Obama shoots for ‘middle-class economics’ and looks for redemption
In America, economic recovery is inevitable. Political redemption is not.
And it’s redemption that President Obama is looking for after six years of stumbling growth. His State of the Union speech reflected his financial priorities – “middle-class economics”, he called it – yet the most important line in his speech was not about tariffs or taxes.
It was this: “I have no more campaigns to run.”
That line was a declaration of independence on policy, indicating he would put wishes above political feasibility and look towards his legacy.
The consensus is that if Obama is to win on any of his economic initiatives, he would have to do so while the Republican Congress is sleeping. Bold executive orders on wages and immigration last year left the president tired, and bruised by controversy.
The list of worker-friendly economic goals Obama recited Tuesday night, then, was ambitious enough to taunt his enemies: a higher federal minimum wage, a week of paid sick leave, subsidized childcare, a tax plan that would raise taxes for the rich and fees on banks, free community college education, investment in infrastructure, paid apprenticeships to train workers, authority to strike new trade deals, even sending astronauts to Mars.
A hostile Congress is sure to make a hash of the list of economic initiatives the president name-checked. One investment bank, KBW, baldly told clients on Tuesday that it views a bank tax “as political posturing and not a serious policy proposal.” Conservative and libertarian thinktank Generation Opportunity scoffed that the community college plan would involve raising “taxes on 529 savings plans to fund his unaffordable government policies” which would in turn hurt middle-class families.
The challenges pile up. There may be neither the money nor the Republican will for $325bn in middle-class tax breaks or $60bn in free community college tuition. The cost of modernizing the country’s crumbling infrastructure, a favorite Obama issue, starts at $2.4tn, according to the Council on Foreign Relations. Paid sick leave would be affordable – only 23¢ an hour for private-sector workers and 81¢ an hour for state and government employees, according to the Bureau of Labor Statistics – but it’s only required by law right now for 5.7 million people in the US, and the trend in the past few years has been towards fewer worker benefits, not more.
A $3,000 tax break for childcare would seem like to run into the same shoals as Obama’s doomed tax proposal to raise fees on high earners again: this Congress cannot agree on taxes. An increase to the minimum wage is a non-starter.
Why such an ambitious list? It wouldn’t be a stretch to think Obama is making up for lost reputational ground. The financial crisis of 2008 left Congress and the White House with a lot to answer for, especially in terms of the falling fortunes of the middle class: the creation of six megabanks, whose $76bn in profits last year approached the record high of 2006, fueled by trillions of dollars in government stimulus measures; a jobs crisis that over the past five years has sent 1.85 million more workers into low-wage industries; growing poverty that has crept into the suburbs and increased the number of Americans receiving foods stamps by 45% since 2009; the lowest homeownership rate in nearly 20 years.
Meanwhile, CEO salaries ballooned to an average of $15.3m, according to the Economic Policy Institute – 296 times those of the average worker – and corporate profits hit record levels, as did the stock market. These rifts reinforced a sense of structural injustice that fed into the Occupy movement and then, later, a fascination with the work of Thomas Piketty, who Obama himself termed an inspiration.
Piketty politics has its thumbprint on this newly named, if long-held, financial philosophy of Obama’s: “middle-class economics”. It means, he said, “the idea that this country does best when everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules.”
Middle-class economics serves several important purposes. The core is political: to endear the president and his fellow Democrats to the progressive faithful, who have struggled over the past six years to see the decisive lefty it elected; and to make income and wealth inequality a campaign issue that Democrats can win in the run-up to 2016.
But Obama is also adopting an economic philosophy, wholesale, that is not entirely his own. For years, economic pundits have spoken of “middle-out economics”, as the journal Democracy called it. That term only took root with pundits at thinktanks like the Center for American Progress. And Obama’s middle-class economics reflects, almost exactly, the Center’s project on middle-out economics, from apprenticeships to tax breaks to student debt relief.
Advocates will say there’s a purpose to “middle-class economics” even if most of its policies never come to pass. It starts a serious conversation about the proper policy responses to problematic long-term economic trends. While Obama started his speech by saying the shadows had passed and the economy is strong, it’s clear that’s only a short-term reprieve from much larger economic forces favoring corporations and working against the middle class.
In the long term, there are fundamental obstacles in our policy and financial system that will hinder the financial progress of those who can’t fall back on inherited wealth. The White House has to admit social mobility in America is broken before it can start to fix it. “Middle-class economics” is a promising start