The Left’s Middle-Class Problem

Published April 13, 2015

National Review - April 6, 2015 issue

Hillary Clinton isn’t saying much of substance at the moment, but we already have a pretty good idea of the domestic agenda on which she will run next year. In January, the Center for American Progress (CAP), the premier left-wing think tank, released a report on “inclusive prosperity” that synthesizes the best current Democratic thinking about the economy. Co-authored by Lawrence Summers, who held high positions in the last two Democratic administrations, it will probably serve, and was probably designed to serve, as a template for the 2016 campaign.

The bad news for conservatives is that, although the progressive agenda outlined in the report is not well suited to the circumstances and challenges of contemporary American life, it is designed for political appeal and may well have some. The good news is that, by applying their principles to the core problems Americans now face, conservatives could readily outline an agenda that would both do more to strengthen economic growth and opportunity in America and be more attractive to the public.

Defensiveness suffuses the Summers report. It cannot avoid acknowledging that, at the tail end of a two-term Democratic presidency, the economy is by no means in strong shape. “In recent decades and particularly in recent years, developed countries have experienced a toxic combination of too little growth and rising inequality,” the report notes. “People are no longer confident in the expectation that hard work will be well rewarded or that their children will live better than they did. Most families find it harder to raise their living standards than they did a generation ago, and there are grounds for concern about stagnation in living standards. Those in work are working longer for less, and those out of work experience lengthy, destructive periods of unemployment.” This bleak picture is not, to say the least, the way the economy looked in 2000, the last time Democrats were trying to extend a two-term streak in the White House.

Democrats have spent much of the Obama presidency trying to channel public concern over economic stagnation toward a familiar agenda of redistribution and regulation. But after the 2014 election, many Democrats suggested that their party had suffered because voters did not believe this approach offered compelling answers to their economic anxieties. The Democratic pollster Mark Mellman, for example, explained that voters did not believe promises “that government can be a tool to improve people’s economic situation.” Celinda Lake, another Democratic pollster, concurred. “What is the Democratic economic platform for guaranteeing a chance at prosperity for everyone? Voters can’t articulate it.” Democratic politicians were generally more circumspect, but Senator Charles Schumer (D., N.Y.) argued in public that the party’s focus on Obamacare had been a distraction from appealing to the middle class.

The CAP report implicitly affirms that criticism, and seeks to articulate such a “platform for a chance at prosperity for all.” The effort to do this suggests that Hillary Clinton may be at least aware of the problem she faces. But it also suggests she will not find it easy to overcome that problem — hemmed in as she will be by progressive economic assumptions and by the Democratic coalition.

Those assumptions color the way the CAP report sets the historical scene for the challenges we now face. “In the decades following World War II,” the report begins, “the advanced industrial economies experienced rapid growth and brought an increasing share of households into prosperity. With these changes came a revolution in living standards.” All was well in mid-century America, we are told. But “by the end of the 1970s, inflation and unemployment seemed out of control. In the 1980s, conservative leaders such as Ronald Reagan and Margaret Thatcher came to power with an anti-government agenda of market fundamentalism and individualism. Measures of inequality, which had been stable or declining, began to increase.” And it wasn’t until “the return of center-left governments in the 1990s, [when] politicians such as Bill Clinton and Tony Blair sought to marry economic efficiency with social justice through their policies of the ‘third way,’ ” that the advanced economies found their bearings again.

But now, “developed economies face new challenges for new times” — most notably rising inequality and wage stagnation. And these, in turn, are driven by four major causes: globalization, technological advances, the decline of labor unions and other worker protections, and the collapse of corporate responsibility.

This is the history of the last several decades seen through the prism of progressivism. It distorts the actual history of the late 20th century. The 1980s, after all, were hardly an extension and intensification of the malaise of the ’70s, and the 1990s were hardly a sharp break with the previous decade. As economist Robert Shapiro, himself a Clinton-administration official, put it in a recent Brookings Institution paper, “through the 1980s and 1990s, households of virtually every type experienced large, steady income gains, whether they were headed by men or women, by blacks, whites, or Hispanics, or by people with high school diplomas or college degrees.”

These gains came to a halt around the turn of the century, and the Summers report surely gets at some of the reasons for that. But by describing Clintonism as the force behind the last great recovery, it stacks the deck in favor of recycling a Clintonian economic policy into a prescription for what ails us now. This is, to put it mildly, an implausible strategy, as today’s economy is hardly similar to the one Bill Clinton inherited in the 1990s. The report acknowledges that differences exist yet still argues for essentially the same ideas, and the assessment of our contemporary predicament that it employs to link the two is unpersuasive.

