How free-market policymakers got it all wrong for decades

Across history, Republican presidents rarely fell in line with what many today consider GOP economic orthodoxy, said economist Oren Cass.

Photo by Beth Pezzoni

Work & Economy
How free-market policymakers got it all wrong for decades

Conservative economist says singular focus on deregulation, unfettered trade failed to deliver for American households

Christy DeSmith

Harvard Staff Writer

November 19, 2024 6 min read

The free-market policymakers of the late 20th and early 21st centuries have “an empirical problem,” said Oren Cass, J.D. ’12, founder and chief economist of the conservative think tank American Compass.

“The stuff they were doing on economics did not work.”

Cass, author of “The Once and Future Worker: A Vision for the Renewal of Work in America” (2018), argued in a talk last week hosted by the Department of Government that the era’s Republicans, with their focus on deregulation and unfettered trade, marked a departure from the party’s longer, more productive traditions of building the economy by bolstering the labor force.

Cass’ ideas, anchored by social conservatism, are gaining traction with a younger set of policymakers on the right. But his pro-worker rhetoric overlaps at times with language used on the left. “Marco Rubio and J.D. Vance on one side and Bernie Sanders and Elizabeth Warren on the other actually see a lot of the same problems in the economy and are willing to say it,” offered Cass, who rang a note of optimism over this “increasing consensus.”

Across U.S. history, he said, Republican presidents rarely fell in line with what many today consider GOP economic orthodoxy. Abraham Lincoln, William McKinley, Teddy Roosevelt Jr., and Richard Nixon all used tariffs to shore up domestic industry and protect the country’s wage earners.

Former President Ronald Reagan, celebrated by conservatives for his embrace of free enterprise, raised taxes at least five times and was far more protectionist than his reputation might suggest. Cass underscored this point by offering background on Reagan’s famous quote: “I’ve always felt the nine most terrifying words in the English language are: I’m from the government, and I’m here to help.”

Reagan uttered these words in 1986 while announcing record-breaking aid to American farmers, including drought assistance and price supports. “One of the very funny things about what we think of as Reaganomics, conservative economics — what I call market fundamentalism — is it’s actually a post-Reagan phenomenon,” Cass said.

How did the market fundamentalism come to dominate politics on the right? Cass, a policy adviser to Mitt Romney’s 2012 presidential campaign, pointed to the distinct interest groups that comprised the famous “three-legged stool” of Reagan’s electoral coalition: social conservatives, economic libertarians, and national security hawks.

“What do these three groups have in common?” Cass asked. “They all really, really, really hate communists. And in the middle of the Cold War, in the context where the Democratic Party was — let’s be honest — a little squishy on communism, getting together everybody who really, really, really hated communism turned out to be a powerful strategy.”

This coalition collapsed in 1989 with the Berlin Wall, Cass continued. That left the three-legged stool in splinters, with each faction vying for supremacy. “That is the economic libertarians unchained from any actual Cold War just running amok,” he argued. “This is [activist] Grover Norquist getting everybody to agree they will never raise taxes under any circumstances.

“And by the time you get to the 2000s, you have a bunch of [President George W.] Bush tax cuts that bear no relationship to any economic priority and manage to send us back into debt while producing no economic growth whatsoever. You have several massive new wars starting to no apparent effect. And you have social conservatives sort of sitting there, losing on their priorities for the most part.”

For 30 years, that group ceded all territory on economic issues, Cass said. “And then they started to say, ‘Wait a minute. The economy that the economic libertarians are producing does not align with any of the things we actually believe equate to human flourishing.’”

Core to Cass’ critique is the economic libertarian focus on cheap consumer goods over building a labor force where workers can support strong families.

As evidence that the free-market era has failed to deliver for the average American household, Cass showed a series of charts detailing everything from the growing U.S. trade deficit to 50 years of stagnant wage growth even amid rising per-capita GDP. Over the same period, deregulation led to the rise of offshoring, while an increasingly dominant financial sector embraced high-speed trading and speculation over investments in U.S. communities.

Cass also shared a data visualization of America’s growing reliance on government transfers, recently published by a bipartisan Economic Innovation Group associated with Facebook founding president Sean Parker. The display can be read as a “massive victory” by free-market thinkers focused, above all, on individual purchasing power, Cass argued.

But he ventured that most Americans are unsettled by increased dependence on Social Security, veterans’ benefits, and other federal aid programs. “This is not actually a sustainable model for a thriving nation either socially or economically,” he said.

“This is not actually a sustainable model for a thriving nation either socially or economically.”

Oren Cass

Conservatives like to approach the market in definitional terms, Cass explained. What is the market, and what is it for? He rejected the terms put forth by former U.S. Senator Pat Toomey during a 2020 talk at the Heritage Foundation.“The market is … really just the name that we assign to the sum total of all the voluntary exchanges that occur every day by free men and women,” Toomey said.

“That’s not a market,” Cass countered. “A market is a much more complex mechanism that allocates labor and capital in response to conditions, rules, and institutions.”

What is the market actually for, in his view? “It’s not just for optimizing consumption,” Cass said. “We need to do a lot more than that, because we don’t want to rely on government to do everything else. We need it to empower workers to support their families. We need it to strengthen the social fabric. We need it to foster domestic investment and innovation.

“And if that’s the case, the role for policymakers isn’t as little as possible,” he concluded. “Their role is to create the rules and support the institutions that will lead to productive applications.”