Toward A Foundation-Up Economics

Perhaps the greatest single threat to both conservatism in American life and the nation's economic vitality is not Ivy League professors or Hollywood elites or a sinister "progressive" conspiracy but the economic decline of the middle class. Take away hope in the churning of the free market, and you push many citizens considerably closer to the state as a provider. The turmoil of the markets in 2008 was merely the cataclysmic icing on top of the cake of a decade of lost ground for the bottom 90% of workers. Take that away, and an Obama victory would have been much less of a sure thing (and even such a victory would have been considerably moderated). If insurance premiums and coverage rates had been closer to those of 1993, Obamacare, the bette noire of conservative activists, would not have passed. The economic wasteland of the past few years has pushed more than a few public and private pension plans closer to the edge of insolvency.

The recent Congressional Budget Office report on incomes from 1979 to 2007 has depressing news for believers in egalitarian free-market capitalism. Since 1979, the after-taxes income of the bottom 80% of Americans as a share of the total national after-taxes income has dropped from 57% to 47%; every one of the first four quintiles has seen a drop in its share of the national income. Yet even the gains in economic strength for the top quintile have been unevenly shared. The 81st-99th-income-percentile range has seen its share of the national income stay the same. Meanwhile, the top 1% of earners have seen their share of the nation's after-taxes income climb from 8% in 1979 to 17% in 2007. These numbers suggest that the profits of the national economy (broadly considered) have increasingly flowed to the top.

There are broader policy reasons that explain this change. For much of the past decade and beyond, the prevailing Republican (and, frankly, bipartisan elite) orthodoxy has been as follows: lower wages, lower prices, and an empowerment of capital over labor. The CBO numbers reflect this dynamic, as they show the share of income due to labor declining since 1979, while the share of income due to the combination of capital and business income increasing. The claim made continually on behalf of statist globalization over the past twenty years has been that lower prices on various goods through cheaper labor would reward the American consumer, and that the increase in spending power on tchotchkes would exceed the decline in wages due to outsourcing. Similar claims have been made on behalf of massive amounts of illegal immigration: poor workers in the shadows enrich Americans as a whole through providing a plentiful peon class to act as babysitters, home-builders, fast food workers, and other assorted "service" positions.

This decline in labor cost provides a de facto empowerment of capital: if you earn money from investing rather than collecting a paycheck, having cheaper resources of labor allows your dollar to go much further. The "ownership society" sought by President Bush attempted to leverage this dynamic. By making as many Americans investors as possible (especially through investing in the housing market), the Bush administration tried to place hundreds of millions of Americans in the position of the victorious investor class in order to compensate for the decline of the labor class.

However, there are noticeable shortcomings to this model. First of all, not all Americans can join the investor class, so a substantial number of Americans lose out in an investor-centric model. Moreover, housing, the investment vehicle favored by the Bush administration, is a dangerous institution on which to base an investor-centered economy: an individual house is nowhere near as fluid an investment vehicle as a stock portfolio, and the fact that most people need somewhere to live complicates the role of a house as an investment commodity. Since most people need to take on a mortgage in order to buy a house, using the house as the doorway to the investor market requires Americans to take on considerable amounts of debt, and the debt needed to keep the housing-investing game going will balloon (as the 2000s proved).

And the decrease in prices due to cheaper labor is not spread equally across all sectors of the economy. Those sectors least undermined by outsourcing and domestic and international low-skilled workers, such as health-care, have seen some of the biggest price increases over the past decade. Jeans at Walmart may be less, but your health insurance premiums have doubled. With wages stagnating or declining, health-care bills and others like them eat more and more into a worker's paycheck. So the decline in wages is not fully compensated for by cheaper goods and services.

A final limit for the low wages=low prices model is that the consumer often does not feel the full price benefits of the decline in worker wages. Instead, the "savings" that many companies find through shipping work abroad or otherwise cutting labor costs are translated into bigger compensation packages for elite management and the investor class. While current "globalization" has witnessed the decline in wages for the middle and working classes, it has also seen the the pay of upper management (those who control large amounts of capital) increase. The recent history of American business is saturated with stories of companies that close down their American factories while giving upper management colossal paydays. So many of the presumed benefits of declining wages are accruing to an increasingly narrow band of the population.

