President Barack Obama gave a fine speech at Knox College, the scene of one of his most effective pre-presidential moments—a 2005 commencement address he gave as an Illinois senator. Now we need to see whether he follows up with a clear and comprehensive program and brave politics to match.
On the plus side, he did not shrink from calling out the Republicans for their sheer negativity and their embrace of trickle down economics.
If you ask some of these Republicans about their economic agenda, or how they’d strengthen the middle class, they’ll shift the topic to “out-of-control” government spending—despite the fact that we have cut the deficit by nearly half as a share of the economy since I took office. Or they’ll talk about government assistance for the poor, despite the fact that they’ve already cut early education for vulnerable kids and insurance for people who’ve lost their jobs through no fault of their own. Or they’ll bring up Obamacare, despite the fact that our businesses have created nearly twice as many jobs in this recovery as they had at the same point in the last recovery, when there was no Obamacare.
He was also quite eloquent on the point that trickle down economics is bad economics. As Obama put it, “Even though our businesses are creating new jobs and have broken record profits, nearly all the income gains of the past ten years have continued to flow to the top 1 percent. The average CEO has gotten a raise of nearly 40 percent since 2009, but the average American earns less than he or she did in 1999.” And the president added, “This growing inequality isn’t just morally wrong; it’s bad economics. When middle-class families have less to spend, businesses have fewer customers. When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy.”
Mercifully, we did not hear about deficit reduction, a theme that Obama embraced with far too much fervor in his first term. And we even heard a call to raise the minimum wage. That’s progress.
But when it came to the program to deliver on the “middle-out” theme, Obama was offering mostly more of the same policies that have been sufficient to stave off full-blown depression—but not enough to halt the prolonged slide of the middle class. He called for more green jobs and infrastructure; world-class education for American kids; implementation of Obamacare; and new help for homeowners.
The president’s Middle Out tour does reflect a long overdue counter-offensive against Republicans. But if you unpack the proposed policies, they do not add up to enough to fundamentally alter the trajectory the economy has been on.
The erosion of the middle class is the result of trickle-down economics, and businesses opting for the low road of badly paid jobs and union-bashing. Rebuilding the middle class requires increased public spending and it requires much more robust public regulation of labor markets and capital markets.
The president might propose far more serious outlays to rebuild America’s infrastructure. He might use his executive power to crack down on companies that commit wage theft and deny workers the right to organize or join unions. He might stop offering the failed approach to trade deals modeled on NAFTA, which only leads to more out-sourcing of jobs.
And though Obama claimed success in cleaning up the banks (“we put in place tough new rules on big banks, and protections that cracked down on the worst practices of mortgage lenders and credit card companies”) this president’s appointees have mostly promoted weakening, not strengthening the Dodd-Frank Act. To rebuild the middle class, Obama might get a lot more serious about regulating the excesses and conflicts of interest in American’s banking system, which is now more concentrated and more profitable than ever, nearly five years after the great collapse.
But instead of becoming more aggressive when it comes to financial regulation, the president has let it be known that he is on the verge of appointing Larry Summers to succeed Ben Bernanke as Federal Reserve chairman. Summers is the man who led the charge to deregulate financial markets while President Clinton’s secretary of the treasury—and the man who persuaded President Obama to pursue a policy of bail out rather than clean out.
This speech marks a welcome embrace of more progressive principles on the economy. Obama’s tale of what’s killing the middle class usefully polarizes the debate. The culprit is not government excess, but an insufficiency of opportunity ladders and a callous private economy and obstructionist Republican Party. He’s mostly got the rhetoric right. Now let’s see if he embraces more convincing policies.