Partisan warfare and gridlock in Washington threaten to squander America’s opportunity to show the world that democracy can solve serious economic problems and ensure widely shared prosperity. Instead of working together to meet the challenges ahead—an aging work force, exploding inequality, climate change, rising debt—our elected leaders are sabotaging our economic future by blaming and demonizing each other in hopes of winning big in the next election. They are weakening America’s capacity for world leadership and the case for democracy here and abroad.

Alice M. Rivlin, with decades of experience in economic policy making, argues that proven economic policies could lead to sustainable American prosperity and opportunity for all, but crafting them requires the tough, time-consuming work of consensus building and bipartisan negotiation. In a divided country with shifting majorities, major policies must have bipartisan buy-in and broad public support. Otherwise we will have either destabilizing swings in policy or total gridlock in the face of challenges looming at us.

Rivlin believes that Americans can and must save our hyper-partisan politicians from themselves. She makes the case that on many practical economic issues the public is far less divided than partisan politicians and sensationalist media would have us believe. She draws attention to numerous hopeful efforts to bridge partisan and ideological divides in Washington, in state capitols and city governments, and communities around the country, and advocates a major national effort to enable citizens and future leaders to learn and practice in the art of listening to each other and working together to find common ground.

This book is a practical guide for Americans across the political spectrum who are agonizing over partisan warfare, incivility, and policy gridlock and looking for ways they can help to get our democratic policy process back on a constructive track before it is too late.

       

America was once a country defined by our confident self-perception that we sometimes called “American exceptionalism.” Our “can-do” spirit helped us win two world wars, land on the moon, invent much of the world’s economy, and create a working class that was the envy of the world. Now we wonder whether we are a nation coming apart at the seams.

America is divided in ways that bring to mind the great social upheavals of the 1960s, or worse, our great Civil War of the 1860s. The rise of “red-state” versus “blue-state” hyper-partisanship has metastasized into increased racism, nationalism, anti-Semitism, xenophobia, Islamophobia, and homophobia that is far too often expressed through violent attacks. A truly great nation worthy of a modern exceptionalism would rise to the challenge of healing the wounds of hate and division, giving all Americans the opportunity to participate in growing an economy that offers broadly shared prosperity.

When we look deeply at the political and cultural divisions cleaving America, we consistently find extremes of economic inequality adding fuel to these fires. Stark differences in current economic security and future prospects bring anxiety, fear, distrust, and resentment. High earners in booming cities are able to separate themselves and their families by participating in the globally-connected knowledge economy. While the economically insecure on the city streets below—and in mid-sized cities, small towns, and rural counties in the parts of America that have still not seen a recovery—struggle to pay monthly bills, pay off debt, cover the costs of education, healthcare, and housing, and hold onto hope for a better future.

Economic inequality has two important dimensions—vertical and horizontal —and an economic plan to tackle both dimensions could go a long way toward uniting red-state and blue-state America and breaking the hyper-partisan gridlock in Washington. Democrats understand vertical inequality, which exists in every community, but is most visible in large cities where extremes of wealth and poverty exist in close proximity. Republicans pay more attention to horizontal inequality: differences in wealth, income, and growth between the big cities—mostly on the coasts, and the rest of America in the Heartland where agriculture and manufacturing have been in a long-term decline.

Horizontal inequality exists in every community, with areas of wealth and opportunity separated from areas of poverty and decline, but it is most visible in national maps that show the concentration of the nation’s economic growth in the largest cities (blue in the map above), leaving the mid-sized cities, small towns, and rural counties either stagnating (shown in gray) or in decline (shown in red). Decades of deindustrialization of the American Heartland and unreliable prices for agriculture products have hollowed out small town America, leaving declining populations, falling property values, a diminished tax base, and rising rates of “deaths of despair” including alcoholism, opioids, and suicide.

