‘Take Back Our Party’ Chapter 4: Our Democratic Party

The Prospect is proud to exclusively release the book Take Back Our Party: Restoring the Democratic Legacy by James Kwak. Read the Introduction, Chapter 1, Chapter 2, and Chapter 3.

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We cannot be all things to all people. We have to determine which side of history we are on.

—Jesse Jackson, 1989

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The Democratic Party needs an economic message. We need voters to identify our brand with something they care about. We need to differentiate ourselves from the Republican mantra that free markets are the source of all good things. And we need a story with substance behind it—not a warm mush of empty, focus group–tested slogans that bear no relation to the policies we actually pursue. If we simply announce that we care about Main Street and not Wall Street, no one will believe us—with reason, given our recent history. We need to earn back the trust of ordinary people by building an economic strategy that will help them and using whatever power we have to make it a reality.

Good marketing makes a credible promise to give people something that they need or want—to help them realize their dreams, solve their problems, or alleviate their fears. Unfortunately, when it comes to the economic climate of the contemporary United States, the dominant emotion is fear. More than 60 percent of adults are worried about keeping their health care coverage, paying their medical bills, and saving enough for retirement; more than three-quarters are afraid that today’s children will be worse off than their parents. Americans think it is harder to “get ahead” than in previous generations, and are pessimistic about the opportunities that young people today will have in the future.

These fears are justified. The hard-working, law-abiding citizens who make up a large majority of our country face a degree of economic insecurity unworthy of a supposedly rich nation. After decades in which ordinary incomes have barely kept up with inflation, workers have no reason to believe that their economic fortunes will necessarily improve. Many adults, trapped by the rising costs of health care, education, and housing, have failed to amass any significant savings. As of 2016, the typical middle-income family had less than $19,000 in financial assets, not counting retirement plans—and $42,000 in debt (which might be secured by a nonfinancial asset, like a house). Since the 1980s, median debt levels have increased by at least two-thirds (after adjusting for inflation) for families of all income levels and all ages. An analysis by the Pew Charitable Trusts found that more than two-thirds of households are financially strained by meager savings, insufficient income, or high debt payments. It is no surprise that only one-half of adults think that they could stave off serious financial difficulty for more than two months if they lost their jobs. According to a report by the Federal Reserve, two in five people would be unable to cover an unexpected expense of only $400 (such as a minor automobile repair) without having to borrow money or sell something; 12 percent could not afford the $400 under any circumstances; one in four skipped needed medical care in the past year because of cost; and only one in three people in the workforce think they are saving enough for retirement. This is true after a decade of economic expansion and historically low unemployment.

Signs of economic insecurity are everywhere around us. There is the increasing popularity of “gig” work, most notably driving for Uber and Lyft. There are the ubiquitous advertisements for college and graduate degrees—many offered by for-profit institutions—with pictures of shiny new careers. There are the constant robocalls and advertisements promising to refinance student loans or consolidate credit card debt. Insecurity is not limited to the poor and the working class. Year-to-year income instability has grown for all segments of society, including the middle class and the highly educated.

Among the more affluent, insecurity is reflected in the collective mania over college admissions. Once upon a time, a four-year degree from a state university was a reasonable guarantee of a secure and comfortable place in the upper middle class; today, as the very rich are jetting off into a rarefied social stratum all to themselves, parents are panicked that their children will be left behind, and some have even taken to cheating their way into ensuring them a place at a prestigious private university.

One way to address people’s fears, regrettably, is to encourage them to blame someone else: immigrants, minorities, Chinese workers, or a shadowy cabal of international politicians and financiers. We’ve seen how that works. But that is not the only way.

Instead, we can show people that we understand their fears and the real problems on which they are based, and offer them concrete solutions that directly address their most important anxieties. It was enough for Bill Clinton to “feel your pain,” but a quarter-century of rising inequality later, voters are looking for more than eloquent sympathy. The more that people worry about negative shocks such as job losses and medical emergencies, the more they tend to support government policies specifically aimed at cushioning people against economic insecurity.

Vague promises of growth and opportunity—the credo of the Democratic elite from Clinton to Obama to Clinton—are too nebulous and speculative for people struggling with rising rents in desirable cities, student loan debt incurred at fraudulent for-profit universities, or out-of-network charges not covered by their health care plans. The fundamental problem with the growth-and-opportunity doctrine—the reason why it has failed in recent decades—is inequality. Contemporary global capitalism has produced a winner-take-all society in which a shrinking elite, composed of the highly skilled and highly fortunate (and their children and descendants), monopolizes an inexorably increasing share of the fruits of our collective efforts. There are many factors behind this economic transformation—technology, global markets and supply chains, free capital flows, corporate concentration, and financialization, to name a few. We could attempt to constrain some of these forces through regulation, but many are far beyond the control of any national legislature.

Contemporary Democrats like Barack Obama respond to inequality of wealth or income by talking about equality of opportunity. That makes them sound like market-oriented capitalists, not socialists. But the policies they suggest, while laudable—more funding for public schools, cheaper student loans, job retraining programs, lending to small businesses—are so woefully inadequate to level the economic playing field that you have to wonder if they are at all serious. The advantages of being born into the economic and educational elite (and of being the right race and gender) vastly dwarf any moderately ambitious policy to help the less fortunate. Socioeconomic mobility—the potential for people to move up (or down) in the income distribution—has long been lower in the United States than in other advanced economies, and by most measures has declined since the 1970s.