In that assessment, the Clinton economic formula needs only to be supplemented by aggressive government efforts to boost consumption and to strengthen unions. Summers has been prominent among those making the argument that advanced economies face the prospect of “secular stagnation,” and the report leans heavily on that idea. His fear is that declining real interest rates have left central banks with little room to maneuver. They could frequently find themselves unable to cut those rates further when depressed economies need it, and keeping interest rates so low during recoveries as to fuel asset bubbles. His major solution is increased “public investment,” whereby government spending would provide the necessary stimulus. Measures to fight inequality will also stimulate the economy, because people with lower incomes spend more money than people with higher incomes.

The premises of this argument are dubious. Monetary economist David Beckworth has shown that real interest rates have not declined when you adjust for risk premiums and the effects of the business cycle. Monetary policy has repeatedly been effective at fighting recessions even when interest rates have been very low. The Federal Reserve could do more to keep interest rates from falling too far during downturns. (It could, for example, signal that if the total amount of spending in our economy drops below some targeted rate of growth, it will make up that shortfall in future years; higher expected spending in the future should yield higher interest rates today.) And recent cuts to federal spending, which the report condemns, have coincided with increased economic growth — which suggests that the report’s Keynesian analysis, in which increased federal spending strengthens the economy and spending cuts weaken it, is incorrect.

From this dubious diagnosis, the report naturally proceeds to dubious prescriptions. It calls for a resurgence of union power, for massive investments in infrastructure, for higher minimum wages along with pro-work tax credits, for corporate profit-sharing with employees along with tighter regulation of corporate governance, for an assortment of policies to make it easier for women to work, for universal pre-school and much cheaper access to college for all, and for more open trade and economic cooperation.

This is a Clintonian mix of some reasonable ideas (like pro-work tax policy, profit-sharing, and trade promotion) and some familiar liberal hobbyhorses, which in many cases contradict one another. A higher minimum wage would undermine employment, for instance, while an expanded Earned Income Tax Credit would reinforce it. More broadly, the bulk of these policies would increase consumption at the expense of investment while others seek to drive greater investment to promote growth. Coherence is not the goal of these proposals, however. They are designed to appeal to voters both by offering a plausible-sounding description of contemporary problems and by offering tangible benefits to wide swathes of the public. But the attempt is ultimately unsuccessful in several ways that highlight the challenges the Democrats will face.

The report’s nostalgia for a lost world of labor-union strength, for example, does not appear to be shared by the public, judging from opinion surveys. The decline of unions as a share of the work force did not begin under Ronald Reagan but under John F. Kennedy, and a major reason for that decline is that non-unionized companies have proven more capable of creating jobs than unionized ones. The report, like progressivism generally, wants to reverse the decline but fails to grapple with its causes.

While the treatment of unions is the most glaring example of the constraints that the Left’s (and Hillary Clinton’s) political coalition places on addressing Americans’ present concerns, it is not the only or the most important such constraint. That these constraints could be vulnerabilities for the Left’s political project is evident from the report’s discussion of two issues in particular: family policy and higher education. In framing the economic challenges facing families, the report argues that “increasing the ability of families to earn two full incomes is vital to inclusive prosperity.” Indeed, the entire section of the report devoted to family policy is called “family-friendly labor-market policies to increase female labor-force participation and income.” Wage stagnation has certainly been a problem for women just as for men in recent years, and there are surely many women who would like to work but have been unable to do so. But there are also many families that would like more options than that, and greater flexibility, especially while their children are young.

The Summers report, like President Obama’s recent budget, makes a show of offering help to struggling families, but in fact proposes only a very narrow range of policies — such as second-earner benefits and bigger tax credits for child-care fees — aimed at families with two working adults, and especially at the subset of those families that pays for commercial child care. It cannot offer families the freedom to make their own choices about child care and work, because it can only offer them the resources to make one particular set of choices that liberals approve of.

Parents who make the approved choices may well welcome the new aid. But as Carrie Lukas of the Independent Women’s Forum has noted, surveys show that most mothers of young children do not wish to work full time, most parents would prefer to avoid day-care centers, and most of them in fact do use other options. These preferences show little sign of fading away. The Pew Research Center found that between 1997 and 2007, mothers’ aggregate preferences shifted away from full-time paid employment and toward either part-time paid work or full-time caregiving.

A similar pattern is evident in the report’s discussion of higher education. The report endorses some useful ideas regarding vocational education and apprenticeships, but when it comes to the core of our higher-education sector, it cannot face up to the challenges students and their families encounter, since doing so would require confronting the problems created by highly restricted accreditation practices and an ill-designed student-loan system, and the incumbent higher-education establishment that benefits from both these things is a significant liberal constituency. That the report’s comments about alternatives to a traditional college education amount to an afterthought is shown by its repetition of the conventional wisdom that such education is “necessary for a prosperous life.”