At the county level, there is a remarkable correlation between economic growth and voting behavior; Democrats are concentrated in the fast-growing cities and Republicans dominate the lower density interior states—small towns and rural counties that make up most of the nation’s land mass but somewhat less than half of the population. A failure by Democrats to appreciate the economic frustration and pain felt in states like Pennsylvania, Ohio, Michigan, Missouri, Iowa, West Virginia, and Wisconsin contributed to Donald Trump’s Electoral College victory in the 2016 presidential election.

With America divided politically and culturally and Washington at a standstill due to hyper-partisan warfare, the 2020 election offers voters a chance to choose a different direction. A national strategy to address vertical and horizontal inequality could appeal to voters in both red and blue states and unite a divided nation around specific plans to grow better paying jobs for the people and places that have been falling behind.

A national strategy to address vertical and horizontal inequality could appeal to voters in both red and blue states and unite a divided nation around specific plans to grow better paying jobs for the people and places that have been falling behind.

Addressing vertical inequality

Political progressives have been drawing attention to vertical inequality for several years and think tanks and political leaders have developed a solid list of proposals designed to shrink the gap between the small number of individuals that have the most and the large number that have the least. Serious proposals to mitigate vertical inequality generally involve increasing the  progressivity of the tax code, raising the incomes of the poor through raising the minimum wage and the value of other income supports, and guaranteeing the provision of basic needs such as food, housing, transportation, healthcare, and education for the poor and middle class.

1. Tax the rich. The degree to which the political system will support tax increases targeting the income or wealth of the richest Americans will be hotly debated in the 2020 presidential election. But the tax code could be made dramatically more progressive by simply reversing the Trump individual tax cuts to raise marginal rates for higher income taxpayers and closing egregious tax loopholes—including the special tax treatment for carried interest benefiting hedge fund partners, and provisions that help out specific industries such as oil, gas, and real estate development.
2. Make work pay. At the other end of the income scale, the Earned Income Tax Credit (EITC) should be expanded and increased. The name of the EITC may be unwieldy, but the policy is effective in providing badly needed additional income for low-paid working families through the tax code. The EITC has enjoyed broad bipartisan support in the past and there likely would be bipartisan support now for increasing its value and including more people.
3. Help people afford basic needs. The federal government spends a lot of money to help lower-income individuals and families pay for food, housing, winter heating, and a wide variety of other needs, but proposals to increase the generosity and breadth of these programs receive increased attention during an election cycle. A tax code made dramatically more progressive by increasing top rates and closing loopholes that benefit the wealthy would increase government revenue, funding some of these proposals for new federal spending to help families with college tuition, student loan debt, or health care. It could even provide a guaranteed minimum income. But the same tax revenues cannot be spent several times over and the 2020 federal deficit is projected to surpass a trillion dollars. Difficult choices must be made across the entire federal budget and even among these worthy initiatives to help working families move from barely surviving to thriving in the modern economy.

The best approaches are those that help people get and advance in better paying jobs and raise healthy families with children ready to succeed in school and in life. Rather than just giving people money, it makes more sense to help people afford more education and technical skills training, so they can get a better job. Transportation assistance is also needed in many areas to help people get to where the jobs are. There is a broader societal agenda to raise pay and professional standards for some of the most important but least well-compensated workers in our society: those that take care of the youngest and oldest Americans. Programs that strengthen child-care, preschool, healthcare, and home health assistance, are particularly needed.

4. Rewrite the rules. Decades of political dysfunction in Washington have given us laws and regulations that are out-of-date: unable to keep up with massive changes in technology and global markets and skewed to the benefit of the most powerful interests in the industries being regulated. We need to get Washington working again so we can pass up-to-date laws protecting the health, safety, and welfare of the public as consumers, workers, borrowers, investors, and neighbors of American businesses. Antitrust laws to check monopoly power, strengthened labor and worker health and safety laws, environmental laws, and continuous improvement in financial and credit market regulation, are all needed to protect us from crisis and catastrophe. And we need to export our values by negotiating trade deals that protect the environment, health, safety, and incomes of workers in our trading partners.

