While Democrats controlled the White House for nearly half the time since then, their policies often were constrained by the core Reagan principles, in the view of many progressives. Bill Clinton tried to juggle liberal goals with a focus on balancing the budget, expanding free trade, and deregulating the financial sector. Barack Obama created a new government health program, but to the chagrin of the left, worked through private insurers. His 2009 program to fight the recession was constrained by fears of big deficits.
"For decades now, people have talked about economics as running against government, ignoring how much we need government to be able to build out opportunities," said Massachusetts Democratic Sen. Elizabeth Warren, who, as an Obama adviser, often tangled with his aides over how aggressively to rein in Wall Street and support homeowners slammed by the 2008-2009 financial crisis.
A confluence of forces since the turn of the century has shaken support for the market-oriented economic model. A sharp increase in income and wealth inequality, combined with longtime wage stagnation that ended just before the pandemic hit, raised questions about how broadly prosperity gets shared absent government intervention. The swift loss of manufacturing jobs undermined support for free trade. China's success and Wall Street's collapse in the financial crisis further sowed doubts about free markets.
Those trends animated critics on the left, fueling the 2016 presidential campaigns of self-proclaimed Democratic Socialist Sen. Bernie Sanders of Vermont and the rise to prominence of his allies such as New York Rep. Alexandria Ocascio-Cortez.
Republicans, too, have faced internal challenges to the party's free-market orientation. Mr. Trump won the presidency in part by attacking bipartisan support for globalization. In office, he launched a trade war with China, regularly criticized big business and intervened to force domestic investments and pressure companies to relocate manufacturing to the U.S. and cut prices of drugs.
"Some establishment Republicans are too willing to do nothing at all with government. They see an all-natural, organic market having its way, " said Missouri GOP Sen. Josh Hawley. Mr. Hawley, a Trump supporter and possible presidential contender, has called for tougher antitrust laws to break up big tech companies and co-sponsored a bill last year with Mr. Sanders to give households $1,200 direct payments.
The first-term senator voted against the latest stimulus bill and opposes many of Mr. Biden's policies, but he also says that "old-style conservatives have been too quick to wave away policies to strengthen American workers and promote competition rather than monopolies."
While many of those urging an economic rethink are relatively new voices in the debate, some pillars of the establishment have evolved, including former senior economic aides in the Clinton and George W. Bush administrations. Another Washington veteran whose positions have changed: Joe Biden.
Elected to the Senate in 1972 at age 29, Mr. Biden ousted a Republican incumbent in part by casting himself as more attuned to the needs of the middle class, a theme that became a through-line of his career. He has long espoused the importance of unions, small businesses and a strong working class.
Mr. Biden juggled those causes with a belief in the need to curb government spending and cut taxes. He voted for Mr. Reagan's historic 1981 tax cuts and backed spending ceilings for most agencies through the 1980s and a balanced-budget constitutional amendment in the 1990s. He regularly floated the idea of limiting Social Security and Medicare.
"For years, a lot of us subscribed to the notion that Milton Friedman warned us about," that government would harm the economy if it didn't take a light-touch approach to business, said former Connecticut Democratic Sen. Chris Dodd, a longtime Biden friend, referring to the economist who helped define the small-government neoliberal philosophy.
As Mr. Obama's vice president during the financial crisis, Mr. Biden walked a tightrope between pushing for spending, especially on infrastructure, and taking the lead in negotiating with Republicans to limit the extent of government expansion. Toward the end of his term, the persistently slow recovery prompted the vice president and his aides to launch a study of wage stagnation, income inequality and ways the government could steer business to do more for workers. That work planted the seeds for his current program.
Mr. Biden started his 2019 presidential bid determined to lay out more of a big-government agenda than recent Democrats had espoused. But much of the primary field had moved even farther left. He emerged once again as the fiscal scold warning of excessive spending.
The arrival of the pandemic and the killing of George Floyd marked a turning point for Mr. Biden, according to his advisers, bringing into focus what his aides describe as his longstanding desire to "go big."
Mr. Biden tapped his longtime friend and successor as Delaware senator, Ted Kaufman, to run the transition, and in helping assemble the economic team, Mr. Kaufman said his team focused on people steeped in new economic thinking and steered away from business executives.
"I looked at people who had internalized what Joe Biden's policy was about, and Joe Biden's policy was not about taking care of Wall Street or people making over $400,000 a year," Mr. Kaufman said.
The middle ranks of the administration are filled with academics and activists who have spent the past few years honing a framework for progressive economic policy-making. In March 2019, many of them gathered at a Washington conference called "Bold v. Old." A panel on toughening antitrust enforcement was led by Jennifer Harris, an official with the Hewlett Foundation -- a philanthropy created by one of the founders of Hewlett-Packard Co. -- overseeing a program funding researchers seeking to replace the neoliberal paradigm. She was joined by Lina Khan, a young law professor known for laying out the case for breaking up Amazon.com Inc., and Sabeel Rahman, president of Demos, a progressive think tank.
Ms. Harris has joined the Biden National Economic Council. Ms. Khan has been nominated to the Federal Trade Commission. Mr. Rahman works at the Office of Management and Budget.
Few of those new-generation policy makers supported Mr. Biden in the primaries. One of Mr. Deese's deputies, Bharat Ramamurti, who was Ms. Warren's chief campaign policy adviser , says the party is now largely unified on economic policy.
A change in the Biden approach to economics is a re-evaluation of the costs of government action, which his team says have receded or always been exaggerated. And on the other side of the equation: an assertion that the cost of inaction is greater than previously estimated.
Progressive economists have generated rafts of research, often contested by conservatives, challenging the links between higher tax rates and lower economic activity. "The evidence suggests that the impact of marginal tax rates on labor supply is not as big as we may have once feared," said Cecilia Rouse, chair of the Council of Economic Advisers.
Liberal academics have produced studies examining the costs to the economy's productive capacity from inequality and long-term unemployment, work invoked by the Biden team to justify spending big and fast to try to return to full employment as soon as next year. Some critics, including former Clinton and Obama economic adviser Lawrence Summers, have said that spending too aggressively to drive down unemployment could backfire, possibly prompting the Fed to raise interest rates and trigger a recession.
This more relaxed view of previous economic limits has freed the Biden team to plan on a grand scale. They designed a two-step strategy that began with the $1.9 trillion coronavirus relief package, which provided $1,400 direct payments to many Americans, extended a $300 weekly jobless-aid supplement, expanded the child tax credit to provide periodic payments and dropped requirements that recipients work.
That was a symbolically significant shift from the Clinton-era move to tie welfare to work and a nod to the burgeoning progressive demands for a no-strings-attached guaranteed government income floor, at least for families with children.
Biden aides are also preparing an aggressive plan of new regulations and enforcement that can be implemented without Congress.
"The president campaigned on concerns about big tech, about labor market competition, about making sure small businesses can compete with the bigger guys," Mr. Ramamurti said. "The president has a clear agenda there."
Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com
(END) Dow Jones Newswires
03-30-21 1152ET
