Commentary | Budget, Taxes, and Public Investment

Where’s the Change?

A version of this commentary originally appeared at The American Prospect.

The Democratic Party’s long-term prospects have dramatically improved since the November election. They will control the White House for another four years. The Republicans, who lost the total vote for the House of Representatives, remain captive of an unpopular reactionary right wing. The “Obama Coalition” of minorities and single women is growing faster than the GOP’s white male base. If demography is destiny, Democrats—and the progressive interests that they are supposed represent in the two-party system—are the wave of the future.

But the American dream is about upward mobility. Ultimately, “The economy, Stupid” trumps identity politics. If the Democrats are not the champions of expanding jobs and incomes for the majority of voters who work for a living—whatever their gender, color, or sexual orientation—their claim to being the natural majority party will amount to little.

So it made political sense that Barack Obama began his 2013 State of the Union with this economic challenge:

“Corporate profits have skyrocketed to all-time highs, but for more than a decade, wages and incomes have barely budged. It is our generation’s task, then, to reignite the true engine of America’s economic growth: a rising, thriving middle-class.”

He went on to outline a second-term agenda that most liberals welcomed as finally revealing the true, audacious Barack Obama. “Incredibly ambitious,” enthused Ezra Klein in The Washington Post. If Obama’s plans were enacted, Klein wrote, “America would be a markedly different country.”

Would it? Even if Congress were to whisk the president’s entire economic agenda into law, the impact such an improbable feat would have on “our generation’s task” of reversing the decline of real wages and incomes is nearly nil.

The root causes of the long-term slide in real wages and incomes are: 1) inadequate demand both here and abroad for what American workers produce; 2) financial deregulation, which has diverted American capital away from domestic production and toward short-term speculation; 3) the 30-year corporate war against trade unions.

Barack Obama’s agenda will not change any of these conditions.

Presidents’ rhetorical reach often exceeds their realistic grasp. But the issue here is not that Washington politics might prevent this president from delivering on his agenda. It is that the agenda is not designed to deliver.

Obama’s No. 1 priority is to reach a ten-year deal with Republicans to reduce the federal deficit. Imagine that the president prevails completely; i.e., that by the end of this year Congress accepts his proposal for a deficit reduction of roughly $4 trillion (some of which has already been agreed to) with a roughly 55 percent to 45 percent split between spending cuts and taxes. Because the economy is operating below capacity, the net effect of the president’s proposal would be to reduce the domestic demand for jobs, certainly between now and the election of 2016 and probably throughout the next decade.

In February, the Congressional Budget Office forecast that on its current path the U.S. economy would reach full recovery, i.e., 5 percent unemployment, by 2017. It was, to say the least, optimistic, given that it assumed no budget sequestration and no further bipartisan deal cut budget deficits. Assuming the average rate of job growth since the recovery began, we will not reach 5-percent unemployment until 2022. The CBO’s projections rely on a leap of faith that somehow, from somewhere, the private sector will deliver a burst of new growth.

In fact, the CBO’s model has been forecasting a return to 5 percent unemployment in four years ever year since 2009. But let’s say this time they luck out. Recovery by 2017 would still mean at least another four years of joblessness and lost income for millions of Americans. Moreover, even reaching and sustaining 5-percent unemployment would not be enough to reignite middle-class prosperity. We averaged 5 percent for the seven years prior to the financial crash of 2008, but globalization, deregulation, and the erosion of unions continued to drag down wages.

The president has no intention of changing the trade policies that have been undercutting U.S. jobs and wages for more than 30 years. In fact, with the support of congressional Republicans, he wants yet another trade deal—this one with 11 Pacific Rim countries—that will once again bargain away the interests of American workers in favor of the interests of American corporate investors.

To make Americans more competitive, Obama says we need more investment in infrastructure, education, and technology. He’s clearly right; such spending is an essential—although not sufficient—part of any competitiveness strategy. But just as clearly, the President’s actual intentions do not rise to the level needed. In fact, they do not rise at all.

His prior commitment to deficit reduction would shrink the domestic discretionary budget, 50 percent of which is investment, from 3.1 percent to 1.7 percent of GDP. There is no conceivable reordering of priorities within that category that would keep the share of public investment untouched, much less increase it.

On the continued addiction of the country’s capital markets to the destructive speculation that led us to the crash of 2008, Obama’s agenda is silent. Meanwhile, the largest financial companies now have a bigger share of the markets than they had in 2008 and the administration’s lax post-Dodd-Frank financial regulation is a national scandal. The Wall Street casinos are again open for business.

The president’s proposal to increase the minimum wage would directly help many of the working poor put bread on the table and pay the rent. But history tells us that the major institutional support—both at the workplace and the ballot box—for assuring that all workers’ wages rise with their productivity has been the labor movement, whose impact on the job market goes way beyond its members. Although he could not have been elected or re-elected without organized labor, Obama has no plan to resist the relentless gutting of collective bargaining by corporations and state legislatures alike.