Addressing horizontal inequality

Republicans have been more consistent in highlighting the pain and resentment in the deindustrializing heartland and rural areas where there has been no economic recovery. Their principal policy, however, including Opportunity Zones in the 2017 Tax Bill, is not an adequate response to the problem. If well administered by state and local governments, lower taxes in Opportunity Zones could encourage projects that benefit struggling families in economically challenged communities, but there is an equal danger that this is just a method for lowering taxes for developers who are gentrifying those areas. A new national economic strategy in the form of a collaboration between federal, state, and local government to prioritize public and private investments to bring better paying jobs to the parts of America that have been falling behind, is needed and could gain widespread voter support.

A new national economic strategy does not necessarily mean greater power in Washington vis a vis state and local governments. In fact, it should mean a new relationship of greater balance between the federal government and local leaders in the states and cities. Washington has been criticized for many years, and rightly so, for the failure of our national leaders to offer a coherent economic plan, but the same cannot be said of many governors and mayors in big cities and small towns across America. Washington can do more to support regional economic planning, spread successful strategies to more areas, and develop a strategic approach to investing for American global competitiveness in the emerging industries of the coming decades.

While Washington has been incapacitated by vicious hyper-partisan warfare (blame the Hastert Rule) many states and dozens of cities across the country realize they cannot wait for a cavalry to come riding over the hill—they must save themselves with local economic planning and coordination. They have been bringing together local leaders; Republicans and Democrats, businesses and labor groups, have been putting aside their differences to develop strategies to invest in education, innovation, infrastructure, and community quality of life, and to attract new businesses, grow local businesses, and create better paying jobs. Many of these collaborative, regional, economic development efforts are starting to gain traction and show measurable success.

Political leaders in Washington would be wise to study the success of governors and mayors in cities like Cleveland, Pittsburgh, Nashville and Atlanta (although problems and inequality persists in all these examples), as well as the many next-level towns that are seeking to follow their path to success. From Pittsburgh, Erie, and Lancaster, Pennsylvania; to Youngstown, Akron and Dayton, Ohio; to Knoxville and Chattanooga, Tennessee; to Dubuque, Iowa; and Huntington, West Virginia, local leaders are collaborating on the development of regional economic plans, identifying local resources and competitive advantages, and the challenges to be overcome. An economic strategy sets priorities for long-term investments that are made by combining federal, state, and local funding streams with business investment, foundation grants, and non-profit initiatives. Looking at these local plans we see investments in four broad areas: education, innovation, infrastructure, and healthy communities.

1. Invest in education and job skills training. Pay teachers more and modernize and support public schools, vocational education, community colleges, job training academies, and apprenticeships, so every American has access to the skills needed for better jobs in the modern economy.
2. Invest in innovation. Identify regional strengths and weaknesses, support innovation communities and business start-up incubators, build bridges between businesses and researchers at local colleges and universities, and make investments to create the conditions for local businesses to thrive in future growth areas such as regenerative agriculture, advanced manufacturing, sustainable energy, and knowledge-based industries.
3. Invest in Infrastructure. Repair and modernize roads, bridges, rails, airports, seaports, smart energy grids, broadband data networks, and other critical infrastructure, and invest in public transportation so people can get to work, businesses can get materials, get their finished products to customers, and knowledge businesses can connect to customers all over the world.
4. Invest in healthy communities. Rebuild downtown areas and Main Streets, Riverwalks, and other common areas with better lighting and community policing so people feel safe and business can grow. Invest in areas of persistent poverty, renovating abandoned buildings, turning vacant lots into parks and playgrounds, and revitalizing libraries, community centers, and senior centers. Support local and regional hospitals and wellness centers and bring healthy food to “food deserts” to sustain a healthy, vibrant population needed to attract the kinds of jobs that offer better pay, opportunity, and economic security.

The key to success is commitment to both comprehensiveness and scale. Just as crops need seed, water, sunlight, and fertilizer—and will fail for lack of any one—all four of these investments: education, innovation, infrastructure, and healthy communities, are necessary for success. Job training without economic development is futile, but development without bringing up the skill-level of the local population is merely gentrification, as the local population will get priced out of the region.

