After the Tsunami, a Democratic Development Agenda

Democrats have taken large majorities in the House and the Senate in an electoral tsunami. As they prepare to take control of Congress ahead of the 2028 election cycle and the post-Trump governing moment, their overwhelming electoral mandate has put affordability — above all in healthcare and energy — at the center of politics. Yet despite this centrality, affordability remains politically ambiguous: everything from middle-class tax cuts to zoning reform to universal childcare has been put forward in its name. The question before Democrats is simple: What will it take to drive down the cost of living, especially in essential sectors and energy? What policies and public institutions do we need to create, in what sectors, and with what priority?

If Democrats answer this question right, a clear set of foundational and ambitious economic policy priorities to deliver affordability can organize not only the next Democratic government but a transformative growth and development path for the US economy of the 2030s and beyond. A comprehensive macroeconomic agenda centered on affordability can build an economy that sustains high investment and full employment without inflation; provides universal affordable high quality healthcare and housing; develops capacity for innovation and technological development, resilience, and rapid decarbonization; and shares prosperity and power equally — giving working people a democratic say in the economy’s future, from AI in the workplace to which sectors we build for the 21st century.

Get this wrong however, and regardless of how much power Democrats hold, affordability becomes a toothless grab bag of policies with no organization, little effect on everyday people’s lives and no prospect of recharting the US economy’s current fragile and unequal growth trajectory. Left undisturbed, that trajectory leads to stagnation as the AI boom imminently slows if not crashes; ever-rising health and power bills; stalled decarbonization; and an economy shaped by the prerogatives of private capital.

Lowering the cost of living and driving a new era of growth and development will require foundational priorities that assert public control of strategic investment and essential provision. Democrats need a democratic national development agenda built on socializing three of the economy’s foundations — healthcare, electricity and investment through Medicare for All, a Federal Grid Authority and a National Investment Authority. Together, these Productive State institutions would drive growth and direct development toward universal high-quality affordable essentials, full employment without inflation, and a more democratic, decarbonized economy.

Growth, development and affordability

The US economy is in a strange place. Trump has certainly not ushered in prosperity.^[1] But for all that affordability has named a political economic crisis for working people, the economy has maintained low unemployment and continued to grow, albeit more slowly, for several years. This is likely to change, perhaps drastically, before the end of Trump’s second term.

Radically uneven growth and development has been a compounding problem for the US economy for decades. Following the financial crisis, the US economy was widely considered to be in a state of secular stagnation and underinvestment. Even despite zero interest rates and Federal Reserve quantitative easing policies meant to provide stimulus, private capital refused to invest sufficiently to meet public needs. Over recent decades, growth has become increasingly K-shaped as well: wealthy households account for a growing share of aggregate demand driving consumer spending whereas wage-earners face stagnating pay and rising costs for essentials.^[2] Government support has played a major role in the economy, with Biden-era stimulus and public investment driving a hot labor market and a boom in factory construction. But that support has now ended, and in the case of the IRA’s clean energy credits, much of it has been repealed. What has kept the economy growing since then has been two engines driving an unequal, narrow and fragile growth trajectory: artificial intelligence and healthcare. The first is set to slow. The second is the principal obstacle to affordability and to more dynamic growth.

AI

The AI investment boom has been spectacular, driving between a tenth and a fifth of recent growth.^[3] It stands in stark contrast to decades of stagnation and corporate underinvestment: it is the kind of private investment boom that successive Democratic administrations had hoped to stoke. But the boom is unlikely to last into the next Democratic administration.

Where the Biden administration had hoped to orchestrate an investment-led transformation of the economy in favor of green growth, private capital has instead pursued a fossil fuel-intensive boom premised on the prospects of widespread and rapid diffusion of AI and the expectation of this reorganizing work, creating new industries and delivering a step change in macroeconomy-wide productivity. In particular, largescale corporate spending on data centers and continuous investment in hypercompetitive advanced model development represents a bet on a particular corporate strategy based on two premises. One, that there will be largescale business and consumer demand for access to advanced models and compute power. And two, that a few firms with the most advanced frontier models — developed with that largescale compute power — will capture the market.

