Sen. Elizabeth Warren’s politics seem like a tangle of contradictions. She wants free markets, but also wants to tax billionaires’ capital. Her enemies on the right claim that she is a socialist, but Warren describes herself as “capitalist to my bones.”
Warren’s politics are so confusing because we have forgotten that a pro-capitalist left is even possible. For a long time, political debate in the United States has been a fight between conservatives and libertarians on the right, who favored the market, and socialists and liberals on the left, who favored the government.
It has been clear since 2016 that the traditional coalition of the right was breaking up. Conservatives such as U.S. President Donald Trump are no fans of open trade and free markets, and even favor social protections so long as they benefit their white supporters. Now, the left is changing too.
Warren is reviving a pro-market left that has been neglected for decades, by drawing on a surprising resource: public choice economics. This economic theory is reviled by many on the left, who have claimed that it is a Koch-funded intellectual conspiracy designed to destroy democracy. Yet there is a left version of public choice economics too, associated with thinkers such as the late Mancur Olson. Like Olson, Warren is not a socialist but a left-wing capitalist, who wants to use public choice ideas to cleanse both markets and the state of their corruption.
Public choice economics has big influence and a bad name. It is a school of economic thought that has at different times been associated with scholars at the University of Rochester, Virginia Tech, and George Mason University. Public choice came into being in fervent opposition to the mainstream of economics, which was dominated by scholars such as Paul Samuelson.
Samuelson, in his famous and influential textbooks, saw a clear role for government in regulating markets. Public choice scholars vehemently disagreed. For political and theoretical reasons, they instead saw government as a fountain of corruption. Public choice economists argued that government regulations were the product of special interest groups that had “captured” the power of the state, to cripple rivals and squeeze money from citizens and consumers. Regulations were not made in the public interest, but instead were designed to bilk ordinary citizens.
Perhaps the most influential version of public choice was known as law and economics. For decades, conservative foundations supported seminars that taught judges and legal academics the principles of public choice economics. Attendees were taught that harsh sentences would deter future crime, that government regulation should be treated with profound skepticism, and that antitrust enforcement had worse consequences than the monopolies it was supposed to correct. As statistical research by Elliott Ash, Daniel L. Chen, and Suresh Naidu has shown, these seminars played a crucial role in shifting American courts to the right.
Warren was one of the young legal academics who attended these seminars, and was largely convinced by the arguments. Her early work on bankruptcy law started from public choice principles, and displayed a deep skepticism of intervention.
The conventional story is that as Warren moved from the right to the left, she abandoned the public choice way of thinking about the world, in favor of a more traditional left-wing radicalism. A more accurate take might be that she didn’t abandon public choice, but instead remained committed to its free-market ideals, while reversing some of its valences. Her work as an academic was aimed at combating special interests, showing how the financial industry had shaped bankruptcy reforms so that they boosted lenders’ profits at borrowers’ expense. Notably, she applied public choice theory to explain some aspects of public choice, showing how financial interests had funded scholarly centers which provided a patina of genteel respectability to industry’s preferred positions.
Now, Warren wants to to wash away the filth that has built up over decades to clog the workings of American capitalism. Financial rules that have been designed by lobbyists need to be torn up. Vast inequalities of wealth, which provide the rich with disproportionate political and economic power, need to be reversed. Intellectual property rules, which make it so that farmers no longer really own the seeds they sow or the machinery they use to plant them, need to be abolished. For Warren, the problem with modern American capitalism is that it is not nearly capitalist enough. It has been captured by special interests, which are strangling competition.
It is hard to see how deeply Warren’s program is rooted in public choice ideas, because public choice has come to be the target of left-wing conspiracy theories. A recent popular history book, which qualified as a finalist for the National Book Award, depicts public choice as a kind of stealth intellectual weapons program, developed by economist James Buchanan to provide Chilean President Augusto Pinochet with the justification for his dictatorial constitution, and the Koch brothers with the tools to dismantle American democracy.
For sure, the mainstream of public choice is strongly libertarian, and the development of the approach was funded by conservative individuals and foundations. What left-wing paranoia overlooks is that there has always been a significant left-wing current of public choice, and even a potent left-wing radicalism buried deep within public choice waiting to be uncovered. The free-market ideal is a situation in which no actor has economic power over any other. As many of Warren’s proposals demonstrate, trying to achieve this ideal can animate a radical program for reform.