Raising this regional economic development strategy up to the national level would involve 1) strengthening the federal government’s support for these local initiatives to the greatest degree possible, 2) using federal resources as a carrot to encourage more regional collaboration and strategic economic planning in more cities and towns across the country, and 3) using the same approach to strategic economic planning to strengthen America’s competitiveness in the emerging global economic battlegrounds of the future—including renewable energy, electric and self-driving vehicles, sustainable agriculture, advanced manufacturing, robotics, artificial intelligence, and fifth generation telecommunications (5G).

While other countries have been developing five-year, ten-year, and longer-term plans to gain advantage in these industries, Washington has been gripped by hyper-partisan warfare and policy paralysis, rendering once simple tasks like passing a federal budget without a Continuing Resolution difficult and a national infrastructure bill unachieved. The 2020 election will give voters a chance to elect leaders who have the vision to chart a better, smarter economic course forward.

We cannot be united states if we have separate economies, with wealthy elites living in penthouses high above struggling streets, or coastal states surging ahead and interior states falling behind.

We cannot be united states if we have separate economies, with wealthy elites living in penthouses high above struggling streets, or coastal states surging ahead and interior states falling behind. America needs to find a leader who can unite the nation around a plan for economic growth that spreads outside of the cities and includes everyone. Economists call efforts to address vertical inequality “people-based” policies and efforts to address horizontal inequality “place-based” policies. A new national economic strategy combining both approaches would have broad support and would bring greater inclusiveness and opportunity to the people and places in America that have been falling behind.

In a divided government, if new policy is possible at all, it often arrives as a patchwork of policy ideas designed to meet the competing priorities of different interests and political philosophies. It is rare, but possible, to reach a reasoned strategic approach based on a real exchange of ideas in a spirit of compromise and common purpose. This has not been happening often in Washington recently, but it is happening in local regions throughout America. In 2020, America can elect a leader who can heal a divided nation and unite the country around a new economic vision.

The authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. None of the authors is currently an officer, director, or board member of any organization with a financial or political interest in this article.

       

America spent $3.5 trillion on health care in 2017, totaling 17.9 percent of the country’s GDP. Health spending accounts for more than one-quarter of all federal spending and is expected to double over the next decade. Without policies in place to control the growth of health care spending, there is a risk that a large amount of the economy’s future growth will be absorbed by an excessively costly health systems, without appreciable gains in actual health.

Joseph Antos, senior fellow at AEI, and the late Alice M. Rivlin offer a new vision for health reform that builds on the existing health care system. Their approach arms purchasers, including consumers, physicians, insurers, employers, and the government to make cost-effective decisions in a competitive market environment. Antos and Rivlin stress the importance of competitive pressures on health care prices from both the supply and demand sides.

Key elements of this reform include:

1. Improving information about prices and outcomes to spur cost-reducing pressure from patients and help consumers, providers, and insurers make more cost-effective choices.
2. Shifting away from fee-for-service payment where possible, holding organized provider groups responsible for the cost and quality of the treatment provided to patients.
3. Removing barriers to competition among insurers and health care providers, using the power of competitive markets to drive toward cost-effective health care delivery.
4. Applying regulation and direct intervention where markets are demonstrably not workable.

These pro-competitive steps can promote greater efficiency in our health system and slow the growth of health spending, freeing up resources that can lead to stronger economic growth. Read the full report here.

       

“I was always interested in doing good policy analysis, and improving the policy process,” says Alice M. Rivlin in this interview about her career in public policy and contributions to making the policy process better. She is a senior fellow in Economic Studies and the Center for Health Policy at Brookings, and one of the nation’s, and this Institution’s, most important public policy leaders.

Among Rivlin’s many important roles, she served as director of the Office Management and Budget (OMB) in the first Clinton Administration and as vice chair of the Federal Reserve Board. She was the founding director of the Congressional Budget Office starting in 1975 and served as chair of the District of Columbia Financial Management and Assistance Authority. Rivlin first came to the Brookings Institution as a research fellow in 1957.