However, there are already reasons to doubt these premises and thus the business case for business spending at this scale. Open weight models, which are far cheaper to run, seem poised to take consumer and business markets, as hardware makers adapt to consumers increasingly interested in models that can run on local servers, laptops and phones rather than in hyperscale data centers. The most advanced frontier models are potentially valuable for non-profit science development as a public good, which would require a national laboratory model with attendant scale of compute rather than an ever-expanding fleet of commercial data centers.

More broadly, the prospects of rapid AI led macroeconomic transformation are doubtful. This kind of transformation would require comprehensive reorganization of workflows and systems across firms and sectors. Arvind Narayanan and Sayash Kapoor call AI a “normal technology” whose diffusion will be slow, as electricity’s was a century ago, and with decarbonization remains incomplete. Moreover, electrification took decades of public investment, regulation, and rural power programs. Industrial and growth policy would ultimately be necessary to deliver comprehensive large-scale economy-wide adoption of AI.

The frontier labs themselves seem uneasy. Much of their talk of pacing the frontier, and their calls for regulation, can be read as an attempt to coordinate capital discipline and secure monopoly positions for leading players across the AI stack, ease the competitive drive for capital expenditure across model development and data centers, and secure returns on investment already sunk into this cycle. There were signs of a slowdown before the midterms and the election has supplied a form of capital discipline in the form of data center development restrictions. Post-election, AI-linked stocks sold off sharply. Some economists see restrictions as a brake that could prevent a larger crash and prolong the investment cycle, others warn of financing stress for leveraged developers.  

Either way, a Democratic government will likely inherit a slowdown and the damage the boom has already done. Investment adds to growth only while it keeps rising, so even just a plateau in spending can bring about a noticeable slowdown. In the more pessimistic case, firms that have borrowed far beyond their revenue pull back hard, and the economy faces a sharper demand shock, if not a financial crisis. Meanwhile, the growth delivered by the boom has itself been narrow. The gains have gone to a handful of corporate tech titans, the sector employs relatively few people, and it is raising electricity bills for working people and other industries alike. As Jennifer Harris has argued, this myopic boom is crowding out investment and more balanced growth in the rest of the economy, bidding land away from housing, materials away from factories and capital away from other development paths.

Healthcare

The second growth engine is healthcare, which is the epicenter of the cost-of-living crisis. Healthcare has become the commanding height of the US economy: it is the economy’s largest sector, accounting for more than a sixth of GDP and around one in seven American jobs. It has been the most reliable source of new jobs, hiring steadily when other sectors have not and helping keep the economy afloat through the roll-off of the Biden-era stimulus and the implementation of Trump’s economic policies. A large healthcare sector is a civilizational achievement and essential for a healthy society. But the organization of the sector is an essential concern for broader macroeconomic health — it currently makes Americans poorer and the macroeconomy weaker as it grows, posing obstacles to other growth paths.

Modern medicine is capital-intensive and constantly innovating. But healthcare fundamentally remains a labor-intensive personal service. New technology has tended to augment labor rather than replace it — which would likely be the case for AI adoption in the sector.

Like other such services, its productivity rises slowly and as an essential service its demand base is price inelastic, so its costs climb relative to the rest of the economy. Every rich country faces this dynamic, known as Baumol's cost disease, but the fact that both the supply and demand side of the US healthcare sector is organized around private profitability, despite heavy public financing, makes it far worse.

On the supply side, hospitals and clinics have been consolidated into large corporate systems, which are increasingly being acquired by private equity to exploit both public subsidy and inelastic demand. Their corporate strategy is to maximize billing and minimize spending on actual delivery of care, which degrades both the quality of care and labor conditions.

On the demand side, care is paid for through an unequal and expensive patchwork of public and private insurance. Profit for private insurers is premised on denying claims, narrowing networks, and passing costs to employers and households. Despite heavy public financing and subsidization, everyday people face exorbitant costs, unequal access, and worse health outcomes than people in other rich countries. Premiums are rising sharply again this year.

