The COVID-19 pandemic and the economic fallout have laid bare the cruel inequities in our society. Americans recognize that we are in dire need of an equitable recovery from the current crisis. Because of the massive scale of economic problems, the public accepts that government leadership is required, according to recent polling. As a result, this moment is not only one of enormous tragedy. It is a precious opportunity for systemic changes to improve society.
But there is a major obstacle that needs to be overcome: The GOP majority in the Senate and the party’s retrograde ideology. For more than 40 years, Republicans have held that the key to economic progress is to “get the government off our back” by cutting government spending, taxes, and regulations. Small government should give individuals more “freedom” and empower entrepreneurs and consumers to create an economic boom that benefits all. This appeal to freedom has been electorally successful: Republicans have won more national, state, and local elections.
But the Republican economic philosophy hasn’t actually worked. In fact, their actions while in power have caused the extreme inequities the nation now experiences. We can see this by looking separately at the long-term economic impacts of Republican and Democratic administrations; then it becomes evident that Republic policies have been devastating to most Americans’ incomes.
Since 1980, Republican administrations have spectacularly failed middle-income families and the poor. They caused real median family incomes to stagnate almost completely, and increased poverty by an average 2.6 percent per year during their time in power. In contrast, the Democratic administrations of Bill Clinton and Barack Obama had some success. They grew median incomes 23 percent over 16 years, and reduced poverty by an average 1.6 percent per year. Democrats also did somewhat better on overall growth of the economy—2.9 percent annual average growth of GDP, versus 2.5 percent for Republicans. (My analysis of data from the Census Bureau, Federal Reserve, and World Bank; presidential terms lagged one year to reflect delay of impact.)
While the Democrats have had a positive impact on the economy, they have overall failed to reverse the inequity created by Republican policies. As documented by economists Emmanuel Saez, Thomas Piketty, and Gabriel Zucman, incomes of working Americans in the bottom half have actually fallen since 1980, while the incomes of the top one percent have skyrocketed upward. Democrats alleviated economic inequity somewhat, largely by defending social programs and regulations, and taxing the rich more. But their efforts have failed to be transformative. We know that more ambitious government policies could make a decisive difference, because some European countries, such as France, managed to grow substantially both top incomes and the bottom half, over the same period. The good news is that, if the Democrats regain power, they will have another chance to right the ship.
Since the Great Recession, a series of excellent economic history books and articles have identified the government actions that have been successful in creating and sustaining equitable economic growth.
The main prerequisite of success is the government being publicly committed to the mission of helping all, including business and labor, to thrive, and to see that all benefit equitably from economic growth. Governments must have this sense of mission, because sustained improvement requires them to use all the tools of government, adapting them to the needs of the time. And they need to seriously commit to a vision of a better economy to rally the public behind them. This approach is neither “socialist” in Marx’s sense, nor “free market.” Rather, such governments work in partnership with a strong private sector, with each fulfilling its distinctive and complementary role. Let’s call it a Partnership Economy. It’s a vision that Democrats can run and win on—and it’s exactly what the country needs.
The three basic tools of government in a Partnership Economy are public investment, legislation, and taxation.
Public investment is the engine of overall economic growth, as Founding Father Alexander Hamilton recognized long ago. The kind of public investments that economic historians have found necessary for sustained growth are those in:
- People (education and healthcare);
- Ideas (research and development);
- Public goods (infrastructure).
Investments in people build and sustain a more productive work force; investments in research and development lead to new products and services; investments in public goods, such as transportation and communication, create markets and facilitate commerce.
The public investments in people, infrastructure and ideas contribute to equity, as well as growth, by relieving families of education and health care expenses and creating well-paying jobs. But they are not sufficient in themselves to create an equitable distribution of rewards. The tools of legislation and taxation are also needed.
Legislation is what you need to change the laws, protect consumers, and even the playing field. It can protect smaller actors in the economy from exploitation, such as through stronger antitrust laws barring monopolies. Then those laws need to be rigorously enforced. Otherwise, the wealthy and powerful who are unscrupulous can rig the system to crush smaller business rivals, suppress wages, price-gouge consumers, and tilt the tax system unfairly in their favor. This has already happened. Our extreme levels of inequality have not come from people being rewarded for actual benefits to society. They’ve come rather from unfairly rigging the system, freeing powerful wealthy owners to exploit labor, consumers, and smaller rivals, as well has favoring the rich with tax giveaways.
Steeply progressive taxation will also be necessary, given the climate. First, higher revenues are needed to sustain funding for public investments. (These tools work in symbiotic partnership.) Second, our system has become so unequitable that higher taxes on the wealthy, including new wealth taxes, are essential for the simple purpose of restoring fairness.
This vision of a Partnership Economy allows for disagreement on the specifics of policies to carry out the mission of addressing inequality. Although not precise on policy, such a unifying vision is politically invaluable. Indeed, unifying visions are historically what have won the hearts and minds of the people, and elections, not grand policy ideas. Think of Barack Obama’s 2008 victory.
Republicans, for their part, have won politically with their vision of small government, even though their policies have failed for forty years. The story is just the opposite with Democrats.
They have had no unifying vision, but pursued, albeit timidly, sound policies of investment, progressive taxation, and legal protections. The central problem with Democrats is that they have not had their own compelling economic vision to discredit the Republican small-government message.
In 2016, the Clinton campaign had many excellent policy proposals, but no unifying, compelling worldview. Similarly, Joe Biden has the same problem. He even has no plank on “the economy” on his web site, when it is the only issue on which he his losing to Trump in polls. This is a dangerous failing, as history has proven that good programs are not enough; you need an emotionally compelling vision.
Democrats should now adopt a strong vision of the federal government taking on the mission of equitable growth, to achieve economic transformation through public investments, fair taxation, and increased legal protections.
Will Joe Biden step up to the challenge? If he wants to win and fix our nation’s greatest economic woes, he must.
The author wants to thank the Economics Committee of Herndon-Reston Indivisible for their contributions to this article—especially economist Isabelle Tsakok and policy analyst Robert Anthony.