Palley is the Founder of Economics for Democratic & Open Societies Project.  This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, April 2, 2007  edition, page S1/4.

Deep thinking involves going to the root of ideas, analyzing core assumptions and the logic upon which arguments are built. In a sense it is analogous to the Research component of R&D. Research represents deep thinking, while Development takes the product of that thinking and turns it into something that can be marketed profitably. In like vein, physicists distinguish between pure and applied physics, while economists distinguish between theory and policy.

Progressives like to flatter themselves that they are the party of ideas, the party of deep thinking. However, when it comes to economics it is the laissez-faire right that has been the party of deep thinking. This has had enormous consequences and helps explain the weakness of progressives in shaping and moving the economic policy debate over the last generation.

Across the board – think tax policy, trade liberalization and globalization, the Federal Reserve and monetary policy, labor market policy, pension and health policy, public investment and the budget deficit debate – progressives have been losing. The best that can be said is that on occasions they have been able to stop the right, as in the battle over privatization of Social Security. However, even here the right may yet largely get its way by shrinking Social Security, although it will remain a public program.

This economic policy weakness of progressives is often explained in terms of “the country moved right.” An alternative explanation is that “the country was moved right”, a simple re-phrasing that carries huge implications. First, it implies that the other side did something right. Second, progressives may have done things wrong. Most importantly, it strips away the too easily adopted victimization defense, and compels progressives to look inward regarding their own contribution to the current state of affairs.

Lack of deep thinking by progressives is an important part of the story. The consequences can be illustrated in terms of a football metaphor. Proponents of laissez-faire have had permanent home-field advantage and have been taking possession of the ball on the progressive twenty-yard line. This advantage derives from the right’s engagement with deep thinking, the result of which is that its free market model dominates public understanding and frames public policy analysis. Indeed, many Democratic policy makers often share the same analytical understanding having been schooled in it, though their values lead them to look for more compassionate policies.

The fact that the public and policymakers often subscribe to simplistic free market economics allows the right to readily propose policy initiatives that need little additional selling. This compares with progressive policy initiatives that must first expose the inadequacies of the free market story, next provide an alternative story of how the economy works, and only after that is space created for debating specific policy proposals. That’s like getting the football behind one’s own goal line, and it makes scoring policy touchdowns a lot harder.

There are numerous examples of issues where the right’s deep thinking frames the economic policy debate. A first example is the saving shortage argument that claims America’s number one problem is a shortage of saving. The saving shortage hypothesis rests on doubtful theory that maintains saving is the cause and engine of economic growth. That in turn frames the budget deficit debate, promotes tax policy that privileges capital income relative to labor income, and pushes tax exemptions for saving that favor upper income groups and strip government of revenue.

A second example is the labor market flexibility agenda that is anti-union, anti-minimum wage, and anti-worker protection. This agenda emerges from theoretical claims that price flexibility can restore full employment, and it rests on a false analogy comparing the labor market with the market for peanuts.

A third example is income distribution where laissez-faire proponents argue that wages and incomes are tightly related to productivity, which determines what people are worth. Ergo, there’s no problem with the CEO explosion because CEO pay merely reflects the stellar productivity contribution of these super-stars. Likewise, if some workers are being paid less it is because their productivity has diminished.

A final example is the international trade agenda asserts that trade is based on comparative advantage, which ensures we are all better off. Despite the fact that the world does not conform to the assumptions of comparative advantage, that does not stop comparative advantage being invoked as a hammer to close debate.

These assumptions about the role of saving, labor market flexibility, the determination of income distribution, and the role of comparative advantage in trade, frame economic policy debate in ways that favor laissez-faire policy prescriptions. This situation is the product of the right’s engagement with deep thinking, and it constitutes an enormous obstacle blocking a progressive economic policy agenda.

The difference in importance attached to deep thinking is visible in the different character of conservative and progressive economic policy think-tanks. Laissez-faire inclined think-tanks such as the American Enterprise Institute, the Cato Institute, and the Institute for International Economics devote considerable energy to linking economic policy and deep thought. Thus, they push policies that rest on established theoretical stories about the economy, and these institutions continuously invest in re-telling and re-selling these stories. This contrasts with progressive think-tanks, where the focus has been on score-keeping the economy – that is monitoring what is happening to employment, wages, income distribution, and the trade deficit.

Conservative policy dominance rests on having won the war of ideas. For progressives, that means policy success now only comes when the economic body count from conservative policies gets too high. That is a costly way of winning. Score-keeping the economy is and will remain an essential ingredient in the war over economic policy, but numbers are far more effective when they are mobilized in support of ideas. That is where deep thinking enters and why progressives must invest in it.

Money also matters, and business clearly has an advantage today. But money is not decisive. Progressives are still able to raise lots of money. History also shows that money is not enough. Trade unions were once one of the most powerful and well-funded segments of the American political spectrum, yet they have still suffered a steep loss of power.

The Great Depression sparked an era of powerful deep thinking by progressives, exemplified by the Keynesian revolution in economics. In the twenty-five years after World War II that deep thinking moved a tremendous progressive policy agenda that contributed significantly to the prosperity of the period. However, in the late 1960s the progressive well of deep thinking ran dry, and since then progressive leaders seem to have lost sight of the significance of deep thinking for economic policy. That has cost working families dearly.

Looking to the future, the lesson is that progressives must invest in political activism, scorekeeping, AND deep thinking. That’s a tall order, but it is also the only way to start with the ball at the opposition’s twenty-yard line – as against relying on occasional fumbles and turnovers, as is now the case.