By DAVID LEONHARDT
I just caught up with this article from the August 20, 2008 issue of the New York Times Magazine, which featured this piece on Barack Obama's economic policy. Interesting that both sides think he has sold them out -- liberals think he is too favorable to Big Business, conservatives think he wants to create a bigger government.
With Obama, there is vast disagreement about just how liberal he is, especially on the economy. My favorite example came in mid-June, shortly after Obama named Jason Furman, a protégé of Robert Rubin, the centrist former Treasury secretary, as his lead economic adviser. Labor leaders recoiled, and John Sweeney, the head of the A.F.L.-C.I.O., worried aloud about “corporate influence on the Democratic Party.” Then, the following week, Kimberley Strassel, a member of The Wall Street Journal editorial board, wrote a column titled, “Farewell, New Democrats,” concluding that Obama’s economic policies amounted to the end of Clintonian centrism and a reversion to old liberal ways.Both are right, but not in the ways they think. Obama says he is simply a pragmatist = whatever works.
First things first - the economic situation right now:
Ever since Wall Street bankers were called back from their vacations last summer to deal with the convulsions in the mortgage market, the economy has been lurching from one crisis to the next. The International Monetary Fund has described the situation as “the largest financial shock since the Great Depression.” The details are too technical for most of us to understand. (They’re too technical for many bankers to understand, which is part of the problem.) But the root cause is simple enough. In some fundamental ways, the American economy has stopped working.
The fact that the economy grows — that it produces more goods and services one year than it did in the previous one — no longer ensures that most families will benefit from its growth. For the first time on record, an economic expansion seems to have ended without family income having risen substantially. Most families are still making less, after accounting for inflation, than they were in 2000. For these workers, roughly the bottom 60 percent of the income ladder, economic growth has become a theoretical concept rather than the wellspring of better medical care, a new car, a nicer house — a better life than their parents had.
Americans have still been buying such things, but they have been doing so with debt. A big chunk of that debt will never be repaid, which is the most basic explanation for the financial crisis. Even after the crisis has passed, the larger problem of income stagnation will remain. It’s hardly the economy’s only serious problem either. There is also the slow unraveling of the employer-based health-insurance system and the fact that, come 2011, the baby boomers will start to turn 65, setting off an enormous rise in the government’s Medicare and Social Security obligations.
It ain't pretty.
There are a lot of other issues coming our way, and those are the things Obama seems to be focused on:
Among the policy experts and economists who make up the Democratic government-in-waiting, there is now something of a consensus. They agree that deficit reduction did an enormous amount of good. It helped usher in the 1990s boom and the only period of strong, broad-based income growth in a generation. But that boom also depended on a technology bubble and historically low oil prices. In the current decade, the economy has continued to grow at a decent pace, yet most families have seen little benefit. Instead, the benefits have flowed mostly to a small slice of workers at the very top of the income distribution. As Rubin told me, comparing the current moment with 1993, “The distributional issues are obviously more serious now.” From today’s vantage point, inequality looks likes a bigger problem than economic growth; fiscal discipline seems necessary but not sufficient.This is a very enlightening article, so go read the rest of it.
In practical terms, the new consensus means that the policies of an Obama administration would differ from those of the Clinton administration, but not primarily because of differences between the two men. “The economy has changed in the last 15 years, and our understanding of economic policy has changed as well,” Furman says. “And that means that what was appropriate in 1993 is no longer appropriate.” Obama’s agenda starts not with raising taxes to reduce the deficit, as Clinton’s ended up doing, but with changing the tax code so that families making more than $250,000 a year pay more taxes and nearly everyone else pays less. That would begin to address inequality. Then there would be Reich-like investments in alternative energy, physical infrastructure and such, meant both to create middle-class jobs and to address long-term problems like global warming.
All of this raises the question of what will happen to the deficit. Obama’s aides optimistically insist he will reduce it, thanks to his tax increases on the affluent and his plan to wind down the Iraq war. Relative to McCain, whose promised spending cuts are extremely vague, Obama does indeed look like a fiscal conservative. But the larger point is that the immediate deficit isn’t as big as it was in 1992. Then, it was equal to 4.7 percent of gross domestic product. Right now it’s about 2.5 percent.During our conversation, Obama made it clear that he considered the deficit to be only one of the long-term problems requiring immediate attention, and he sounded more worried about the others, like global warming, health care and the economic hangover that could follow the housing bust.