True equality of opportunity would require a degree of social engineering that would be unfathomable today, such as a 100 percent estate tax, random assignment of students to schools, and probably even some kind of shared parenting system. And what then? The logic of capitalism would continue to produce extreme inequality; we would still live in a society of the 1 percent and the 99 percent, only one with a less morally objectionable starting point. Giving disadvantaged people better opportunities is of course a good thing. But the solution cannot be simply that we will help people compete a little more effectively in a contest where a select few take the spoils and everyone else shares the crumbs.

The flip side of an economy that showers its winners with unprecedented rewards is that the perils of losing are greater than in previous generations: a lifetime of insecurity for a stagnant material standard of living. Our answer cannot be that increased opportunity will make us all better off. We have all known since elementary school that not everyone can be a winner, and decades of rising inequality have only reinforced the lesson. Both Barack Obama and Hillary Clinton liked to talk about “ladders of opportunity”; but in the 2016 election, those metaphorical ladders “fell far short of what real people were looking for,” according to Stan Greenberg, a longtime friend and ally of the Clintons (and onetime pollster for the Democratic Leadership Council). “Incomes sagged after the financial crisis, pensions lost value, and many lost their housing wealth, while people faced dramatically rising costs for things that mattered—health care, education, housing, and child care.”

Instead of insisting that all people need is an opportunity, our economic strategy should focus on guaranteeing that all Americans can enjoy the indispensable requirements of a 21st-century life, without living in constant fear of a layoff, a medical emergency, or an auto breakdown. Our message should be that a civilized society ensures the basic well-being of all of its members. Capitalism and growth are not ends in themselves, but means to an end: the welfare of all people.

But a message alone is not enough; no marketing campaign can be better than the products that it is trying to sell. For the Democratic Party, the products need to be policies that directly target the key sources of insecurity faced by ordinary American families. We need compelling solutions for four key challenges that millions of people struggle with every day: health care, education, housing, and retirement. Not only are these basic necessities, but out-of-pocket medical expenses, college tuition, and rents have all climbed rapidly in recent decades, squeezing household budgets, while the shift away from traditional pensions has left more and more people dreading retirement. There may be other things that you want to add to this list, but this is where we need to start. Bold programs to solve these challenges will make a huge difference in reducing economic uncertainty for almost everyone—and will re-establish the Democratic Party as the party of the people.

Health Care

The argument is now so familiar that it hardly needs explanation. The only long-term solution to our fundamental health care problems is Medicare for All—a system in which the federal government provides basic health insurance to all Americans. As discussed in Chapter 1, all politicians say that they want decent care at an affordable price for everyone, so whether you live or die does not depend on your income. Obamacare uses a complex set of regulations to attempt to force private markets (against their natural inclinations) to produce this desirable outcome. But what people say they want is actually a perfect description of a single-payer system in which everyone gets the same policy with a basic set of benefits, and financial contributions—via some combination of payroll taxes, income-based premiums (such as those for Medicare Part B), and general revenues (primarily the individual income tax)—are based on the ability to pay. The new system should improve on Medicare, in particular by placing limits on annual out-of-pocket spending, which already exist for Obamacare plans. Medicare for All need not eliminate private insurance; insurers (and employers) could offer policies providing additional benefits. Because coverage would no longer be contingent on employment, it would be easier for people to make choices in the job market. Compared to Obamacare, Medicare for All is a simpler, fairer, more effective way of reaching what everyone claims to be the desired outcome.

Just as important, a single-payer system would not share Obamacare’s fatal flaw: its dependence on market competition to control costs. In the long term, the bigger problem we face is not that we have a poorly designed insurance system, but that we are paying more and more for health care relative to everything else in the economy. In recent years, as prices charged by providers have continued to rise, insurers have resorted to some combination of increasing premiums, imposing greater cost sharing on policyholders, and restricting their provider networks (creating the growing problem of uncovered out-of-network services). The federal government, by contrast, has the market power to simply dictate reimbursement rates to doctors and hospitals, which is the only sure way to keep costs under control. Constraining reimbursements could mean that doctors, hospitals, pharmaceutical companies, and device manufacturers will make less money, but they will still likely earn more than in comparable countries.

A common argument against Medicare for All is that it would be too expensive. This is a fallacy. It is true that a single-payer system would significantly expand the federal budget because a larger share of our overall health care spending would flow through the government. That increased spending, however, can be funded simply by diverting the money that we currently pay to the health care industry. Instead of paying premiums to insurers every month, along with co-pays and deductibles and out-of-network charges, the population as a whole would pay roughly the same amount of money to the government in the form of taxes and premiums. If anything, the aggregate cost of health insurance should be lower with single-payer because of lower administrative costs due to scale. (Medicare already has far lower costs than private insurers.) Over time, as explained above, the federal government can do a better job of holding down underlying medical costs. And a single-payer system financed by taxes makes it possible to spread the total cost of health insurance in a more equitable way, compared to the current system under which high- and low-income employees pay essentially the same amount. At the end of the day, what matters is how much we pay for health care and who pays—not whether or not that spending flows through the federal budget.

