The fallout from the worsening credit-crunch will only intensify a longer-term trend of economic distress for most Americans. This reversal of fortune, which began in the 1970s, includes dwindling security of good employment; collapsing systems of employer-provided health insurance and retirement coverage, and family incomes that lag behind inflation, except for the rich.
All these trends worsened under George W. Bush. Now, we have the likelihood of an election-year recession and perhaps worse -- seemingly a windfall for the opposition party. Yet it's not at all clear that the Democrats will pin the economic distress squarely on the Republican administration, or offer a politically convincing alternative.
Why not? Here are four main reasons:
Uncertain Trumpets and Ideological Mush. Since Jimmy Carter, the Democrats have been split into two factions. Progressives want to reverse the current class warfare from the top and once again harness capitalism to serve the broad public good. "New Democrats" offer a fainter echo of the Republicans and emphasize market solutions and fiscal probity; their slogan might as well be "We don't much like government either, but we can run it better."
The result: a mixed message that doesn't persuade voters to take the Democrats seriously as the party of the ordinary American. Bill Clinton ran in 1992 as a populist -- "people who work hard and play by the rules shouldn't be poor" -- but he governed as a centrist.
And who said, "Government cannot solve our problems, it cannot set our goals, it cannot define our vision. Government cannot eliminate poverty or provide a bountiful economy or reduce inflation or save our cities or cure illiteracy or provide energy. And government cannot mandate goodness"? If you guessed Ronald Reagan, guess again. It was Jimmy Carter, in the 1978 State of the Union address.
In the last two presidential elections, both Al Gore and John Kerry tacked back and forth between offering a whiff of class warfare and a bloodless centrism--trying to please both wings of the party. When Kerry decried "Benedict Arnold CEO's" who export American jobs, he was warned by his big donors to stop using the phrase.
In 2004, a ballot initiative to raise the minimum wage by a dollar carried every single county in Florida. The measure won over a million votes more than Bush and 2 million more than Kerry. Though it only helped fewer than 7 percent of Floridians directly, the initiative signaled help for pocketbook distress. If Sen. Kerry had been on a few Florida street corners with other picketers championing a higher minimum wage, he might be president.
Financial Captivity. Reliance on big money for campaign finance gives the Dems a split personality with voters. On the one hand, all six Senate Democrats who took back Republican seats in 2006 ran as economic populists. In Ohio, Sherrod Brown won going away, not by tacking to the center but as a full-throated progressive. In Virginia, Jim Webb began by running on his defense credentials, and after listing to Virginia voters he ended by sounding like FDR.
But at the far more expensive level of presidential politics, most Democratic candidates are heavily dependent on Wall Street. In the 1990s, many Democrats were complicit in the financial deregulation that invited Enron and later the sub-prime mess. Leading Democrats who are liberal on other issues, including Sens. Chuck Schumer and Chris Dodd, signed a letter warning then-SEC Chairman Arthur Levitt to lighten up or they'd cut his appropriations. The financial meltdown ought to be the perfect issue to distinguish Democrats from Republicans. But just enough Democrats have their fingerprints on it that the issue isn't producing much partisan traction.
The sub-prime meltdown is the pure result of conservative ideology -- the idea that financial markets don't need government regulation. The credit crisis has been ripe with teachable moments. But with the exception of some members of Congress like House Financial Services Committee Chairman Barney Frank, and John Edwards among the first-tier presidential candidates, you don't see Democrats as a party connecting the ideological dots, lest they offend their donors.
Of all the Republican and Democratic primary candidates, Clinton and Obama have the largest number of donors giving $200 and up, according to FEC statistics. And Clinton gets 63 percent of her total money from donors who gave $2,300.
Deficit Disorder. Since Reagan, Republicans have now gone through two cycles of cutting taxes, forcing reductions in spending programs that play to Democrats' strength, and leaving Democrats to be the party of tax increases. The Reagan and Bush I deficits were out of control and certainly needed reining in. But under Clinton, budget balance was taken to an extreme, as a sign of public virtue and wise policy.
In reality, however, the recovery of the 1990s had little to do with budget balance. In a global economy with international capital markets, lower interest rates were only remotely related to domestic fiscal policy. The recovery reflected worldwide disinflation and productivity increases, mainly from computers, that had been incubating for more than a decade. And according to Federal Reserve studies, the red-hot economy of the late 1990s was mostly the consequence of the stock market bubble and paper wealth that made people feel richer and spend more.
Budget-balance is also over-rated politically. Far worse than tax-and-spend is tax-and-not-spend, a course that denies citizens any return on their tax dollars. Not surprisingly, when citizens are offered the spinach of tax-and-balance, many just vote for the candidate promising more tax cuts.
If the economy is growing at 3 percent a year, a budget deficit of, say, 2 percent is perfectly sustainable. As Nobel laureate and former Clinton chief economist Joseph Stiglitz points out, if the money is invested in uses that enhance productivity -- research, education and training, new technologies for energy independence, public infrastructure -- moderate deficits promote growth.
