The Limits of Economic Populism

Since the Democrats wrestled control of the House and Senate from the Republicans last week, there has been much speculation as to what such a takeover will mean: for the war in Iraq, for social issues like gay marriage and abortion, and for the economy. Many commentators have argued that while the changing of the guard may not be all that significant in terms of social issues (since many of the Democrats that were elected are socially conservative moderates), it signals a new commitment to addressing the economic problems of the middle class. The New York Times and others argue that the newly elected Democrats are largely economic populists who have promised to bring sweeping changes to health care, lower the cost of higher education, increase the minimum wage, stem the tide of outsourcing, and restrict free trade.
However, as Michael Mandel of Business Week argued this week, these campaign promises, even if enacted, can only take the Democrats so far:

“No matter which party you belong to, or which Big Idea or school of economic policy you subscribe to, one thing is clear: Globalization has overwhelmed Washington’s ability to control the economy. Whether you’re a Republican supply-side tax-cutter, a Wall Street deficit hawk of either party, or a Silicon Valley techie type, your preferred levers of economic policy just don’t work as well as they once did.”

Frightening though it may seem, the forces of the global economy have become more powerful than Washington when it comes to influencing economic growth. According to Mandel, imports make up 17% of our GDP, up from 12% in 1995, and foreign money accounts for a whopping 32% of U.S. domestic investment, a jump of 25% since 1995. And global competition may have something to do with the 8 percent reduction in real wages college-educated American workers have been experiencing over the past 3 years. Indeed, as Mandel argues, the usual tools our policymakers have used to jump-start economic growth—deficit reduction, tax cuts, increased spending in research and development—may be a bit outdated, even quaint, given the global forces they are up against.

Given the bleak outlook, how should our policymakers respond? Populist economic positions may have helped the Democrats win a majority of seats in the new Congress. But many of the ideas they have advanced so far can only partially address the new challenges America faces in the global economy. If the Democrats are willing to think creatively, perhaps even to risk some political capital on big, revolutionary ideas, perhaps they can steer this ship clear of the troubled waters that lie ahead.

Amanda Levinson | Director of Policy Programs

Now What?

The votes are in. Democrats have won a majority of seats the House, while the Senate is too close to call. It was not an election season for those with weak stomachs–this year’s mid-term elections were some of the nastiest on record. Writing in the New York Times, Barry Schwartz called them “the sorriest, sleaziest, most disheartening and embarrassing in memory.” Washington Post columnist Eugene Robinson wrote, “Is there any hope and optimism left in this country, or is our political culture based on nothing but seething dislike and sour resentment?”

It’s almost hard to believe that in a few short months, a few of the candidates responsible for (and often simultaneously victims of) some of the most shallow, vitriolic campaigning in recent memory will be our national lawmakers. Luckily for the rest of us, the next two years are certain to surface many of the economic issues that candidates so studiously avoided discussing seriously during the campaign. If exit polls are any indication, in addition to corruption and ethics, Americans have shown a strong concern for “national issues,” including the economy—issues that cannot be solved by one party alone.

Our lawmakers have a difficult and long road ahead of them. Our new congress will be sworn in with the nation facing record deficits, a rising tide of uninsured Americans, and growing income inequality so marked that it caused San Francisco Federal Reserve Bank President Janet Yellen to declare earlier this week, “there are signs that [income inequality] is intensifying resistance to globalization, impairing social cohesion, and could, ultimately, undermine American democracy…Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people.”

The question is whether our lawmakers are ready to take those risks, which would mean putting aside partisan differences to work together on constructive solutions that will make our economy stronger and more inclusive, solutions that invest in the future economic opportunity of their constituents. Let’s have voters go to the polls in 2008 to express something other than disappointment.

Amanda Levinson | Director of Policy Programs

Globalization and the Anxious Middle

In a column in this week’s Financial Times, economist and former Harvard president Larry Summers attributes mounting unease about globalization to “the growing recognition that the vast global middle is not sharing the benefits of the current period of economic growth – and that its share of the pie may even be shrinking.”

The rapid growth of our global economy is creating winners and losers, favoring low-skilled workers in some low-income countries like China, as well as those who already own the largest pieces of the economic pie. The global middle class, however, is increasingly being left out of the equation, and as Summers argues, the usual arguments touted by economists—that the rising tide of globalization will lift all boats—are increasingly cold comfort for a middle-class that is anxious about its future economic security.

Summers echoes the alarm sounded by economists like Alan Blinder, who earlier this year argued that the world is in the throes of a “Third Industrial Revolution.” The main feature of this revolution, which Blinder calls the information age, is the offshoring of those jobs that can be performed “remotely,” i.e. via internet or phone. Like the two Industrial Revolutions before it, Blinder argues, the information age will require a dramatic shift in everything from how we organize and run both businesses and government, where and how we live, work and educate our children.

To be sure, in the United States, we are already seeing the impacts of this revolution on the wages and employment of middle-class workers, both through anecdotal evidence and cold, hard facts. According the Bureau of Labor Statistics, from 2003-2005, nearly half of displaced workers who were then reemployed in full-time jobs experienced a reduction in their earnings, sometimes dramatically: almost a third were faced with wages that shrank 20 percent. The numbers for laid-off older workers are similarly troubling; it is estimated that out of 100 laid-off workers, only 27 will make their old salary again, while the rest will make less or will not work at all.

So what’s an anxious middle class to do? Since general human capital development –undeniably important to productivity and wages–is not a panacea on its own, how can we train new generations of American workers to be adaptable, flexible and creative, and, as Blinder emphasizes, steer them clear of “routine” jobs, which are easily outsourced, and towards jobs that require creativity and personal, face-to-face interaction?

What should our responsibility be to currently displaced workers, and what is the best approach to help them onto the social trampoline so they can bounce back from the setback of layoffs? As some have suggested, should we couple the approach of promoting human capital investment with opportunity-enhancing policies like portable health insurance and retirement plans, aggressive worker retraining, unemployment insurance, and the creation of “early warning” systems that can identify industries, regions or towns that are in danger of going under well before its workers are in danger? And how do we accomplish the twin goals of building a robust middle class while maintaining support for global integration?

Amanda Levinson | Director of Policy Programs