Politically, Medicare for All is also popular with a majority of all people (not just Democrats)—as high as 70 percent in some studies. Phrasing matters in polls, but even the less friendly terms “national health plan” and “single-payer health insurance system” are seen more favorably than unfavorably. Medicare for All still retains majority support even after the all-out assault against it launched by centrist Democratic presidential candidates this year.

The “public option” is popular with the moderate wing of the party, because it seems to offer the best of both worlds—employer-sponsored coverage for those who can get it, and government insurance for those who can’t. But it can only pull off this balancing act because its proponents have received far less scrutiny than Elizabeth Warren. If—as it seems in Pete Buttigieg’s plan—the public option is just another marketplace plan available on the Obamacare exchanges with the same subsidies (and perhaps slightly lower prices because of the federal government’s administrative cost advantage), then it’s not much of a solution for our affordability and cost control problems. To make health care affordable, a public option would have to offer superior benefits with much lower cost-sharing; to give people a real choice, it would have to allow employees to use their employers’ money to pay for it; to make good coverage available for people with little money, it would have to tap deeply into general tax revenues; to control costs, it would have to have a dominant share of the market; and, at that point, it would be little different from Medicare for All.

When it comes to health care, the Democratic position should not be that we will give you one more option that you may or may not be able to afford. It should be that everyone needs health care, and everyone will get it.

Education

In the decades after World War II, a high school education was often sufficient to land a secure job with generous health and retirement benefits, at least for white men. Not so any longer. With the end of lifetime employment and the advent of the knowledge economy, a college education has become an indispensable credential in a highly competitive job market. At the same time, academically oriented preschool is increasingly perceived as a necessity rather than a luxury, especially as the understanding of its long-term benefits has grown. The old educational model, in which free, public K-12 schools fueled the growth of the American economy and swelled the ranks of the middle class, is no longer enough—which is one reason students are willing to take on unprecedented amounts of debt in pursuit of college degrees.

Yet as education has become more important in shaping people’s economic fortunes, it has become less affordable and less equitable. We have the best research universities in the world and many excellent primary and secondary institutions, but we also have schools that fail to provide any kind of useful education and for-profit colleges that actively prey on students, inducing them to take on piles of debt that will take decades to repay. Good preschools are predominantly private and available only to wealthier families. At the K-12 level, the best schools tend to be the most expensive, whether elite private institutions or public schools paid for by property taxes in rich neighborhoods. Although the most selective colleges tend to be relatively affordable (because of their generous financial aid programs), places in their entering classes are effectively reserved for those able to go to an outstanding high school. As a whole, this system only exacerbates inequality by allowing the scions of the wealthy to get on the escalator of career success, while putting up barriers in front of the children of the poor.

Overhauling the K-12 sector would be a monumental task and is largely beyond the scope of the federal government, since most decisions are made by local school boards and state governments. On these levels, Democrats should at a minimum push for higher teacher pay and for equalizing school funding across districts. At the national level, however, we can take two major steps to make a comprehensive education a right for all Americans: universal public preschool and free college.

Pre-K programs (generally for children ages three and four) have received a lot of attention because of recent research showing that they can have a huge impact on measures of later achievement, including high school graduation, crime, employment, income, and health. Good early-childhood education produces high rates of return for society—that is, its long-term benefits far exceed its up-front costs. Preschool is also important because it is the time when the achievement gap opens up between upper- and lower-income students—a gap that, in many cases, will never close. On average, low-income children enter kindergarten almost one year behind their higher-income peers in math and more than one year behind in reading; African American and Hispanic students also lag behind by six months to a year. Although many factors are involved, one important cause of these differences is access to preschool. Families making more than $100,000 per year are more than three times as likely to send children to preschool at age three as those making between $20,000 and $30,000. One study estimated that a high-quality, universal pre-K program could reduce the school readiness gap between low- and high-income students by 27 percent to 41 percent, with a considerably greater impact on disparities associated with race and ethnicity—and those estimates are based on existing programs that are only one year long.

Universal, full-day, public pre-K would also help alleviate the considerable financial burden of child care for working parents, many of whom cannot afford to stay home to take care of their kids. The federal government could go a long way toward this goal by providing the large majority of funds to states or localities that operate preschool programs—such as New York City and Washington, D.C., where a large majority of four-year-old children attend publicly funded pre-K.

As higher education has become more and more important in recent decades, the cost of college has climbed rapidly, and the only response from Washington has been regulatory changes that make it easier for students to borrow money at slightly lower interest rates. The result has been increasing financial burdens on families, students dropping out of school because they can’t work enough jobs to make ends meet, and graduates mired in debt. Student debt has itself become a major source of financial insecurity; more than 15 percent of borrowers default within five years, and another 15 percent are severely delinquent or otherwise not making payments.

Our free-college program should ensure that any qualified student can earn an undergraduate degree without having to borrow money. The federal government could match funds put up by states to eliminate tuition and fees at community colleges and public universities. In addition, Congress could expand the Pell grant program to cover additional expenses (housing, food, books, etc.) for needy students. Proposals along these lines have been put forward by Senator Brian Schatz and Representative Mark Pocan, Senator Elizabeth Warren, and Senator Bernie Sanders. They obviously increase government spending, but by less than $100 billion per year—a couple of percentage points of the federal budget, or a fraction of the tax cuts signed into law by President Trump in 2017.