With wages shrinking and the spigot of easy credit turned off, it's no wonder that public demand has withered.

What might be slightly more interesting, though, is a movement among some factions on the right and left toward a policy reversal: using higher wages and not lower wages as a stimulant for economic growth. Under this model, rising incomes for working- and middle-class workers would increase consumer demand. Rather than the cost of jeans production going down, workers would have more money to spend on jeans---and housing and cars and medical care and foreign trips. Economic growth for the bottom 90% of wage-earners would in turn provide new opportunities for the top 10%. Things weren't exactly bad for top-tax-bracketers during the egalitarian 1950s and 1960s or during the later part of the 1990s, when the income of a broader range of Americans increased in real terms (though income inequality increased in the 90s, as well). Rather than trickle-down economics, we would instead have foundation-up economics.

Nurturing this foundation in part depends upon increasing the skill level of the American workforce, so that workers can make the most of cutting-edge technologies. Education as driving future economic growth has perhaps acquired the somewhat dusty ring of tired dogma, but, like many things that may seem trite to the jaded, it has some truth to it. Reforming our immigration system, making new investments in fundamental research, and pushing back against social dysfunction (among other policies) would go a long way in the direction of improving the skills of America's workforce and would likely improve the wages of many workers.

But mere training is no panacea. With all due respect to current education "reform" movements, people are not mere containers for educational inputs; they exist in vibrant, heterogeneous communities, where all do not all have the same aptitudes. America will not and probably cannot be a nation populated solely by Facebook founders and investment bankers and political pundits. It will have maids and clerks and factory technicians and farmers and truckers, too. We can and we should have an economic system that offers advancement to all productive enterprises of worth and merit.

(And make no mistake: the People's Republic of China is witnessing great economic growth not because some of its students are doing well on international standardized math and science tests but because it has pursued an aggressive policy of protecting and developing Chinese industry. The decline of the US economy has less to do with the notion that it is graduating "insufficient" numbers of math and science majors and more to do with the fact that whole sectors of the economy have withered.)

Part of foundation-up economics also thus depends on protecting the livelihoods of so-called "lower-skill" workers (though, in reality, it does take considerable skill to build a house or run complex machinery or sundry other tasks). It may be true that the current statist flavor of globalization may increase inequality somewhat, but the extent of this inequality is in part due to other domestic policies. Our immigration and trade policies in particular have allowed those on the higher end of the ladder to leverage worker against worker in the pursuit of maximizing profits. Moreover, many of the gains for the wealthiest have been due not to the fair functioning of a free market but to the manipulations of state power.

It is possible to realize an economy that combines the exuberance of the market with a sense of popular prosperity. However they may differ in their methods of reaching this goal, many Republican and Democratic presidents have aimed for it. For a number of years now, we have empowered capital through cheapening labor; now may be the time to increase the value of labor in order to find new opportunities for capital.

From a conservative perspective, an egalitarian economy, where all may have ready hope of living a comfortable life and of advancing economically, is far better than either an economy where the vast majority of workers need government checks to survive or an economy where the super-wealthy plunder the resources of the public and leave the populace as a whole to malinger. Some extremists of the left and of the right would push the economy in one direction or the other. Neither extreme is sustainable. A happy, prosperous workforce is not only the best environment for defending the free market; it is also one of the greatest promises of the free market.

(Crossposted at FrumForum)

Perry's Immigration Attacks May Backfire

In the short term at least, it seems hard to deny that yesterday's debate was good to Rick Perry. The leading un-Romney contender, Herman Cain, sank underneath withering attacks on his 9-9-9 plan; his inability to defend the details of this plan with anything other than assertions that his opponents are wrong reinforced impressions that he still has a lot of policy areas to brush up on.

And Perry's deeply personal attacks on Mitt Romney helped bring the focus of the debate back on himself. These attacks may help keep Perry as the media takeaway from the event seems to be focusing on how much he's hurt Romney---not on the Texas governor's verbal slips or policy haziness.