Also in this episode, Senior Fellow David Wessel examines the impacts of an aging population on the U.S. economy, and how immigration contributes to economic vitality.

Related content:

Systematic Thinking for Social Action

Testimony on oversight of the Congressional Budget Office

Subscribe to Brookings podcasts here or on iTunes, send feedback email to BCP@Brookings.edu, and follow us and tweet us at @policypodcasts on Twitter.

The Brookings Cafeteria is part of the Brookings Podcast Network.

       

The Senate Committee on Health, Education, Labor, and Pensions recently requested recommendations from health policy experts at the American Enterprise Institute (AEI) and the Brookings Institution regarding policies that could reduce health care costs. A group of AEI and Brookings fellows jointly proposed recommendations aimed at four main goals: improving incentives in private insurance, removing state regulatory barriers to provider market competition, improving incentives in the Medicare program, and promoting competition in the pharmaceutical market.

Read the experts’ letter to the Committee and the full list of recommendations.

       

Alice Rivlin was part of a symposium on sustainable U.S. health spending

       

On Friday, July 13, the USC-Brookings Schaeffer Initiative for Health Policy hosted a conference on strategies for stabilizing the individual market. Keynote speaker Mark Hall presented his research findings on a new study, which examines the recent experience of ten states with respect to individual market stability, including Alaska, Arizona, Colorado, Florida, Iowa, Maine, Minnesota, Nevada, Ohio, and Texas. Two expert panels convened to discuss outlook for the individual market at both the individual state and national level. 

       

This week the Federal Reserve’s Open Market Committee raised short-term interest rates another notch, as expected, signaled they would likely raise rates twice more this year, and changed their “forward guidance” language to clarify their longer run intentions. Chairman Jerome Powell explained clearly why the Committee thought this policy would keep unemployment low and prices stable and answered technical questions in excruciating detail. No mystery; no surprises; no drama; just our central bankers taking their mandate seriously and working hard to explain their actions to the public. Pretty boring!

If only we could say the same about the other aspects of economic policy. Budget policy, health policy, and trade policy are at least as important to our future wellbeing as monetary policy, but in those domains chaos reigns. The tribal warfare between Republicans and Democrats, reinforced by the erratic style of President Trump, have killed deliberate policy-making. No one knows what policy to expect next week, not to mention down the road.

Congress and the president were unable to agree on funding federal agencies until the current year was more than half over. Federal agencies, contractors and grantees charged with carrying out government responsibilities had no basis for planning their activities. We do have a budget for 2019, but only dim hopes of getting appropriations bills passed and signed by the time the fiscal year starts on Oct. 1. Another government shutdown is possible. Don’t even mention dealing with the looming danger of growing national debt or putting Social Security and Medicare funding on a sustainable path. Congress and the president added to the debt burden this year with spending increases and a massive tax cut and no one is even talking about how to start living within our means.

As to health policy, while Republican efforts to repeal and replace the Affordable Care Act failed, so did bipartisan attempts to stabilize the individual insurance market. The Administration seems determined to keep both buyers and sellers of health insurance in a state of constant uncertainty. They stopped expected payments to insurance companies, dropped the mandate that everyone have health insurance, authorized cheaper, barebones plans that will attract the healthy and raise premiums for the sick. They have even refused to defend the extremely popular rule that insurance companies must offer health insurance to everyone regardless of pre-existing conditions at rates that are not affected by their health status. All this leaves those in greatest need of affordable health care wondering what will happen to them next.

Trade policy, what trade policy? Are the steel and aluminum tariffs on or off? Which of our allies do they apply to? Businesses that make steel and aluminum and those that use it—and their customers, suppliers, and competitors—are all trapped in chaotic uncertainty that extends to anyone making, selling or buying products that might be hit with retaliatory tariffs.

