Are Elites Finally Paying Attention to How Bad Inequality Is?


Inequality has at last arrived as the issue that mainstream politicians can’t ignore. You see it in Obama’s better-late-than-never embrace of “middle-class economics” as the signature theme in his State of the Union address; and in a surprisingly leftish report of a commission co-chaired by former Treasury Secretary Larry Summers.

The new report by the Commission on Inclusive Prosperity, convened by the Center for American Progress, is frank in its acknowledgment of the inequality crisis. “Today, the ability of free-market democracies to deliver widely shared increases in prosperity is in question as never before,” the report declares. It calls for several measures of the sort that the labor movement, the Economic Policy Institute, the Congressional Progressive Caucus, and others on the left edge of Democratic politics have been urging for years. What’s surprising is not what’s being said but who’s saying it.

For instance, the commission offers a frank statement of what’s wrong with both labor markets and corporate behavior:

In the United States, unions represent a small fraction of workers, and therefore, many workers have little power to create upward pressure on wages. Major corporations have opted to use subcontracting to perform basic functions, and many workers are now classified as independent contractors, eroding basic labor law protections … Corporations have come to function much less effectively as providers of large-scale opportunity. Increasingly, their dominant focus has been the maximization of share prices and the compensation of their top employees. In a world where mobility is always a possibility, they have become less committed to their workforces and their communities.

For remedies, the commission embraces some surprisingly strong medicine. It explicitly calls for stronger unions and supports measures such as card-check and injunctions in cases where employers resist workers’ rights to organize. It proposes public investment on a scale of $100 billion a year for ten years—well beyond what Obama offered in the State of the Union, and it embraces a more progressive tax system as well as a higher minimum wage. 

Equally interesting are the issues that the commission ducks. Though financial deregulation deepened under President Clinton and invited the abuses that led to the 2008 collapse, there are no mea culpas, and precious little on the need to re-regulate finance. There are the usual genuflections to “free trade” and no acknowledgment that recent “trade” deals have been less about promoting cross-border commerce and more about enabling corporations and investors to end-run or otherwise undermine national regulations. The characterization of opposition to such deals is a straw man. (“While some on the left seek to turn away from globalization and technology, that is not a realistic option. No country can prosper in isolation.”) The report acknowledges that much of the increased inequality is the result of management decisions to weaken worker job security, but it tacks back and forth between acknowledging these structural factors and embracing skills training, education, and small-bore income subsidies.

So, what’s at work here? One way of reading these changes is that popular movements such as Occupy and the struggle for a $15-an-hour minimum wage have “opened up space” for a shift to the left that the mainstream has belatedly been compelled to acknowledge. It has dawned on policy elites that standard remedies have failed to narrow inequality; that inclusive economics is both good policy and necessary politics. Democratic strategists have grasped that these themes jam Republicans. (How do you sell more tax cuts for the rich when mainstream Democrats are promoting genuine help for everyone else?)

In a sense, reality has at last intruded on conventional economic wisdom. Orthodox centrist economists, who only yesterday were promoting financial deregulation, fiscal balance, and skills training as the main remedies for both growth and inequality, have had to admit that these policies failed, even if they don’t recant in so many words. On a purely intellectual level, this is a huge vindication of groups such as the Economic Policy Institute, with its insistence on a structural analysis of inequality and policies to match.

On another level, this is the effort of centrist Democrats to get ahead of the parade before it runs them over. (As 19th-century French politician, Alexandre Auguste Ledru-Rollin, famously said, “There go my people. I must find out where they are going so that I can lead them.”) Today, the people are demanding a more inclusive economy and the leaders are playing catch-up.

The subtle repositioning of the Center for American Progress is especially interesting in this regard. Since its founding in 2003, the center has been the voice of the Clinton-Obama-Clinton wing of the Democratic Party. It has sought to promote a narrative of greater social justice without alienating or seriously criticizing the Wall Street wing of the party, from which CAP raises a lot of money. This straddle had gotten harder since the financial collapse.

CAP has also been steadfast in its criticism of Republicans. Early on, however, its founder, John Podesta, told me, “Do not mistake our ferocity when it comes to the Republicans for ideological positioning.” CAP has been relentlessly center-left, not left.

In the past couple of years, in anticipation of a Hillary Clinton run for the White House, CAP has moved, carefully, a couple of notches left. Its writing on the environmental catastrophe has been exemplary. It has commissioned major papers by occasionally surprisingly progressive economists. Last fall, Robert Pollin of the University of Massachusetts Amherst and colleagues wrote a bold, book-length report for CAP calling for massive investment in green transition, pointing out macroeconomic and technological as well as environmental benefits. Mindful of the increasing concern about inequality, CAP also spawned and underwrote a new affiliated Washington Center for Equitable Growth, led by Heather Boushey, an alumna of EPI. A recent short report from CAP is flatly titled, “The Middle Class Needs Unions.”

