Brink Lindsey is vice president for policy at the Niskanen Center. This article was adapted from the essay “The Center Can Hold: Public Policy for an Age of Extremes” by Lindsey, Steven Teles, Will Wilkinson and Samuel Hammond.
How do we unwind today’s extreme political polarization before it tears American democracy apart? It’s a challenging riddle, as many diverse factors have contributed to polarization’s rise. Inequality, demographic change, geographic sorting, the Internet and social media, the end of the Cold War — all have played a part in splitting the electorate into two hostile and mutually uncomprehending tribes . Some of these factors are irreversible, and others look stubbornly resistant to reform.
But there is one major driver of polarization that is directly under the control of politicians, if they would only realize it. One of the biggest fault lines in American politics, the long-running ideological dispute over the proper size of government, is based on a false dichotomy. It is time to leave that sterile debate behind.
The traditional axis of conflict is “pro-government” on the left and “pro-market” on the right. But to revive the United States’ flagging economic dynamism and ensure that it translates into broadly shared prosperity, we must make bold moves in both directions simultaneously. We need both greater reliance on market competition and expanded, more robust and better-crafted social insurance. We need more government activism to enhance opportunity, as well as less corrupt and more law-like governance. To see these needs and how best to answer them, we have to fashion a new ideological lens: one that sees government and market not as either-or antagonists but as necessary complements.
At the Niskanen Center, a Washington think tank founded in 2015, we are working to develop and articulate this new intellectual synthesis. Our hybrid policy vision draws insights from the left and the right, combining liberal awareness of the need for activist government with libertarian recognition of the limits and pitfalls of government action. The resulting policy model is what we call the free-market welfare state.
Free markets are the irreplaceable engine of innovation and rising living standards. But they are not spontaneous and self-executing; they require well-crafted regulations. Good regulations are what make Adam Smith’s “invisible hand” possible: They align the private interest of profit-seeking with the public interest of wealth creation. That is why we support a carbon tax and higher capital requirements for financial institutions: Profiting by imposing costs on others is a corruption of capitalism, not the real thing. And when regulations are twisted by insiders to benefit them at the expense of everyone else, that’s a corruption of democracy. Which is why we favor scaling back protections for copyrights and patents and loosening occupational licensing and restrictions on new housing.
Free markets make us enormously richer over time. But as economist Joseph Schumpeter observed, they destroy at the same time they create, subjecting some people to short-term disruptions and dislocations. Social insurance programs are the chief mechanisms that societies have developed for minimizing these hazards of economic life in a way that doesn’t sacrifice the dynamism of the market. Social insurance is also the main reason for contemporary “big government”: According to a line popularized by Paul Krugman, modern government is basically an insurance company with an army. While the welfare state needs a serious makeover to root out perverse incentives and to restore fiscal sustainability, the point of reform is to make social insurance work better, not roll it back.
What the critics of these expensive “entitlements” miss is that social insurance doesn’t just provide security for individual beneficiaries. Crucially, it also secures the whole capitalist system. By shielding people from the downside risks inherent in a market economy, social insurance fortifies capitalism against political backlash. When social protection is lacking, protectionism too often fills the vacuum, as the reasonable demand for economic security is translated into popular support for trade barriers, inflexible labor regulations, industry bailouts and precautionary impediments to new technologies. This is why, even according to indexes produced by pro-market organizations such as the Heritage Foundation and Fraser Institute, the freest economies generally feature big welfare states.
Unfortunately, both major parties remain blind to the depolarizing logic of the free-market welfare state. Instead, they seem intent on racing off to the dysfunctional extremes of both the left and right. Over the past two years, Republicans have staged a major tax giveaway for the rich while trying to gut social spending. Democrats, lured by the siren song of democratic socialism, are putting forward such genuinely bad ideas as free college, job guarantees and co-determination rules for corporate boards.
It doesn’t have to be this way. There is a path forward that can bring Americans together across ideological battle lines, united in pursuit of greater prosperity and opportunity for all. And the first step onto this path is recognizing that it exists.
Brink Lindsey is vice president for policy at the Niskanen Center. This article was adapted from the essay “The Center Can Hold: Public Policy for an Age of Extremes”
by Lindsey, Steven Teles, Will Wilkinson and Samuel Hammond.