All this may provide a boost for Perry and keep him in the race. But his attack on Romney about immigration may eventually raise even more problems for Perry. Via Byron York, here's the substance of the exchange:

And Perry, for the first time in any GOP debate, rattled former Massachusetts Gov. Mitt Romney. He did it by bringing up a 2007 charge that Romney hired illegal immigrants to do lawn work at his Massachusetts home. Jobs are the magnet for illegal immigrants, Perry said. "And Mitt, you lose all of your standing, from my perspective, because you hired illegals in your home and you knew about it for a year. And the idea that you stand here before us and talk about that you're strong on immigration is on its face the height of hypocrisy."

Romney tried to laugh it off and to deny the story. "I don't think I've ever hired an illegal in my life," he said. Romney tried to explain, but Perry kept pushing, leaving Romney protesting that Perry was ignoring the rules -- just as Perry had planned.

"Rick, again, Rick, I'm speaking," Romney said. "I'm speaking, I'm speaking, I'm speaking. You get 30 seconds. This is the way the rules work here…Anderson?"

By the time Romney appealed to CNN moderator Anderson Cooper for help, Romney seemed flustered, almost frantic. "Would you please wait?" he said to Perry. "Are you just going to keep talking?"

When Perry finally told Romney to "have at it," Romney explained that he had hired a company to do lawn work and had no idea the company hired illegals until it was reported in the paper.

Perry has become known for his verbal imprecision in presidential debates, and his attack depends upon an indifference to the details of verbal meanings.

Romney "hired" illegal aliens, according to Perry, by paying a company that employed them to do a service. Under this definition of "employment," anyone who goes to a restaurant that employs an illegal alien is also "employing" an illegal alien. A woman purchasing a candy bar from a supermarket with an illegal alien working at the deli counter is also "hiring" an illegal alien. By Perry's definition of employment, he has probably "hired" countless illegal immigrants---at restaurants, stores, and so forth.

The point of Perry's charge of hypocrisy was not to clarify the distinction between proclaimed position and actual practice but to shut down debate by casting an impossibly wide net of guilt. This appeal to hypocrisy to avoid a debate of policy principles is all too common in politics, especially at the federal level, so it's perhaps no surprise to see Perry engaging in it here.

The point that primarily concerns American voters is not whether some individual candidate's money ended up indirectly in the pocket of some illegal immigrant. The point that ought to concern us is whether a candidate thinks it is good to have the workforce be flooded with millions and millions of illegal workers. Romney's record as governor and his rhetoric as president demonstrate that he thinks that might be a problem for this country. Rick Perry's rhetoric and record---from his opposition to E-Verify to his support for major taxpayer subsidies for illegal aliens---suggest that he doesn't think that's such a big problem, if a problem at all. Both positions are understandable, but they are quite different, and we should not blur those important policy distinctions.

Ironically, Perry's attack on Romney may leave Perry open to accusations of being a flip-flopper. Supposedly Romney hiring a company that (unknown to him, so he says) employs illegal aliens is to be a thing of outrage. But someone is also "heartless" if he doesn't support giving tens of thousands of dollars of taxpayer subsidies to illegal aliens. It's hard to square that circle. And such a Texas two-step seems more motivated by political opportunism than anything else.

One of Perry's distinguishing characteristics has been his reputation as a straight-shooter. If Perry tarnishes that reputation by contradictory attacks on his political opponents, he may find his standing further erode in the polls.

(Crossposted at FrumForum)

$ Primary between Brown, Warren Heats Up

The third quarter results are in for fundraising for Elizabeth Warren and Scott Brown:

Warren pulled in $3.15 million in total for the third quarter, with more than 11,000 people in Massachusetts pitching in, her campaign announced Monday. Brown raised $1.55 million in the third quarter — almost exactly half of Warren’s total. But Brown, who wielded a hefty war chest heading into his reelection campaign, now has more than $10 million in the bank.