CAP could not be closer to Hillary Clinton. Podesta served as White House chief of staff in the final two years of Bill Clinton’s administration. He is widely reported to be about to take a senior role in the Clinton campaign. Neera Tanden, who succeeded Podesta as president of CAP, was Hillary Clinton’s policy chief in the 2008 campaign. The two remain close. Summers is likely to be a senior adviser to Clinton as well.

So these efforts can be understood as both a preview of the Clinton campaign and possible presidency, and as a positioning of people close to Clinton that makes clear that the inequality issue is not going to get away from her, or be dominated by possible candidates to her left, such as Jim Webb, Martin O’Malley, or (God forbid) Elizabeth Warren.

But if you look hard at the details, the question remains: How far would these ideas go towards addressing and remedying the deeper structural sources of inequality of wealth, income, and power in America? And the image of “opening space” for a shift in politics and policy to the left is just a metaphor. What exactly does that mean?

Most careful students of inequality in America conclude that it is a case of multiple assaults on the postwar social contract, all working to reinforce one another. The deregulation of finance allowed the top to capture all of the productivity gains. The extreme financialization that followed led to a collapse whose reverberations seven years later are still widening inequality. Globalization undercut the capacity of the nation state to regulate capitalism.

The deregulation of other industries weakened workers’ ability to defend earnings, as low labor costs increasingly became a prime basis for price competition. The assault on unions undermined labor bargaining power in union and non-union enterprises alike. Trade deals facilitated outsourcing, and undermined other national regulatory constraints on capital.

The undermining of a progressive tax code shifted tax burdens onto workers, off corporations and wealthy investors, and left the tax code only barely redistributive. The collapse of pensions left most workers without nest eggs for retirement. The end of free public higher education created a generation deeply in debt before its economic life even began.

All of these shifts increased the political power of capital to demand and beget more such shifts. The Democratic Party, especially under Clinton and Obama, pursued some policies to increase earnings at the bottom but was substantially complicit in the deeper sources of inequality, especially on deregulation, trade, and in its failure to defend unionism.

So now we have something of a swing back, ideologically and in the political narrative. But if you unpack the details of the CAP report, they are only the beginning of what it would take to rebuild a truly inclusive economy of shared prosperity.

Summers, co-chair of the CAP-sponsored commission, has written persuasively on the risks of secular stagnation—the economists’ phrase for an economy that gets stuck well below its potential. An economy is especially vulnerable to such stagnation in the aftermath of a financial collapse. This occurred in the late 1930s, and Summers correctly points out that it could be occurring again on a milder scale today. The trouble is that monetary policy by itself—very low interest rates—is insufficient to cure secular stagnation and risks a new bubble economy as investors use the low interest rates to speculate. World War II, a massive fiscal stimulus and recapitalization of industry, finally cured the stagnation of the 1930s. Summers favors aggressive fiscal policy and public investment today, recognizing that the scale proposed in the report—$100 billion a year—is a beginning but probably not sufficient.

“I was for maximum stimulus in 2009,” Summers told me in an interview, “within the constraints of what was politically and technically possible. Given the concerns about secular stagnation and the limits of monetary policy, I’d be for more fiscal stimulus now, primarily using public investment. But you need a multi-year program, recognizing that it takes a long time to gear up. And you’d want a mechanism to shift from deficit financing to tax financing as the slack came out of the economy.”

The measures in this report would not be enough to change the fundamental arc of inequality in America, but they mark a significant reversal of direction. This report, like the State of the Union address, is an unmistakable shift in the “tectonic plates of American politics,” as my colleague Harold Meyerson termed it. Tom Edsall, writing in The New York Times, declared, “If policies grounded in ‘inclusive capitalism’ become central to the party platform, it will mark the party’s strongest commitment to the economic interests of working- and middle-class Americans since Franklin Roosevelt’s New Deal.”

The pity is that this cookbook has been available for at least two decades. Pollster Stan Greenberg (an early adviser to the Clintons displaced by New Democrat Mark Penn) has been screaming from the housetops that the recipe for Democratic Party success was and is middle-class economics defined via government activism. These ideas have filled the pages of EPI’s “The State of Working America” and The American Prospect for a quarter century.

The problem was not that somebody had to think these policies up, but that the Party barons and respectable economists had to decide to embrace them.

To the extent that materials like these “create space” for more robust progressive politics, this is less the result of elites rethinking their views and more a function of activism on the ground compelling that attention be paid. It is the activism that will create even more space and produce even more movement on the part of elites. Which is just the way it should be.

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