Democratic economic policy in the age of AI
The economy is changing fast. Democrats need to be a rock in the storm.
Let’s continue with the AI theme. We’ve done the dire warnings of doom, so now let’s be a little more pragmatic and optimistic.
A friend called me up the other day and asked me what I thought Democrats could offer Americans in terms of economic policy in this day and age. We discussed the limitations of the progressive economic program that coalesced in the late 2010s and was implemented during the Biden years. We then talked about possibilities for how AI might affect the economy, and what Democrats could offer in various scenarios. I promised my friend I would write a post outlining my thoughts, so here you go.
My basic argument is that the next Democratic policy offering should be robust to uncertainty. AI technology is changing very fast, and it will probably end up changing other technologies very quickly as well — robotics, energy, software, and so on. That rapid technological progress creates great uncertainty. Looking even just 10 years into the future, we basically don’t know:
What kind of jobs humans will be doing (and which will pay well)
What the macroeconomy — inflation, growth, and employment — is going to look like
How the distributions of income and wealth will change
Those are essentially all of the biggest questions in economics, and we don’t really know any of them. So what do you do when you can’t predict the future? You come up with ideas that will be likely to work no matter what the future ends up looking like. In other words, you try to be robust. AI is like a storm that’s buffeting the whole economy; Democrats need to be the rock in that storm.
In fact, I have several ideas for how Democrats can create a robust economic offering even in the face of radical uncertainty. My three basic principles are:
Abundance
Government taking an ownership stake in the corporate system
Policies to promote human work
Before I talk about those, however, I want to briefly go over what the 2010s progressive program looked like, and why Democrats can’t just keep pushing that.
The failures of the 2010s progressive economic program
The progressive economic ideas of the 2010s were, in large part, a reaction to the Great Recession and to the rise of inequality since the 1970s. But they also had their roots in political considerations — progressive activism, and the need to manage the emerging Democratic political coalition.
In a nutshell, the progressive program was:
Have the government spend money to sustain full employment
Spend money on subsidizing health care, education, and child care
Spend money on cash benefits for people with children
Spend money on mitigating climate change
Fund this spending by taxing billionaires
Attack corporate power in order to reduce political opposition to the progressive agenda
This was a pretty cohesive program — there was at least a bit of real research to back up most of these ideas,1 and these proposals seemed like they would both satisfy the core Democratic interest groups while also potentially having broad appeal.
But it turned out there were lots of problems with this approach. The first, as I wrote back in 2024, was that it basically assumed we were still in the macroeconomic environment of 2009 or 2016:
In 2009 or maybe even 2016, the economy still had a shortage of aggregate demand — spending more money had the potential to create jobs while also bringing inflation back to target. In fact, a high-pressure economy, along with higher local minimum wage laws, did raise low-end wages disproportionately in the 2010s.
But by the time progressives actually got into power in 2021, progressives’ diagnosis was no longer correct. In the years after the pandemic, America’s main macroeconomic problem was no longer underemployment — it was inflation. And by pushing aggregate demand even higher with massive deficit spending, the Biden administration probably exacerbated that inflation.
The warnings were there in advance. In 2021, the macroeconomist Olivier Blanchard used a standard, simple Keynesian economic analysis — the same kind of back-of-the-envelope exercise that would have been screaming “spend more money!” back in 2009 — to predict that Biden’s American Rescue Plan would raise inflation. Progressives ignored these warnings and charged ahead anyway. The result — exacerbated inflation — probably contributed marginally to Kamala Harris’ election loss in 2024.
The second problem was the natural tension between providing jobs in care industries and actually providing care services cheaply to the American populace. If you subsidize health care, education, and child care, the prices of these things will go up. This is exactly what happened with artificially cheap student loans, which drove up the cost of college. I pointed this out in 2021:
The progressive retort was that it doesn’t matter if the price that care providers charge goes up, as long as the price consumers pay goes down. The subsidy makes up the difference — it makes care services feel cheaper to the public, but also creates jobs in those industries. This is expensive, of course, but progressives planned to square the circle by taxing billionaires.
The problem was that the billionaire taxes never happened. Biden and Harris and progressives in Congress made a lot of noise about taxing the super-duper-rich, but it turns out that it’s very hard to get super-duper-rich people’s money. It’s a lot easier to get money from millionaires instead of billionaires, but millionaires had become the Democrats’ base, so they were reluctant to do this. And so instead, subsidies for care industries became giant deficit-funded make-work programs.2
Meanwhile, core parts of the progressive agenda turned out not to be as popular as their creators had hoped. Cash benefits failed to garner broad support, and Americans ended up not caring that much about climate change.
This is not to say that the progressive economic program failed completely, either in an economic or in a political sense. A high-pressure economy really did lift wages at the bottom and reduce wage inequality. Biden’s cash benefits and climate subsidies did some good for a while. And the program probably did help Biden get elected in 2020.
Overall, though, the progressive program was pretty underwhelming. And more importantly, the economic situation has changed so much that the program is no longer relevant. Democrats can’t just cruise on autopilot on the promise of more health care subsidies, more child tax credits, more green jobs, and more promises of billionaire taxes. In the late 2020s and early 2030s, this will be neither a winning program nor an effective one.
Which brings me to my own ideas about what the Democrats should do next.