Our market economy is a miracle of adaptability and flexibility but cannot be responsive and efficient in a world of policy chaos. Uncertainty about economic policy undercuts business willingness to invest in job creation and productivity improvement. In the face of increased longevity, we exhort workers to save more for retirement and health contingencies. But how can we expect them to plan if policy makers are not doing their jobs of assuring that Social Security and Medicare are sustainably financed?

It is reassuring to have the Federal Reserve behaving responsibly and predictably, but monetary policy can only do so much when other economic policies are floundering. Americans need to use their votes and voices to tell politicians to stop the political warfare and start working together to make stable, understandable economic policy.

       

Chairman Womack, Ranking Member Yarmuth, and members of the Committee:

Thank you for inviting me to present my views at the wrap-up hearing of your series on Oversight of CBO. Forty-three years ago, I had the good fortune to be chosen as the first director of CBO. It was a chance to launch a much-needed congressional support agency and establish its structure and initial traditions. My colleagues and I worked hard with the new Budget Committees to create a strong nonpartisan CBO and recruit talented, hard-working staff that would give Congress the best budget estimates and analysis we possibly could. It was an exciting opportunity—by far my favorite job in a long career.

My most important contribution to the nonpartisan credibility of CBO was insisting that CBO not make policy recommendations.  We believed CBO should provide objective information and analysis. If asked, it would offer an array of policy options along with estimates of what alternative policies would cost and what consequences they would likely have, especially for the federal budget, but it would not presume to tell Congress what to do.

Since then the CBO has benefited from a string of talented directors, both Democrats and Republicans. They have assiduously maintained nonpartisan neutrality and enhanced the quality of the staff and its analysis. The reason CBO is still performing at such a high level after 43 years is that congressional leaders, especially the Budget Committees, recognize their need for solid, unbiased budget estimates and have protected CBO from partisan and special-interest threats that could undermine its ability to do its job.

No one needs to tell members of the Budget Committee that making budget policy is extremely hard. Congress must make budget decisions despite great uncertainty about how the economy will perform and how businesses and individuals will react to changes in federal policy.

Advocates of policy changes, including presidential administrations, are routinely optimistic about what their preferred policies will cost and what the consequences will be. Policy makers need to cut through the plethora of competing claims and turn to a neutral team of experts to answer questions like: what will this cost? What effects will it have? That is the CBO’s job, and it is frequently asked to deliver analysis of complex proposals on a tight time schedule.

To maintain its credibility and be maximally useful to policy-makers, CBO needs to be as transparent as possible about the methods and models it uses to arrive at estimates and adjust its methodology in response to new information and estimating techniques. In reading recent CBO reports, I have been pleased to see steady progress in the sophistication of its estimating techniques and astonished at the amount effort the agency devotes to explaining and documenting its methodology.

Critics of CBO’s transparency often appear to imagine that CBO has a vast storehouse of well-documented statistical models that can just be plugged in to generate estimates of the costs and effects of any policy option that might interest Congress. However, Congress often considers complex policies that have never been tried before and for which no models exist. CBO staff is often forced to reason by analogy from fragmentary data about vaguely similar programs tried under different circumstances and to estimate interactions among several policy changes that have not occurred before.  Furthermore, writing up these new methods and models in sufficient detail so that others can reproduce them is a time-consuming activity that competes with moving on to the next set of estimates that congress needs. Making these estimates is challenging and customer expectations about what a hard-pressed staff can deliver under tight time pressure should be realistic. More transparency requires more staff.

One persistent dilemma, which has confronted CBO directors since my day is responsibility creep. Although a few members of Congress criticize CBO’s performance, others (sometime even the same ones) are eager to have it take on more jobs for more clients. Drafters of the Budget Act, back in 1974, recognized that CBO might become overloaded. They established a priority list of committees to whom the CBO was expected to respond, putting the Budget Committees at the top. Individual members cannot request a CBO analysis, unless they are able to able to persuade their committee or subcommittee chair or ranking member to request it. If the Budget Committees want the CBO to take on more responsibilities or respond to more requests, they should work with the CBO Director and the Appropriations Committees to be sure CBO has the resources to do additional work without reducing its quality.