Fear Stalks

Two bits of performance art last night suggest how panicked Democrats, progressives, and socialists (see item #2) are becoming.

One is Harry Reid's decision to muscle his caucus together and weaken the minority's ability to offer amendments to a measure after cloture has been invoked. Philip Klein has a helpful summary:

Tonight, McConnell made what's called a "motion to suspend the rules," to allow a vote on the amendments. Such motions are almost always defeated, because they require a two-thirds majority to pass. But they're another way for the minority party to force uncomfortable votes. Even though the minority party doesn't get a direct vote on the amendment, how somebody votes on the motion becomes a sort of proxy for such a vote. In this case, for instance, if Democrats had voted down a motion for a vote on Obama's jobs bill, it would have put them in an awkward spot.

Though it's been the standing practice of the Senate to allow such motions by the minority, tonight Reid broke with precedent and ruled McConnell's motion out of order, and was ultimately backed up by Democrats.

So, the end result is that by a simple majority vote, Reid was able to effectively rewrite Senate rules making it even harder than it already is for the minority party to force votes on any amendments.

And what caused Harry Reid to rewrite rules in this way? A desire to keep the Senate from having a vote on Obama's jobs bill. Is the president's plan that toxic (or that much of a pipe-dream) that his own party doesn't want to vote on it in the Senate?

Democrats seem to fear that they're on the verge of losing control of the public narrative. This attempt to shut out minority voices is a flailing attempt to provide uniformity to that narrative, to shut out any competing principles or politically embarrassing facts.

This brings us to the second piece of performance art: Lawrence O'Donnell's interview with Herman Cain. Cain is often most effective in these talking-head encounters, and the vitriol of O'Donnell's questions helped the Republican presidential contender portray himself in a good light. The interview is worth watching in full, but a few points bear particular mention.

Perhaps one of the most striking features of this interview is O'Donnell's apparent desire to jump in the timewarp machine and approach the campaign of 2012 like it's 1968.

In a time when millions suffer in long-term unemployment, the national debt is skyrocketing, and the globe's political-diplomatic order is on the verge of disintegrating, O'Donnell seems much more concerned about whether Herman Cain was sufficiently activist about Civil Rights in the 1960s: why didn't he join in the Freedom Rides? Where was he during the protest marches? It seems rather bizarre to think that Cain's viability as a presidential candidate should depend upon if he went to marches fifty years ago. The premise of O'Donnell's questions seem to suggest that there was only one route for a virtuous "black" man in 1960s America: engaged on the frontlines of political activism. While I think that the fight for Civil Rights was a virtuous activity, it was not the only one. And the totalizing narrative on race that O'Donnell was edging toward seems less than desireable.

Vietnam was another fixation of O'Donnell here. As he's done in the past, O'Donnell seemed unable to resist indulging in a little militarism (and more than a little opportunism) when he claimed he was "offended" that Cain had the temerity to run to be Commander-in-Chief without having volunteered to serve in Vietnam. Apparently working on ballistics with the Department of Defense during the war (which Cain did) does not count as a sufficient contribution to the war effort. Based on O'Donnell's premise that it's "offensive" to dare to be president without having volunteered to go on the battlefield, I presume he spits upon the picture of Franklin D. Roosevelt (that "chickenhawk" who took a cushy job in military administration instead of volunteering to fight during World War I) and looks upon the administration of Bill Clinton (no Vietnam volunteer he) as an offensive abomination in American history.

O'Donnell's rabid attempt to caricature Cain as a cowardly lackey of The Man shows a deep anxiety about the failure of Barack Obama's "progressive" dreams. And it's unfortunate that this anxiety is manifesting (and will no doubt increasingly be manifesting) in vitriol, personal enmity, and snide rhetorical questions. There are some shortcomings to Cain's economic plans, and O'Donnell was stronger when interrogating Cain about actual policy options that could affect the future of the USA---and not when playing the grand inquisitor of the 1960s.

Our nation is in great trouble, and the best route out of this danger is the well-intentioned interrogation of all possible options. Instead of the rhetoric of exclusion, the tactics of totalization, and the drug of demagoguery, the spirit of charity and rationality would much better serve our purpose.