The high costs of an increasingly profit-oriented healthcare sector are a macroeconomic malady. It contributes to trade imbalances and deindustrialization by raising labor costs across tradable sectors while pulling a growing share of labor and investment toward domestic services.^[4] It is the epicenter of the affordability crisis for working people. It structurally undermines worker power. And it saps dynamism, by distorting the allocation of labor and capital across the economy.  

A Productive State approach to growth and a democratic development agenda  

The development of these two leading sectors, and indeed most of the economy, has been driven by private corporate strategy and inertia rather than by a collective public project to shape the economy of the future. Private control of the supply side — of what productive capacity exists, how labor is brought together and organized, and what the economy produces and provides, to whom and on what terms — has driven today’s crises: the affordability crisis, weak growth and stalled decarbonization. As these engines falter, Democrats will need to build new ones through direct public provision and investment in critical nodes of the economy to both lower the cost of living and forge a new growth trajectory on better foundations.

Medicare for All and public provision of care

Comprehensive health care reform — Medicare for All on the demand side and public investment, planning, and direct provision on the supply side — is a precondition for affordability, growth and future-oriented development. Medicare for All, paired with public provision of care, would reorganize healthcare to deliver universal, high-quality, affordable care, which the sector’s current organization makes structurally impossible, lifting a burden on growth and development across the economy. A single public payer would decommodify healthcare — eliminating premiums, deductibles and medical debt for households. As a macroeconomic agenda, this would save hundreds of billions of dollars a year in administrative costs, dramatically restructure employers’ health costs and lift the drag on competitiveness, full employment, bargaining power and new business formation created by the private health care system. But instead of continuing to subsidize demand for corporate health systems, healthcare reform must also encompass public coordination of the supply side. Durable affordability requires public hospitals and clinics, planning where care is built according to need, global budgets in place of billing by the procedure, public production of drugs and good jobs for the aides and home care workers the next decade will need.

A National Investment Authority

A National Investment Authority would finance and directly invest in productive capacity across critical sectors and projects, acting as both a public development bank and a strategic holding company. This institution would organize infrastructure development and industrial transformation within and across key sectors from AI to biotech to decarbonization. It would put patient capital behind long-horizon projects that private finance will not fund at the scale required and keep overall investment high and steady enough to sustain full employment without inflation. For example, it could support public housing developers, public manufacturing of essential generics and insulin, public equity and guaranteed demand in grid equipment, critical minerals and the auto industry’s transition to electric vehicles and public capital programs for rail and transit.

It could also support public science and AI industrial policy. An NIA could finance and house a public frontier AI lab, modeled on the Department of Energy’s national laboratories, with its models and findings openly available and its work linked to a democratic national development agenda’s priority in pharmaceuticals, energy and advanced manufacturing. And, in the spirit of agricultural extension programs, it could support small firms, hospitals, schools and public agencies adopt open models, with workers given a real say in how AI reorganizes their jobs and the public a say in overall organization of the macroeconomy.

A Federal Grid Authority

A Federal Grid Authority would plan and build public power, lowering bills and supplying the cheap, clean energy that electrification and the development of new industries depend on. With a mandate to plan the grid as a whole, the authority could clear the interconnection backlog and build the interregional transmission private utilities will not. It could also build public compute as a regional development and AI industrial policy: as the boom deflates, it could take over stranded data centers and power commitments at distressed prices, offering public compute at cost to universities, public agencies, small businesses and a public frontier lab. Working with the NIA, it could do for 21^st century regional development what the Tennessee Valley Authority did for the 20^th century South.

What a democratic national development agenda does for the economy

After the midterms, Democrats need an affordability agenda that can also serve as a comprehensive macroeconomic agenda, to drive growth and development as the private sector decelerates. Together, these institutions represent the heart of a democratic national development agenda that asserts public control of strategic investment and essential provision, driving growth and directing development toward universal high-quality affordable essentials, full employment without inflation, and a more dynamic, democratic, decarbonized economy.