As with health care, the Democratic Party should take the problem of paying for preschool and college completely off the table. Universal pre-K and free college are simple, compelling ideas that are popular with the public. Americans overwhelmingly support the idea of making preschool accessible to everyone, and almost two-thirds are willing to pay more in taxes to support early-childhood education. More than three-quarters of survey respondents think the federal government should “make sure that everyone who wants to go to college can do so,” and a majority generally favor free college.

Some naysayers prefer some form of means-testing—limiting benefits to people whose families are sufficiently poor—on the grounds that free public universities are an unnecessary handout to the wealthy (although most of the children of the rich are going to private colleges as it is). But they miss the point. Even leaving aside the greater political appeal of a universal entitlement, we live in a supposedly advanced society in which everyone should have the right to a comprehensive education, just as everyone should have the right to health care, and just as everyone already has the right to a K-12 education—and clean air, clean water, police protection, and so on. These are not commodities that should be distributed by markets, with the government begrudgingly stepping in to help the destitute. They are necessities of modern life that society should provide to all of its members.

Education alone is not the solution to wage stagnation and inequality. The core problem is an economic system that overwhelmingly rewards a few winners at everyone else’s expense, and preparing students to compete a little better does not change that fact. But while we cannot guarantee that all graduates will be able to land well-paying and rewarding jobs, we can at least eliminate the economic insecurity created by the need and desire for a quality education.

Housing

Everyone needs a place to live. All over America, finding a home is becoming an insuperable challenge for many families. As rich people make more money and cluster in desirable cities (which also have many of the best jobs), everyone else is being pushed out by rising rents. For example, the median rent for a two-bedroom apartment is $39,000 per year in Boston, $49,000 in New York City, and $54,000 in San Francisco. For too long, the Democratic Party’s housing strategy was scarcely distinguishable from George W. Bush’s fanciful image of an “ownership society,” consisting largely of deregulating the mortgage market to push the homeownership rate up a few percentage points. We all know how that turned out.

We need to recognize that buying a house with a white picket fence is not a feasible option for many of the people having the hardest time finding a place to live. We should focus instead on increasing the availability of affordable rental homes. The central problem in the rental market is that the number of reasonably priced units has not kept pace with economic growth in many metropolitan areas, as developers target affluent households—in part by converting low-rent buildings into luxury apartments. Across the country, rents have climbed by 25 percent more than prices in general since 1997. As a result, almost half of all renting households have to pay more than 30 percent of their income for housing, double the proportion of the 1960s; of those, 11 million pay more than half of their income to the landlord. The situation is obviously worse for families without a lot of money to begin with. For every 100 renting households making less than 30 percent of the median income in their area, there are only 46 adequate and affordable units available, even taking federal subsidies into account. Not surprisingly given these conditions, more than 1 million people resort to homeless shelters at some point during the year.

An affordable-housing strategy will need several components. It should begin with large increases in federal subsidies for the construction of new housing units in neighborhoods where rents are high relative to median incomes. Existing incentive programs for private-sector construction (primarily the Low-Income Housing Tax Credit) are both inefficient and far too small to meet the enormous demand for affordable housing. They should be supplemented by direct federal loans to local governments to develop and operate mixed-income public housing, building on the successful experiences of municipalities around the world. Buildings financed with any public money should be required to maintain affordable rents (relative to local income levels) for several decades. Federal money should also be contingent on relaxing exclusionary zoning laws, which prop up the price of housing by limiting density while indirectly maintaining racial segregation.

Expanding supply will not be enough, however, because many families cannot afford even reasonable prices; the largest federal rental assistance program is a tax credit for developers to build affordable units, yet more than half of the tenants in those homes need additional government help to pay the rent. We should expand funding for the Housing Choice Voucher Program, better known as Section 8, which currently only serves a small fraction of eligible families, with average wait times of 32 months. In addition, the program’s rules should be changed so that vouchers can be used in more expensive neighborhoods, and landlords should be prohibited from discriminating against participants. The federal government should also provide funding for state and local emergency rental assistance programs, which can help keep families in their homes despite short-term disruptions in their cash flow (due to medical emergencies, car problems, etc.).

The best source of funding for affordable rental housing is obvious: subsidies for homeowners, primarily the mortgage interest tax deduction and the capital gains exclusion for the sale of houses. Currently, homeowners can deduct from their taxable income the interest they pay on mortgages of up to $1 million for principal residences ($750,000 for houses bought after the 2017 tax cut). This is terrible policy for many reasons: It encourages people to take on more debt; it doesn’t make it easier to buy a first house, because the tax break is already reflected in higher prices; and, worst of all, the subsidy primarily flows to the rich. The vast majority of homeowners don’t deduct mortgage interest because they are better off with the standard deduction, especially after it was raised in 2017; of the people who do, those with the biggest mortgages and in the highest tax brackets benefit the most. Of the $31 billion that the federal government will give out in tax savings in 2020, 60 percent will go to households making $200,000 or more. In addition, the first $500,000 of profits on the sale of a house are exempt from capital gains tax (the tax you ordinarily pay when you sell an asset for more than you paid for it). This provision—which, again, primarily benefits people with expensive houses—will cost the federal government another $37 billion next year.