Advancing policies that accept that claim as a truism is incompatible with the goal of “inclusive prosperity.” Almost two-thirds of Americans do not have college degrees. For many decades the percentage of the population with degrees increased rapidly, but the trend has stalled in recent years. In part that is because of our high college-dropout rate, which neither the report nor the Obama administration (which has pursued fairly similar policies) has any promising plans to decrease. Finally, the fact that even before the economic crisis of 2008 a high proportion of college graduates was not getting jobs that required their degrees suggests the limits of a college-for-all strategy. Yet the report proposes to do little more than throw more money at the current system and shove as many people into its front end as possible.

The constraints imposed by liberalism are evident as well in a topic that goes mostly unmentioned in the report: health care. Obamacare is described solely as a missing piece of the welfare state that has at last been filled in, to the betterment of Americans’ economic security. Some Americans have experienced Obamacare this way, but more Americans have experienced it as a burden. Democrats do not appear to have many ideas, judging from this report, about how to change this. Their agenda mostly amounts to defending what liberals, and few others, see as a triumph.

For all the constraints under which the report suggests the Democrats are laboring, this agenda could nonetheless trump a particular kind of conservative platform. The last two Republican presidential campaigns were fairly light on policy ideas, and the overall message they conveyed to voters was that all would be well if the federal government restrained spending, liberated entrepreneurs from regulation, and cut taxes, especially on businesses. (In 2012, repealing Obamacare and replacing it with something or other was added to the list.) It appears that even many voters who generally favor a smaller government have found the Democratic message more to their liking than this one. The Democratic agenda of higher minimum wages, community-college subsidies, and the like may not have seemed likely to do much to raise middle-class voters’ standard of living, but at least the Democrats seemed to take that as a pressing goal.

Conservatives could, however, expand their agenda beyond what they offered in 2008 and 2012 in a way that satisfies both the public’s desire for smaller government and its interest in a higher middle-class standard of living, rather than let these impulses be set against each other. They could continue to emphasize spending restraint, deregulation, pro-growth tax reform, and friendliness to entrepreneurs — indeed, they could do more than they have in the past to fill in the details of what those broad categories of action would mean in practice. But they could also add other conservative notes to the chorus.

Tax reform could not only reduce marginal tax rates on work, saving, and investment, but also expand the tax credit for children. That way families would get real tax relief — reductions in their total tax bill — and be able to use the money as they wished. They could use it to finance paid child care, as under the Democratic policy, if they chose. They could also use it to save for college, to help finance a shift by one parent from full-time to part-time work, or to save toward buying a larger house. That kind of tax relief would help a much broader range of families than the mandatory paid leave, child-care fee subsidies, and other items on the Democratic agenda, and it would give parents the flexibility they seek.

Conservatives could also take on the higher-education cartel. They could insist that colleges with high student-loan default rates share the hit with the taxpayers and thus have an incentive to improve their performance. They could push for alternative methods of financing college, such as making it easier for investors to pay tuition in return for a share of future wages. They could liberalize accreditation so that new and different kinds of higher-education institutions could arise. And they could elevate the status of apprenticeship and vocational-education programs in federal law to something closer to parity with college. Instead of telling young people that their choices are to go to a university or be a loser, the idea would be to expand a range of options, no one of which is right for everyone.

On health care, too, conservatives could offer market-based policies that would benefit most Americans more than Obamacare does. Years of polling suggest that the public dislikes that law but was not enthusiastic about the health-care system that preceded it and worries about what would come after it. A conservative health-care policy could address these concerns while reducing, and to a large extent by reducing, the federal role in health care.

That policy would begin by repealing Obamacare, including its essential-benefits package, its individual and employer mandates, its Medicare-rationing board, its medical-device tax, its support for government-run exchanges, its prohibition on underwriting — everything. The tax break for employer-provided health coverage would then be scaled back in a way that would affect only the most generous policies, and the resulting revenue would be used to give voters without access to employer-provided coverage a tax credit to buy insurance for themselves. They would be allowed to choose policies that did not comply with Obamacare’s many regulations.

Over time we could expect a market to develop in which almost everyone had both the incentive and the ability to purchase renewable health insurance, and the problem of “preexisting conditions” would diminish; in the interim, people with such conditions could be offered help. And people on Medicaid would be allowed to use much of the money now spent on the program to buy insurance in the regular market rather than be left with no choices and an inferior product. For most people, these policies would be a better deal than Obamacare: Premiums would be lower, mandates fewer, and taxes lighter.

In each of these cases, conservatives have an opportunity to offer solutions to the problems facing Americans, especially those in the middle class, that are not constrained by liberal shibboleths and are driven instead by a commitment to limited government and market economics. Conservatives can give people more options and more freedom to pursue them, in ways that liberals are simply not able to do. In the process, they could easily show the public just how thin and misguided the liberal agenda really is, and what a far better fit conservatism can be for the aspirations of 21st-century Americans.

— Yuval Levin is the Hertog Fellow at the Ethics and Public Policy Center and a contributing editor to National Review. Ramesh Ponnuru is a visiting fellow at the American Enterprise Institute and a senior editor for National Review.

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