Warren’s ideas have a close family resemblance to those of Olson, a celebrated public choice theorist. (Perhaps she has read him; perhaps she has just reached similar conclusions from similar starting points.) Olson, like other public choice scholars, worried about the power of interest groups. He famously developed a theory of collective action that shows how narrowly focused interest groups can dominate politics, because they can organize more cheaply and reap great benefits by setting rules and creating monopolies at the expense of the ordinary public. This means that government programs often actively harm the poor rather than helping them.
However, Olson also castigated libertarian economists for their “monodiabolism” and “almost utopian lack of concern about other problems” so long as the government was chained down. He argued that the government was not the only source of economic power: Business special interests would corrupt markets even if the government did not help them.
The result, according to Olson, was that societies, economies, and political systems became increasingly encrusted with special-interest politics as the decades passed. Countries benefited economically from great upheavals such as wars and social revolutions, which tore interest groups from their privileged perches and sent them tumbling into the abyss.
Olson wanted to open up both politics and the economy to greater competition, equalizing power relations as much as possible between the many and the few. He argued that under some circumstances, powerful trade unions could benefit the economy. When unions and business groups were sufficiently big that they represented a substantial percentage of workers or business as a whole, they would be less likely to seek special benefits at the expense of the many, and more likely to prioritize the good of the whole. Olson also believed strongly in the benefits of open trade, not just because it led to standard economic efficiencies, but because it made it harder for interest groups to capture government and markets. Northern European economies such as Denmark, which combine powerful trade unions with a strong commitment to free markets, represent Olsonian politics in action.
Warren shares far more intellectual DNA with Mancur Olson and his colleagues than with traditional socialism. However, there are important differences. Olson wrote his key work in the 1980s, before the globalization boom. His arguments for free trade depend on the assumption that open borders will disempower special interests.
As economists such as Dani Rodrik and political scientists such as Susan Sell have shown, this hasn’t quite worked out as Olson expected. Free trade agreements have become a magnet for special interest groups, who want to cement their preferences in international agreements that are incredibly hard to reverse. The U.S. “fast track” approach to trade negotiations makes it harder for Congress to demand change, but allows industry lobbyists to shape the administration’s negotiating stance. Investor-state dispute resolution mechanisms provide business with a friendly forum where they can target government rules that hurt their economic interests. All of this helps explain why Warren is skeptical of arguments for the general benefits of free-trade agreements: they aren’t nearly so general as economists claim.
Close attention to Warren’s public choice influences reveals both her radicalism and its limits. Like Olson, she is committed to the notion that making capitalism work for citizens will require changes that border on the revolutionary. The sweeping proposals she makes for changes to America’s gross economic inequality, its economic relations with the rest of the world, its approach to antitrust legislation, and its tolerance of sleazy relationships among politicians, regulators, and industry are all aimed at creating a major upheaval. Where she proposes major state action, as in her “Medicare for All” plans, it is to supplant market institutions that aren’t working, and are so embedded in interest group power dynamics that they are incapable of reform.
Yet this is a distinctly capitalist variety of radicalism. Socialists will inevitably be disappointed in the limits to her arguments. Warren’s ideal is markets that work as they should, in contrast to the socialist belief that some forms of power are inherent within markets themselves. Not only Marxists, but economists such as Thomas Piketty, have suggested that the market system is rigged in ways that will inevitably favor capital over the long run. The fixes that Warren proposes will at most dampen down these tendencies rather than remove them.
If Warren wins, she will not only disappoint socialists. Her proposals may end up being too radical for Congress, but not nearly radical enough to tackle challenges such as climate change, which will require a rapid and dramatic transformation of the global economy if catastrophe is to be averted. Libertarians and mainstream public choice scholars will attack her from a different vantage point, arguing that she is both too skeptical about existing market structures and too trusting of the machineries of the state that she hopes to use to remedy them. State efforts to reform markets can easily turn into protectionism.
What Warren offers, then, is neither a socialist or deep green alternative to capitalism, nor a public choice justification for why regulators ought to leave it alone. The bet she is making is that capitalism can solve the major problems that the United States faces, so long as the government tackles inequality and defangs the special interests that have parasitized the political and economic systems. Like all such bets, it is a risky one, but one that might transform the U.S. model of capitalism if it succeeds.