Together, these two tax breaks represent $68 billion in subsidies that we are handing out to the people who need them the least, to encourage behavior (buying houses) that they would do anyway. Our message, again, should be simple and clear: We will do whatever it takes to ensure that every American family can find an affordable place to live, rather than funneling more money to the people who already have the biggest houses.

Retirement

Throughout most of human history, people did not retire, at least not in the sense of the word today. As late as 1930, almost 60 percent of men over the age of 65 were still in the workforce—at a time when life expectancy for males (at birth) was less than 60 years. Most people worked more or less until they died. Social Security, created in 1935 as one of the centerpieces of the New Deal, was intended to make it possible for elderly workers—at first, largely white, male, manufacturing workers—to retire without having to live in poverty. After World War II, generous pension programs sponsored by large companies and state governments, along with Medicare, briefly made it seem as if all employees would be able to retire in relative comfort.

In recent decades, however, as the private sector largely abandoned traditional pension plans, the rhetoric of retirement security changed. Both Republicans and Democrats embraced the idea that workers should rely on 401(k) and similar accounts (invested in the booming stock market). Government became a mere creator of tax incentives (401(k), IRA, Roth IRA, SEP-IRA, and so on) and implementer of nudges (like auto-enrollment, discussed earlier) to encourage individual saving. The problem with this strategy is that it doesn’t work: Even in their late fifties and early sixties, only 60 percent of families have any retirement accounts, and their median value is only $120,000. Half of all households are at risk of not having enough income in retirement—compared to less than one-third in the 1980s. No amount of tax breaks and clever incentives can change the basic problem: Most Americans simply don’t make enough money to save for the future.

The solution is simple: We should increase Social Security benefits—rather than decreasing them, as President Obama offered in the 2011 long-term budget negotiations. It is time to recognize that, with company pensions and personal savings depleted or nonexistent, many of the elderly are completely dependent on Social Security. For one-third of recipients, it provides more than 90 percent of total income. Yet benefits are modest, averaging about $17,000 per year; the typical middle-income worker will only receive about 41 percent of his or her pre-retirement income, and will have to adjust to a significantly lower standard of living.

We should increase the benefit calculation formulas and minimum benefit levels to help all retirees, but particularly those with the lowest incomes. We should also change the formula for annual cost-of-living increases so that it more accurately reflects the expenses incurred by seniors, particularly for medical care. Fortunately, this is one issue on which there is broad agreement among Democratic legislators, with multiple bills proposed in Congress along these lines (notably the Social Security 2100 Act and the Social Security Expansion Act).

There are two obvious ways to finance greater retirement benefits. One is increasing or eliminating the threshold above which income is exempt from the Social Security payroll tax ($132,900 in 2019). Getting rid of this cap would tap into the increasing share of income flowing to the wealthy, and would change the system’s primary funding source from a regressive tax to a flat tax on earnings from labor. In addition, the tax could be extended to apply to investment income, at least for high-income households, similar to the Medicare payroll tax (which was expanded by the Affordable Care Act).

A second source of funding is existing tax breaks for retirement savings plans such as 401(k)s, IRAs, and Roth IRAs. The ability to deduct contributions to these accounts is supposed to encourage people to save more. In practice, however, the benefits flow largely to wealthy people who can afford to “max out” retirement account contributions, pay income tax at the highest rates, and need no incentive to save enough. Eliminating these unnecessary and regressive tax preferences would free up more than $150 billion in annual revenues that could be used to fund more generous Social Security benefits for lower- and middle-income retirees.

Expanding Social Security benefits is also politically popular. Large majorities of survey respondents say that they want their elected officials to increase benefits. When asked how to improve the program’s finances, two-thirds are in favor of raising the cap on earnings subject to the payroll tax. This should come as no surprise. Although Democratic politicians have been waxing eloquent about private-sector growth and ladders of opportunity since the early 1990s, the federal government programs that people care about most are Social Security and Medicare—the traditional safety net (or welfare state, as it used to be called) that the New Democrats sought to distance themselves from. These programs were founded on the old-fashioned principle that a prosperous society should provide for the needs of its members who are no longer able to work—not that each person should be left to face the risks of old age alone, with little more than a motivational tax deduction. That is the principle that we need to reaffirm.

You may disagree with some aspects of the proposals above. That’s fine. As a party, we can leave the details—whether to raise or eliminate the wage cap on the Social Security payroll tax, whether to replace the mortgage interest deduction with a refundable tax credit, and so on—for later. But we have to attack the core sources of economic insecurity with ideas that are simple, powerful, and compelling. We can’t limit ourselves to safe plans that will pass muster with every subgroup across the center and the left, such as allowing the government to negotiate prescription drug prices, or using public seed money to attract private capital to invest in infrastructure. These are good ideas, but sadly insufficient to meet the demands of our time. Our goal has to be to eliminate health care, education, housing, and retirement as threats to the well-being of the vast majority of the population, and to do so directly, not by hoping we can nudge the free market into producing slightly better outcomes for slightly more people.