A Path to Victory for Brown

The recent UMass Lowell/Boston Herald poll of the 2012 Massachusetts Senate race has some sobering news for Scott Brown: among registered voters, he has a slim three-point (41-38) lead over Democratic frontrunner Elizabeth Warren. Other polls have also suggested that this could be a close race.

However, there is plenty of good news for Brown here. 54% of voters think that Brown met or exceeded their expectations. His favorability/unfavorability ratings remain a healthy 52%/29%, respectively. Massachusetts voters don't hate Brown, and they're willing to give him a chance. Moreover, this race is still very fluid. Over 20% of voters are undecided, giving both Warren and Brown plenty of room to grow.

Digging into the demographic data for this poll suggests in many ways that Warren may be more identified with the status quo than Brown is. Interestingly, having a layoff in your household makes you more likely to support Brown: he leads Warren 42-36 among those experiencing a layoff in the household, while he only leads her 40-39 among households that haven't experienced a layoff. Voters who have felt the pain of the Obama economy are more willing to back the Republican. About half the Massachusetts population thinks the economy is getting worse, and Brown has his strongest lead with them. Among those who think the nation is on the wrong track, Brown has a commanding lead over Warren (though a less commanding lead than he had over Coakley in 2010).

These trends suggest that the less happy Massachusetts voters are with the status quo, the more likely they are to support Brown. But if Massachusetts voters aren't thrilled with the Obama economy, they are even less enthusiastic about having the national "conversation" that some conservative activists want to make the 2012 election about. An overwhelming majority of Massachusetts voters want Social Security and Medicare to be untouched. Bay State voters also believe 52-40 that government should "do more to solve problems." Brown can't run on wanting to privatize Social Security or Medicare, and a Republican presidential candidate who made such a policy the centerpiece of his campaign could very well sink Brown. He has a slim lead over Warren in all age groups, but a defense of the mission of social insurance could help him win more votes from the middle-aged and elderly.

Brown has long recognized the banner of independence as crucial for his political survival as senator. By crafting his own identity apart from the Republican policy monolith (however frustrating that may be to some Tea Partiers), Brown can find space for electoral maneuvering.

The middle class is also crucial for Brown. Elizabeth Warren beats Brown among the poor (those with household incomes below $30,000) and wealthier (those with household incomes above $100,000). In fact, top income earners are the demographic most likely to support Warren (she gets 46% of their votes). Apparently, the rich of Massachusetts haven't gotten the memo that Obama and Warren are socialists who want to confiscate all their wealth or something. They don't seem too worried about taxes going up on upper-income earners, so Brown would be smart not to make tax cuts for the top 2% the core of his economic message. The rich have been the least affected by the recent recession, so they seem quite happy to let the Obama times roll.

Instead, Brown should focus on the rich electoral territory of the middle and working classes---the people whose jobs have been downsized, hours cut, and wages slashed. The great hollowing out of the middle class in the 2000s has made voters willing to listen to voices that challenge partisan orthodoxies of the right and left. Those with household incomes between $30,000 and $100,000 are the most likely to support Brown, so he should do what he can to maximize his margins here.

If Brown can offer a message that convincingly offers a rebuilding of the middle class, he might in turn increase the hopes of (and support for himself among) poorer Massachusetts residents. A convincing economic plan might also pull wealthier Warren supporters, especially those in the upper-middle class, in Brown's direction. Furthermore, a narrative of economic progress could boost Brown's numbers among the young, the demographic group hit so hard by the nation's poor employment picture.

Brown won in 2010 as a fair-minded outsider, and this poll suggests that Massachusetts voters are still willing to view Brown in that role. Though Brown looks more vulnerable now than he did six months ago, he still has a better shot of being elected to a full Senate term than any Republican has had in a long time. If the GOP wants to stay a national party with majorities capable of enacting large-scale reforms, it's going to need a diversity of Republicans. There's a case to be made in Massachusetts for independent-minded and efficient smaller-government policies, and Scott Brown seems the candidate to make this case.