Although I am glad that the Committee has devoted this series of hearings to oversight of the CBO, I strongly believe you should focus your attention on two far more important budget challenges:

• The dangers of a federal debt that is projected to rise faster than the economy can grow;
• The total breakdown of the budget process.

Perhaps the most important function of a democratic government is budgeting—deciding what services government should provide and how to pay for them. In recent years, the world’s most experienced democracy has spent enormous energy bickering over funding short-run discretionary spending for a few weeks or even days at a time; massively reduced future revenues in the face of rapidly increasing spending commitments; and given zero attention to restraining the growing national debt. The burden of the debt, which will weigh heavily on future taxpayers, is on track to rise faster than even optimists think our economy can grow. These derelictions of fiscal responsibility are not the subject of today’s hearing, but they are the dangerous elephant in this Budget Committee room. I could not sit here in good conscience without drawing attention to them.

Thank you and I look forward to your questions.

       

In a recent New York Times column, Paul Krugman rightly charges Republicans with hypocrisy for espousing fiscal responsibility while adding trillions to the national debt, but adds “my anger isn’t mostly directed at Republicans; it’s directed at their enablers, professional centrists…” I rise to the defense of the centrists.

I consider myself a moderate Democrat, not a centrist. I was proud to serve in two Democratic administrations (Johnson and Clinton), but I don’t think either party has all the right answers, especially on economic policy. Indeed, I believe the polarization of the electorate into warring red and blue tribes makes bipartisan negotiation leading to a centrist economic agenda more, rather than less necessary.

In this divided country, if the two parties do not work together to find common ground, we are doomed either to gridlock or wild swings in policy—and we will never address the hard challenges of climate change and rising debt, which demand bipartisan consensus to share the pain as well as the benefits. Moreover, I believe that sensible, fiscally responsible policies exist that moderates in both parties would buy into, if only they could break out of their tribal compounds and work with each other. Sadly, party leadership and congressional rules increasingly thwart bipartisan negotiation.

I am certainly not urging compromise on racial injustice or xenophobia. Nor am I talking about issues that stir deep religious and cultural passions and seem to defy rational argument, such as gun rights, abortion, and transgender bathrooms. But neither is Krugman. We are both economists focused on economic policy.

There are two reasons for creating economic policy through bipartisan negotiation. The first is that households and businesses need relatively stable policies that allow them to plan future actions. Frequent big swings in tax laws or public provision of retirement or health care benefits, for example, add to uncertainty and impede decision-making.  Since the electorate is roughly equally divided between Republicans and Democrats and tends to swing back and forth as hopes for one-party miracles are replaced with disillusionment, stable economic policy requires bipartisan buy-in.

In this divided country, if the two parties do not work together to find common ground, we are doomed either to gridlock or wild swings in policy.

We have seen the costs of partisan warfare over economic policy mount in the last decade. The two parties have battled almost continuously over the budget, often using continuing resolutions to fund federal activities for a few weeks (or even days) at a time; shutting down the government in hopes the public will blame the other party for this senseless act, and even threatening to default on the national debt to gain partisan advantage. Such dysfunctional governing is costly for both the government and the private sector and undermines confidence in American democracy at home and abroad.

We have also seen the enormous downsides of passing major economic legislation with the votes of only one party. Let’s try a thought experiment. Suppose the Affordable Care Act (ACA) had been the product of a good-faith negotiation between Democrats and Republicans aimed at producing a bill that moderates in both parties could support. Moderate Republicans could have supported income related federal subsidies for households purchasing health insurance in electronic markets, but might have insisted on penalties for non-enrollment, rather than a mandate, a less generous benefit package, additional flexibility for states to adapt the program to their particular conditions, or less reliance on expanding Medicaid. Right wing Republicans would still have opposed any expansion of federal subsidies for health care, and left-wing Democrats who favor single payer might have dropped out as well. But a centrist compromise with the support of moderates in both parties could have provided broader, more stable increases in health insurance coverage than the ACA. Bipartisan buy-in would have allowed the parties to fix glitches in the law as experience revealed them and kept Republicans from demonizing Obamacare, misrepresenting its faults, preventing its improvement, and sabotaging its implementation.