You may also want to add other issues to this list. That is also fine, provided that they are concrete sources of insecurity that can be directly addressed through specific proposals—not through vague encomiums to opportunity and prosperity. I don’t think infrastructure should be one of the central planks of our platform, important as it may be, because few struggling families would list poor roads and bridges as an immediate source of personal worry. By contrast, a strong case can be made that a comprehensive climate strategy should be another pillar of our economic strategy. It is difficult to overestimate how concerned (and pessimistic) young people are about the world they will live in 50 years from now. A Green New Deal—including large-scale investment in renewable energies, funded by a carbon tax, and accompanied by hard limits on emissions—could go a long way toward protecting the planet and convincing younger voters that the Democratic Party does care about their future.

The Temptation of “Jobs”

Even if you agree with much of the above, you may ask: What about jobs? Shouldn’t we be the party of jobs? Indeed, there is nothing that contemporary Democrats love talking about more. That way they can position themselves as advocates for ordinary people while emphasizing that they believe in capitalism and work, not socialism and redistribution.

Jobs are a good thing, and of course we should pursue policies that will help create them. But jobs alone are not enough, and there are multiple reasons why they should not be the center of our platform. As a matter of marketing, saying that we are the party of jobs, or more jobs, or better jobs, is not differentiated. The Republicans are also the party of more and better jobs, and they have a powerful story about how they will produce those jobs: cut taxes, get the government out of the way, and let American ingenuity and entrepreneurship flourish. This story may not be true, but it sure sounds good. Our narrative invariably contains more detours, because it involves the government doing something that creates the incentive for companies to hire more people or pay them more. While our story may make more economic sense, it is simply not as compelling as our opponents’.

More important, right now, creating jobs is not the problem. As of 2019, the headline unemployment rate is at its lowest level since the 1960s, and the broadest rate (including people who gave up looking for a job, and those who can’t get enough hours) was only lower in 2000 at the peak of the economic boom. Those jobs, however, don’t pay enough to maintain a decent standard of living. The two most common occupations in America are retail salespeople (8.8 million) and food and beverage servers (7.6 million)—earning median hourly wages of $11.33 and $10.43, respectively. (Those food and beverage servers do not include another 4.2 million fast-food and counter workers, who typically make $10.32 per hour.) More than 40 million people work for less than $12 per hour, which puts them right around the poverty line for a family of four. As we know, there are lots of people worried about paying for health care, struggling to make the rent, or afraid they’re not saving for retirement—and most of them have jobs.

Of course we should do what we can to pay people more. A $15 minimum wage is a good start—although that still only translates into $2,500 per month (obviously less for part-time jobs), or $2,309 after payroll taxes. That’s less than the median rent for a two-bedroom apartment in a place like the San Francisco Bay Area. Even in economically depressed Western Massachusetts, where I live, the median rent of $1,117 would use up almost half of your paycheck. We should have paid family leave, so people don’t have to choose between raising their children or taking care of their parents and keeping their jobs. We should make it easier for unions to organize and to bargain for a greater share of the fruits of their labor. But with membership at only 6.4 percent of private-sector employees, it will take time for stronger unions to make a major difference for the vast majority of workers. Our fundamental problem is an economy that divides everyone into winners and everyone else based on family, education, job skills, demographic characteristics, and pure luck, in which millions of people cannot reliably earn enough at work to escape constant insecurity.

Many Democrats insist that the answer should be better jobs. Maybe there’s no way McDonald’s will ever pay its employees a living wage; the front counter staff are being replaced by kiosks, and it’s not hard to imagine robots taking over for the food preparers in the back. But, according to this line of thinking, the solution should be giving those people higher-skilled jobs that are more productive and therefore pay more. We do that by subsidizing companies to create those better jobs and by giving people better education, so they are able to compete for them. This is an enticing vision. Indeed, it is the core of the New Democrat response to inequality, wage stagnation, and poverty. That alone, almost three decades after Bill Clinton was elected, should give you a clue as to how successful it has been.

There are three main problems with the “better jobs” strategy. First, it is vague and unconvincing as a political message. If you are promising better jobs, I have no particular reason to believe that I will be one of the lucky few to get one. In other words, if I am struggling with medical bills or student loan payments, it’s not clear how “ten million good jobs” will help me, even assuming that I believe you. Second, for the most part, the people facing the greatest economic challenges are precisely the people least able to get those high-skilled, high-paying jobs. If you are laid off from a factory in rural Ohio at the age of 50 with only a high school diploma, your chances of getting the education necessary to become a web designer, or a physical therapist, or a paralegal—let alone a software developer at Google—are pretty slim, as are the chances that companies will be recruiting for attractive positions in your area. Your difficulties are compounded by the fact that you have to find a way to support your family in the meantime, which probably means you will be forced to take low-wage jobs to get by. The same holds, albeit with less certainty, for children growing up in poor neighborhoods without stable housing, reliable nutrition, and good schools. The reality is that our society segments people into classes brutally and unfairly at birth and then uses the “free” labor market to maintain those divisions all the way through adulthood. Giving disadvantaged children even a faint chance against their better-housed, better-fed, better-schooled peers would require, at a minimum, the kind of sweeping health care, education, and housing solutions proposed above. Creating better jobs alone is not enough.

