The most important lesson to be learned by Democrats from recent events in both the real and political worlds is that economic growth alone is not enough. Expansion of gross domestic product is a good thing, but 4 percent annual growth does not guarantee
that Americans will see significant improvement in their own economic positions; and eroding real wages in the midst of a growing economy translates into an important political fact as well. Economically, politically, and most importantly morally, Democrats should insist on public policies that not only promote economic growth but also work against the current trends in which nearly all of that increase is concentrated in the hands of a few.
The Democratic Leadership Council has argued against focusing on distribution issues, preferring policies that promote growth in a technologically oriented economy. Those of us on the other side have agreed that pro-growth policies are necessary, but that they are insufficient for improving the quality of life for most Americans.
We now have strong confirmation both in economic statistics and in election results that a focus on growth alone is insufficient. One set of statistics is particularly stark: From 2001 to the first quarter of 2006, corporate profits as a share of national income went from 8 percent to 14 percent. During that same period, wages as a share of national income dropped from 66 percent to 63 percent.
Public policies have not created this stark increase in the maldistribution of wealth. But government ought to contain the strong tendency toward greater inequality in our economy. We have reached the point where inequality has grown far beyond what is necessary for economic efficiency, causing social, economic, and political problems.
We should sharpen the differences between Democrats and Republicans in this regard. The Bush administration has consciously worked to exacerbate the inequality. It has opposed an increase in the minimum wage; blocked the right of working men and women to join unions and appointed anti-union members to the Labor Relations Board; changed the tax code to reward the wealthiest; cut back on those public programs which diminish inequality by making important services available to middle- and lower-income people; and done everything possible to help drug companies raise their prices, contributing to an increase in health-care costs, which has become one of the major problems for the great bulk of working Americans.
The election results have provided compelling evidence that the Democrats should respond with policies that are the direct opposite of the Republicans' strategies.
Even the Bush administration has implicitly acknowledged that Americans aren't greatly cheered by growth when they don't see it in their wallets. In July, Allan Hubbard, director of Bush's National Economic Council lamented the fact that the economy was doing so well but the administration was getting too little credit for it.
During the election campaign, Nancy Pelosi and senior Democrats on committees with economic responsibilities held a forum with experts from business, labor, academia, who helped us document the shortfall in wages in the midst of GDP growth. While the forum did not get a lot of attention from the press, the voters, conveying the same message, surely did.
The lessons are clear both from economic statistics and electoral results -- the public understands the unfairness of the current tendencies toward distribution of income, and will support a strong Democratic effort to correct this.
By raising the minimum wage, making the tax system fairer, changing the law to allow workers who want to join unions to be able to do so, controlling health-care costs in a responsible way, and expanding educational opportunity, we should bring fairness back to economic policy making.
This also, of course, has an international dimension. Trade policy that encourages our trading partners to ignore the environment and workers' rights is not only wrong, but it contributes to the climate in which our ability to adopt reasonable worker protection and environmental standards are eroded here at home. Democrats will insist on incorporating labor and environmental standards in trade policy.
Of course the war in Iraq was the single biggest reason for our winning. But public unhappiness with an economy in which the GDP grows but very few Americans get to share in that growth was also a factor. In the next Congress, Democrats must understand this and act.
Congressman Barney Frank, a Massachusetts Democrat, is the incoming chairman of the House Financial Services Committee.