Similarly, a genuinely bipartisan tax reform negotiation could have produced far more stable, pro-growth tax policy than the recent Republicans-only tax bill without ballooning future deficits. Many Democrats supported corporate rate cuts accompanied by broadening the corporate tax base to reduce revenue loss and would have supported many of the Republican cuts in individual taxes if the total package had been less egregiously tilted toward the very rich. However, since Democrats were not allowed in the drafting room and none of them voted for the bill, they are now demonizing it, much as Republicans did Obamacare, and exaggerating its faults. Democrats are alleging middle-class taxpayers will not benefit, although they actually will, if the cuts for them are extended beyond 2025, which seems likely. Unfortunately, the one-party action not only adds trillions to the debt, but continuing partisan rancor fosters uncertainty about future tax policy, which makes planning harder for households and businesses alike.

The other reason why major economic policy requires bipartisanship is that meeting the big challenges facing our economy, such as reining in the projected increase in national debt, requires sharing the pain as well as the gain. Austerity is bad economic policy in a recession; so is adding massively to deficits at full employment and continuously growing the debt faster than the economy. Current policies will likely produce higher interest rates that restrain private investment, rising debt service costs that drive out public investment, and growing risk that our creditors will lose confidence in us.  Restoring fiscal responsibility requires reducing the growth of entitlement spending or increasing the growth of tax revenues or both, and neither will happen until both Republicans and Democrats are willing to take ownership of a bipartisan plan.

Other looming challenges, such as shifting from fossil fuels to renewable energy to mitigate climate change, also involve near-term pain, such as dislocation in the oil and coal industries. Without bipartisan ownership of both the pain and the gain, these necessary adjustments will be politically impossible.

We have seen the costs of partisan warfare over economic policy mount in the last decade.

Both conservative Republicans and liberal Democrats regard moderates who espouse bipartisan negotiation as wishy-washy opportunists willing to compromise their principles. But debates about economic policy generally do not involve absolute “principles.” They involve balancing competing preferences along a continuum of values, such as compassion v. personal responsibility. In general, Republicans favor smaller government with more limited powers, at least in domestic affairs, and more reliance on markets; Democrats favor a more activist government assuming greater responsibility for protecting the less fortunate and mitigating the risks of unregulated markets. Policy-making is normally about shifting the balance a little one way or the other. Moreover, the range of practical policy alternatives for the role of government is quite narrow in contemporary America. Neither communists, nor socialists, nor advocates of unfettered capitalism have significant political support—despite the stereotypes that each party hurls at the other in campaigns.

The recent two-year budget agreement illustrated that moderates in both parties could work together if their leadership would let them. The politicians recognized that the public was disgusted with partisan warfare and dysfunctional budgeting, and that there was broad public support for most current federal activities, as well as for sustaining popular safety net programs, such as the Children’s Health Program and Community Health Centers, and for strengthening military capability.  Debt worriers, including me, pointed out that the agreement added substantially to the debt, but a two-year agreement on appropriations was not the place to deal with the long-run upward trajectory of debt. The longer-run fiscal conversation must include entitlements and taxes.

Partisan Democrats criticize advocates of bipartisan economic policy for not aggressively calling out Republicans for causing the current breakdown in cross-party cooperation and civility. They are right that the confrontational actions of right wing Republicans bear most of the responsibility for recent debacles and that President Trump has brought partisan warfare to a new level of ugliness. But the escalation of partisan rivalry into tribal warfare was building long before Trump or even the Tea Party. Democrats are not entirely blameless.

The crucial point, however, is tactical. Neither party can hope to start a productive negotiation by marching into the room shouting, “It’s all your fault, so now let’s talk about a bipartisan deal.” Hope for bipartisan policy on the economy or any other topic depends on stopping the blame game, beginning to listen to each other, and rebuilding trust before working together to solve the problems that beset us.