The third problem is that the “better jobs” story runs against the central macroeconomic transformation of our time. For a long time, the conventional wisdom was that technological process was good for people not only as consumers (because of lower prices) but also as workers. In the aggregate, people displaced from one industry would find new jobs elsewhere in the economy where they could be more productive. That was the case, by and large, for most of the Industrial Revolution; skilled weavers lost their jobs to automated looms, but their great-grandchildren became assembly-line workers in automobile and airplane factories. In recent decades, however, as those well-paid manufacturing jobs have been shipped overseas or eliminated through automation, the composition of the workforce has shifted toward low-paid service industry jobs. Although Silicon Valley, Wall Street, and the coastal media and entertainment hubs get most of the attention, in sheer numbers, job growth has come from food service, retail sales, caregiving, and other industries that rely on low-skilled labor. Right now, the occupations that are adding the most jobs are personal care aides, food preparation and serving workers, registered nurses, home health aides, restaurant cooks, software developers, and waiters and waitresses; five of those seven categories have typical annual wages below $27,000. At Amazon, that shining icon of the new economy, the median salary in 2018 was only $35,000 in the United States, even after the company adopted a $15 minimum wage.

In short, jobs are no longer shifting from low-productivity and low-wage occupations to high-productivity and high-wage ones. Technological progress in recent years has not resulted in overall employment losses, but it has reduced labor’s share of overall income—that is, workers are getting a smaller slice of the economic pie. Rising productivity in and of itself is not the problem. But when its benefits are monopolized by elite employees and shareholders, other workers are forced into lower-skill, lower-wage careers. Our economy continues to come up with new products and services, but today’s hot industries, such as pharmaceuticals, media, and software, do not require enough skilled labor to absorb the people displaced from yesterday’s leading sectors. At the extreme, Google and Facebook serve billions of customers with only a few tens of thousands of people. More generally, globalization and technology have enabled a small elite of highly educated, highly paid people to mobilize and oversee large armies of lower-skilled workers; Amazon’s crack software developers, for example, write code that gives orders to hundreds of thousands of warehouse employees.

This dynamic may only get worse. Throughout history, when humans were replaced by technology, one reason most of us found better things to do is that we were always smarter than the machines. Today, however, machine learning is enabling computers to develop their own algorithms by analyzing large amounts of data with a minimal amount of human guidance. Computer programs are beginning to show the potential to master many of the types of cognitive tasks—recognizing patterns, drawing inferences, formulating and testing hypotheses, etc.—that are precisely what high-income humans are paid for. No one knows if or when computers will be able to displace the types of knowledge workers whose jobs have previously been immune to automation. But we already live in a world where economic progress no longer guarantees that children will have better job opportunities than their parents. We should by all means do what we can to help people find better work and higher pay. But focusing on “jobs” is not enough. We risk becoming a country where the large majority of our fellow Americans are stuck on the wrong side of a widening economic divide. It is incumbent on all of us to ensure that that does not happen.

The Myth of Trade-Offs

Any moderates who have made it this far will no doubt want to ask: How will you pay for all that? After all, fiscal responsibility, more than anything else, has been the hallmark economic position of establishment Democrats since the early days of the Clinton administration—the preferred way for politicians to signal “seriousness” and distinguish themselves from the dreaded specter of socialism.

On the one hand, this is an unfair question. The Bush tax cuts of 2001 and 2003 were not “paid for” by corresponding spending reductions, nor was the Trump tax cut of 2017—nor, for that matter, the Obama tax cuts of 2009 (stimulus bill), 2010 (first extension of the Bush tax cuts), and 2013 (permanent extension of most of the Bush tax cuts). So why is it that only progressive spending policies need to be paid for? Politically speaking, the answer is obvious: “Fiscal responsibility” has become little more than a catchphrase that moderates and conservatives use to criticize government programs that they don’t like.

On the other hand, I do think that the long-term fiscal impact of new policies is something that should be considered. Higher deficits can certainly be warranted, particularly if they help counteract economic downturns (as in 2009) or if they make possible good long-term investments for the country (such as infrastructure or education). But sometimes, as was the case for the 2017 tax cut, they simply increase the national debt and hence our annual interest payments for no purpose whatsoever, squeezing out better uses of our collective resources.

For the issues above, the question is easily answered. Medicare for All can be funded by the money that companies and individuals already spend on health insurance premiums, deductibles, and co-payments. Because of Medicare’s proven efficiency advantage and its superior ability to control costs, total health care spending should go down, which is what really matters at the end of the day. New construction of affordable housing units and expansion of the Section 8 program can be financed by eliminating or reducing existing tax breaks for homeowners such as the mortgage interest deduction. Social Security benefits can be expanded by applying the payroll tax to higher incomes and ending the tax preferences for retirement savings accounts that primarily benefit the affluent. That leaves only education, which could easily be justified as an investment in our nation’s productive capacity (which will be paid back through higher tax revenues in the future) or paid for by a partial repeal of the 2017 tax cut.

Although all of the proposals above can be paid for, they will involve a shift in who pays. The financing for a single-payer health care system has to be explicitly progressive; otherwise lower-income people would be spending most of their wages on health insurance. The existing tax breaks for homeowners currently benefit the well-off; the housing programs that will replace them will help the poor and the middle class. The same is true of cutting tax deductions for retirement savings in favor of Social Security benefits. On balance, rich people will pay more to the federal government (and get less in housing and retirement subsidies), and poor and middle-class people will get more in the form of health insurance, education, lower rents, and retirement benefits.

