It’s
a new term for the old leftist dream of redistribution over wealth creation.
President Obama has finally stopped blaming
George W. Bush for America’s current economic mess.
Now it’s Ronald Reagan’s
fault.
Obama
didn’t use those exact words or make that explicit claim in his Knox College
speech last week, but that’s the gist of it. The Great Recession and its
slow-growth, high-unemployment aftermath are really just the culmination of
three decades of pro-market economic policies that favored the rich at the
expense of the middle class.
Here’s how Obama
rewrites economic history: The shared national purpose of World War II was
followed by a golden age of shared prosperity in the 1950s and 1960s. Unions
were strong, taxes high, pension benefits guaranteed — thanks to a grand
egalitarian bargain between Big Government, Big Business, and Big Labor. “But
over time, that bargain began to fray,” Obama said. “Technology made some jobs
obsolete.
Global competition sent a lot of jobs overseas. It became harder for
unions to fight for the middle class.
Washington doled out bigger tax cuts to
the very wealthy and smaller minimum-wage increases for the working poor.” And
with the recession and financial crisis, Obama concluded, “the
decades-long . . . erosion of middle-class security was
suddenly laid bare for everybody to see.”
In
other words, according to Obama, the only lasting effects of the Reagan
“neoliberal” revolution are stagnant middle-class wages, extreme income
inequality, and reduced income mobility. And with those claims, Obama is using
the bully pulpit to propagate the leftist story that after 30 years of failed
supply-side, “trickle-down” economics, America needs a dose of “middle-out”
economics. That phrase, “middle-out,” was coined by Clinton speechwriter Eric
Liu and venture capitalist Nick Hanauer, who argue in a new Democracy magazine essay, “We have 30 years of terrible policy to undo.”
Time
for a fact check:
1.
The U.S. economy in the 1950s and 1960s benefited greatly from its temporary
postwar position as the world’s dominant industrial producer. That, along with
a constrained labor supply from the 1930s baby bust and from war casualties,
produced huge income gains for workers. But both factors were fleeting, of
course.
Our competitors rebuilt their industrial capacity, and all those
returning soldiers started families. What’s more, research from economist
Alexander Field finds that the basis for much of the productivity boom of those
decades was built on technological advances of the 1930s.
2.
With their postwar recoveries fully in place, our competitors began to catch up
to U.S. levels of wealth — until the 1980s. At the exact moment that Obama and
the middle-outers contend the U.S. economy went off track, it began once again
to pull away from Europe. French per capita GDP, for instance, went from 64
percent of U.S. per capita GDP in 1960 to 82 percent in 1980. But when America
decided to re-embrace market economics, France sniffed at it. France’s
per-person wealth is now back down to 73 percent of America’s.
3.
Echoing the claims of the middle-outers, Obama said, “The income of the top 1
percent nearly quadrupled from 1979 to 2007, while the typical family’s barely
budged.” That’s not right. The economic consensus is that real median market
household income — inflation-adjusted income before taxes, government transfers
such as Social Security and the Earned Income Tax credit, and health-care
benefits — actually rose more like 20 percent over that period. And once
you adjust for taxes, transfers, and benefits — median incomes are up 40
percent.
4.
Obama also claimed the “link between higher productivity and people’s wages and
salaries” was severed during the past three decades, with workers no longer
enjoying the fruits of their labors. The gains all flowed to the wealthy. But
research from both the Heritage Foundation and liberal economist and
productivity expert Robert Gordon of Northwestern University finds only a small
gap between middle-class incomes and productivity.
5.
While high-end income has risen dramatically since the 1970s, it doesn’t seem
to have affected economic mobility. Research from Brookings scholar Scott
Winship found that men experienced, at most, only a bit less ability to climb
the economic ladder than did their counterparts born in the early 1950s.
To
believe the middle-out view of economic history, one also has to believe that
beleaguered middle-class voters from 1981 through 2008 voted time and again
against their own economic interests by electing conservative Republican
presidents and a Democratic one who slashed investment taxes and signed a
massive free-trade agreement. When it comes down to it, “middle-out” economics
seems little more than a mildly clever rebranding of pre-Clinton, Democratic
economics: high taxes, protectionism, and industrial policy all held together
by boomer nostalgia for the ’50s and ’60s. It’s the familiar leftist dream of
redistribution over wealth creation. Dealing with America’s economic woes will
take fact-based, data-driven analysis of its problems and an accurate appraisal
of how we got here. Obama and the middle-outers are apparently uninterested is
doing either.
— James Pethokoukis, a columnist, blogs
for the American Enterprise Institute
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