was firmly entrenched long before communism collapsed. In practical terms, 1989 changed little in those places. Those events merely took a heterodoxy that was already ignored or defeated, and buried it 6 feet deep.
It would be difficult to overstate the importance of the new economic thinking in other parts of the world—in the former Soviet Union itself, in Eastern Europe, and in many developing countries, especially vastly populous ones such as India and China. Poverty is falling faster than ever before in world history because of market-based economies. Western Europe's retreat from nationalization may not rise quite to that exalted standard, but it too is an important thing in its own right. Yet the fact remains that in the rich world, especially in America and Europe, the biggest economic issues—the ones where the most is at stake, in terms of individual liberty and economic well-being—are as bitterly contested today as they ever were.
Take trade policy, the oldest economic controversy. All of those disputes are now settled, right? They are not. In 2005, the costs of agricultural protection are still enormous, and political resistance to farm-trade reform is still intense. The Doha Round of global trade talks—which matters a lot to the developing countries—is in jeopardy as a result. Trade barriers are still costing the United States a fortune: about $500 billion a year, or $5,000 per household, according to Gary Clyde Hufbauer of the Institute for International Economics.
Can it at least be taken for granted that future changes in trade policy will be in a liberalizing direction? Again, no. Think about the Bush administration's steel tariffs; or the resurging mercantilist demands for barriers against Chinese imports; or the recent outcry over outsourcing and the "exporting of America"; or the controversy over labor standards and "unfair trade" with the poorest developing countries.
If a long-standing scholarly consensus prevails in any part of economics, it is on the merits of free trade. In the world of policy, though, agreement of that kind is not enough: Politically, the terrain has been furiously contested for centuries and still is. And if you believe that a scholarly consensus is enough to ensure that the right answer will prevail eventually, think of the Smoot-Hawley Tariff Act and its ruinous aftermath. That measure defied orthodox economics in the 1930s just as farm-trade protection does today. Despite being the wrong answer, it was persuasive enough to be acted on. Sadly, there are very, very many persuasive wrong answers in the sphere of political economy.
Linked to trade is a new and widening front in the war of ideas: environmental protection. Socialism was animated by demands for social justice—in the abstract, desirable by definition; but in practice, requiring difficult and costly trade-offs. In the same way, newer forms of anti-capitalism are animated by unqualified, occasionally utopian, demands for a clean environment. In many ways, environmentalism is the new socialism. It proposes new ways of organizing society at large, expresses deep suspicion of capitalism, elevates collective interests over individual interests, and inspires uncompromising moral fervor. None of this makes it wrong, of course: Environmentalists are often right. The point is, this is contested terrain.
Environmental questions, unlike trade questions, are often analytically difficult. And the stakes are huge. Decisions on global warming could easily involve trillions of dollars of global income and might fundamentally change the way economies are run. Taken seriously, the related idea of "sustainable development," combining environmental protection and conservation of natural resources, would impinge on economic decisions at every level of activity everywhere. What does "sustainability" really mean? How far should it be pressed, by what means, and at what cost? Who decides, and who pays? Something else to discuss.
What about taxes and public spending—and the post-Reagan, post-Thatcher consensus on limited government and the role of competitive markets? Surely here, if anywhere, the discussion has moved on.
Not really. One wonders, in fact, whatever happened to that consensus. The Bush administration's tax policies and its proposals to reform Social Security are all extremely controversial. The case for tax reduction turns, as always, on whether deficit spending can continue at the present rate, on the growth-promoting effects of lower taxes, and on the fairness of the tax code. Americans are angrily divided on these questions, just as they are split on whether the government should play more or less of a role in providing health care and education. Meanwhile, a supposedly conservative administration has expanded the scope of government spending in America with amazing zeal, and is borrowing like crazy to pay for it. Whether America can give its citizens prosperity and equity hinges on issues such as these. There is no popular consensus. Nothing is settled.
More than 15 years after the Wall came down, is popular opinion at least reconciled to capitalism? In some ways, no, just the opposite. And this is the oddest thing of all. As I wrote here on May 14, capitalism and mainstream culture are usually at odds. Self-interest is construed as greed; the profit motive is seen as tainted. People view big companies, especially, with instinctive suspicion; firms have to justify and apologize for their activities, with or without probable cause. Outright corporate criminality is regarded as the rule rather than the exception. Yes, people know that market forces work, up to a point. They have known that for decades. But they are uncomfortable with them, underestimate them, and fear them too much. The market-based system has its boosters and evangelicals, of course, but the public at large sees it mainly as a necessary evil.
Many large consequences flow from that. The lessons of political economy are still in dispute. And these arguments still matter—very much.