But this is precisely the point. We should stop subsidizing the wealthy to do things they would do anyway (such as buying houses or saving money), and we should ensure that everyone has access to the basic necessities of modern life. Some may argue that asking high-earners to pay more will reduce their incentive to work and therefore undermine economic growth. For the most part, this is a red herring. Handouts hidden in the tax code, like the mortgage interest deduction, do not affect anyone’s marginal incentive to work. To the extent that rich people will face higher tax rates, there is little evidence that this will have any effect on economic growth. (For more on this subject, see Chapter 5 of my earlier book, Economism.)

Even arguing about projected growth rates, however, falls prey to a rhetorical trap. All other things being equal, a larger economy is better than a smaller one. But right now, the problem is not growth; it’s the unequal way that growth is being shared. From the end of 1979 through 2016, total output (GDP) per person increased by 82 percent. For people in the bottom half of the income distribution, however, average pretax income—the amount they were able to earn from all sources, including Social Security and pensions—inched upward by only 2 percent, a rate of less than 0.1 percent per year. During the same period, their share of total pretax income fell from 21 percent to 13 percent. In other words, if we could magically restore the level of inequality of 1979 (not a particularly egalitarian time, as I recall), the poorer half of the country would see their incomes rise by more than half. At a growth rate of less than 0.1 percent per year—what lower-income people have been able to gain from the market in recent decades—it would take literally hundreds of years to achieve a similar improvement in their economic fortunes.

Growth is not the answer. If we could squeeze another percentage point of increased production out of the economy, the large majority of those gains would be captured by the people who need them the least. Nor is “opportunity” a silver bullet. Even if we give the next generation slightly better skills to sell in the job market, the underlying problem is the highly unequal distribution of the spoils in our winner-take-all economy. Instead of repeating the dated slogans of an American dream that many people no longer believe in, we need to focus directly on the outcomes that matter: making sure that all people can live decent lives, even if they weren’t born into affluent families and didn’t go to good schools. That’s what a good society does. And that’s what it means to be the party of the people in 21st-century America.

Values

The economic agenda of our Democratic Party, as outlined above, is a concrete strategy to mitigate the inequality generated by contemporary capitalism and to address the pervasive insecurities faced by lower- and middle-income families. Our economic message is that we will fulfill the promise of a civilized society, one that shares the benefits of prosperity broadly and looks out for the needs of all of its members—that we will build a world in which no one has to worry about paying for health care, getting an education, finding a place to live, or saving enough for retirement. We will speak directly to the most immediate economic concerns of most American families. We will have a clear answer to Republicans who talk about small government and the magic of free markets: The purpose of an economy is not to generate an ever-increasing amount of stuff to be enjoyed by an ever-shrinking elite, but to provide for the basic welfare of all people.

Some people—particularly the centrist establishment of the Democratic Party—will call this a radical left-wing ideology. Some will call it socialism. Neither label is accurate. Socialism, if it means anything, means collective ownership of the productive resources of a society. Nothing suggested here encroaches on the basic structure of American capitalism.

The core principles of this economic platform are deeply ingrained in the spirit of our country. We have long prized not only rugged individualism, but also social solidarity and the duty to look out for our neighbors. For all of its flaws in practice, our nation was dedicated to the idea of a classless society, in which all people would enjoy equal rights and equal status—not an aristocracy of birth and privilege like the ones from which so many of our ancestors fled. We do not want to see our fellow citizens suffer from hunger, cold, or sickness. We do not want to see the elderly begging on the street. More than two-thirds of Americans believe that the government should ensure that “no one is without food, clothing, or shelter.” For better or for worse, for richer or for poorer, we are all one country, and it is our moral duty to look out for each other. Not every American will agree with our economic vision, yet it is a vision for all Americans.

The ethos of solidarity and shared prosperity is central to the historical identity of the Democratic Party. It motivated the finest hours of our history, when Franklin Roosevelt led the country out of the Great Depression and into World War II, and when Lyndon Johnson—despite his eventually disastrous mistakes—sought to make civil rights a reality and bring an end to poverty. “True individual freedom cannot exist without economic security and independence,” Roosevelt said in 1944, as millions of Americans were fighting around the world. “We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.” These rights included: “The right of every family to a decent home; The right to adequate medical care and the opportunity to achieve and enjoy good health; The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment; The right to a good education.”

This is the legacy that the Democratic establishment has rejected, and still rejects today. They do not believe, as Roosevelt did, that economic security is a fundamental right and an essential condition of a free society. The purpose of their Democratic Party is to foster private-sector growth, correct for market failures, help disadvantaged people gain more job skills—and then let the chips fall where they may.

Their Democratic Party has failed. It has failed to deliver the widespread prosperity that it promised; it has failed to stem the rise of extreme inequality; it has failed to maintain the trust of working- and middle-class voters; and it has failed to defend our democracy from the rise of bigotry, corruption, and authoritarianism, represented by President Trump and his Republican Party.

It is time for a change. It is time for the Democratic Party to stand for people, not for markets; for real security, not the empty promise of opportunity; for the 99 percent, not the 1 percent. It is time to take back our Democratic Party.