The difference between no deficit and a deficit equal to 2 percent of gross domestic product is almost $300 billion a year. It's the difference between public outlay that could actually make a salutary difference in people's lives and a bare cupboard.
Pay-Go Paralysis. Since taking back Congress in 2006, Democrats have shared power with a lame-duck president who vetoes anything that departs from his orthodoxy. As a result, despite rare triumphs like a modest minimum-wage hike and the embarrassment of Bush over his children's health veto, Democrats have put their legislative stamp on little of consequence.
Even worse, by embracing pay-as-you-go budget rules (no new spending unless offset either by tax increases or other spending cuts), Democrats have denied themselves the ability to offer robust spending measures that might signal practical help. Pay-go rules are the Blue Dog faction's price for backing the leadership. But the leadership would be wiser to support a truly progressive economic program and forget the Blue Dogs. Nothing major will get through Congress this year in any case.
As a consequence of his relentless vetoes and veto threats, Bush has succeeded in making the Congress as unpopular as he is. Congressional Democrats have been unable to break through pundit clichés that award roughly equal blame to "partisan bickering." As I write, the lead piece in Politico for Jan. 15 is headlined "Bickering Slows Econ Aid Bill." (Memo to editors: How about "Principled Differences Slow Econ Aid Bill.") Democrats would be better advised to forget about what sort of legislative compromise might win passage now, and offer voters a bold and coherent program that they know stands no chance of enactment until January 2009.
Together, these serial disorders have combined to leave the Democrats as a party offering feeble remedies and mixed messages to working Americans. The weak dollar, the risk of rising inflation, the reality of global warming, and the need to pull the economy out of the most serious credit crisis since the 1930s will take the kind of activist government not seen in 40 years. To reverse the 30-year trend of increasing inequality and insecurity, and to repair the deep damage to the financial system, Roosevelt-scale remedies and Roosevelt-style ideological clarity will be required: serious public regulation, and serious public outlay.
Unfortunately, the leading Democratic presidential contenders have yet to offer any such sweeping measures. Barack Obama has positioned himself as the candidate with a great life story who rises above partisan divides. But he has stumbled on the two key pocketbook issues of Social Security and health insurance. Obama bought the much exaggerated story about Social Security's coming insolvency, and proposed payroll tax increases not just on the rich but on the upper middle class as well. His health insurance plan fails to insure everyone. He is capable of talking like a bold progressive, but his senior economic advisers -- University of Chicago professor Austan Goolsbee and Harvard's David Cutler -- are both economic centrists infatuated with markets.
At least rhetorically, Hillary Clinton has lately been sounding more like FDR. "The oil companies, the drug companies, the health insurance companies, have had seven years of a president who stands up for them," she said after winning the New Hampshire primary. "It's time we had a president who stands up for all of you." But the details disappoint. Last week, Clinton proposed a modest anti-recession package of $70 billion to stimulate the economy. That doesn't come close to the kind of program that would transform the structural insecurity facing the middle class. And in her health plan, Clinton has used an unfortunate language of "mandates," a word that connotes governmental coercion rather than governmental help.
One of the most misleading clichés of politics is the advice that when your opponent is doing himself in, just get out of the way. Economic recession or no, Democrats will not win a resounding mandate by backing into the presidency. The Republicans are fully capable of distancing themselves from Bush's economic policy. Gov. Mike Huckabee can sound almost as populist as the Democrats.
In Congress, the House leadership is working on an economic recovery package in the range of $100 billion. This could include some tax relief for the middle class, extended unemployment benefits, as well as some aid to hard-pressed states and cities and mandatory rather than voluntary mortgage foreclosure relief. That's not bad for starters, but it's not enough either to fire the public imagination or to fix what's broken. Even worse, the obsessive green-eyeshade commitment to making a stimulus very narrow -- "timely, targeted, and temporary" is the phrase de jour -- sends exactly the wrong signal about the Democrats' broader concern for the long-term economic slide of the working middle class. It signals minimalism.
The Democrats need to disentangle the debate about a stimulus package that can get through Congress and be signed by the president from the debate about what the economy needs. Otherwise, when the stimulus is far too weak to fix the economy, they will share the blame.
Throughout American history, only a handful of presidents have been truly transformative. History provided Abraham Lincoln, Franklin Roosevelt, and Lyndon Johnson with moments of crisis, and they rose to the occasion. Other presidents, including Herbert Hoover and Jimmy Carter, faced grave challenges but failed to transform the political moment. Yet, as the historian Doris Kearns Goodwin has pointed out, before the Civil War began, Lincoln wasn't the Lincoln we have come to know; and Roosevelt ran in 1932 calling for a balanced budget. National crises can produce great presidents -- or not.
Really, the Democratic nominee would combine the inspirational qualities of an Obama, the professionalism of a Clinton, the compassion for the poor and middle class of an Edwards, and the ideological nerve of a Dennis Kucinich. However, only one of the Democratic field will be nominated. Unless events push that nominee to be a candidate of transformational change, the election will be far closer than it ought to be. The risks are of a failed presidency, even of a Republican one.
This is an expanded version of an essay that first ran in the Los Angeles Times.