Barack Obama is not stupid. Neither are his economic advisers. They understand how a modern economy functions. They know that reducing government deficits in an anemic economy will increase unemployment. They know globalization, financial deregulation, and the corporate war on workers is eroding American living standards.

They also know that there are alternatives. There is by now wide agreement among independent, Democratic-leaning economists on the elements of a serious national recovery program of short-term stimulus, long-term investment, and other policies to increase the demand for and the wages of working Americans. (See, for starters, the “Back-to-work” budget of the House Progressive Caucus, the Prosperity Economics plan endorsed by the AFL-CIO and a wide variety of groups, and the writings of Nobel Laureates Joe Stiglitz and Paul Krugman.) There is no dearth of ideas.

So what explains the unwillingness of this administration to present a plan that might actually “reignite” the middle-class prosperity the president needs for his legacy and his party needs for its future?

The most obvious answer is that Democratic leaders are afraid to threaten the economic power and ideological comfort of the country’s corporate rich, who finance the Democrats’ campaigns and careers, and whose hired help populates the upper reaches of the party’s policymaking. To take them on, the president would have to launch and sustain a populist educational campaign to undo the myths about big government and deficit spending that have so confused the electorate. But that is too much heavy political lifting for a White House whose economic advisers will go back to Citigroup, Goldman Sachs, and other financial firms, as well as the Washington lobbying groups that serve their interests. Easier to put his faith in the perennial happy-face projections of the CBO than tackle that crowd. Hope, it turns out, is a strategy—of sorts.

But do the decision-makers of the Democratic Party think that they can sustain a political majority with no serious strategy for dealing with the eroding living standards of a majority of the electorate?

Judging by their behavior, that is exactly what they think—and it’s not irrational. If you assume their demographic advantage and that Republicans will remain deeply fractured by their lunatic fringe for some time, Democrats do not actually have to deliver on their promise to reignite middle-class living standards. They can win national elections just by being the socially liberal and economically conservative option.

The party’s leaders have plenty of reason to think they have the loyalty of their activist base in their pocket. Yes, there is grumbling among unions, environmentalists, and the liberal bloggers about Obama’s centrist instincts, his Wall Street advisers, and his political judgment. But it is just grumbling. After the election, progressives vowed to hold the party’s “feet to the fire.” But on the very first test—the opportunity for the Senate Democrats to end the conservative abuses of the filibuster abuses—they let the party leadership slip comfortably off the hook.

For a variety of reasons, the Democratic left lacks the independence, strength and hard edge of the Republican right. There is nothing on the progressive side of our politics like the Tea Party—which now even gets its own network slot, separate from the GOP, to respond to the president’s State of the Union. The Republican establishment is afraid of their right. Neither the White House nor the Democratic Congressional Campaign Committees are afraid of their left.

The message from the Democratic establishment to its base is: “Chill out—your turn will come.” If you accept their rosy scenario, they make a plausible, if cynical, case to liberals for patience: Since time is now on the Democratic side, Obama’s compromised improvements in government programs can be built on later. How much later? Who knows?

So far American voters certainly have been willing to wait—and in the meantime, suck it up. A few short years ago, it was unimaginable that a president could be re-elected after four years in which the unemployment rate averaged almost 9 percent. So if the people are OK with four years of rough times, why not six, or eight?

Disappointed and debt-ridden 20- and 30-somethings did not rally around Occupy Wall Street’s call for active dissent; they have adjusted to hard times by working more hours, delaying marriage, and milking each other’s networks in a desperate effort to find a career. Nor have the middle-aged breadwinners whose lives have been shattered by corporate brutality taken to the streets. Their elders, whose hopes for retirement have evaporated, seem resigned to working until they drop.

There are a few clouds in the Democratic leadership’s happy, self-justifying scenario of how they capture the future. One is that in the absence of more stimulus, the economy might tank, with the Democrats taking the blame. Another is that the electorate’s seeming passivity might mask a seething and volatile anger, which when it finally explodes will demand truly radical change. At that point, the Democratic Party, with an atrophied and co-opted left wing, could find itself unable to respond, while the far more organized right wing of the Republican Party, having developed a more sophisticated outreach to economically frustrated minorities, single women and immigrants, could fill the populist vacuum.

Democrats who dismiss these possibilities should keep in mind how quickly the political odds can change. Just two short years ago, the conventional wisdom was that it was the Republicans, triumphant from their Tea Party-driven victory in the 2010 election, who represented the majoritarian politics of tomorrow.

It’s conceivable that the mainstream Democratic left could strike out on its own—building a political movement that is willing to take on centrists in primary fights, to refuse to support the party’s grand bargains that undercut working people, and to take the risk of sitting out elections where there is little distinction between the candidates of different parties. In short, a strategy that forces the party to act in the interests of the majority it claims to represent.

But that requires that progressives abandon the hope that the future will fall into their laps if they are just patient and follow their leaders. If you believe that, you would have believed the sign that hung for years in the window of a tavern in the neighborhood where I grew up: “Free Beer, Tomorrow.”

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