The Democrats' Economy Wars

By Harold Meyerson
Wednesday, November 22, 2006

When voters went to the polls this month, they registered not only a revulsion with the Republican regime but also a profound -- almost un-American -- anxiety about the nation's future. They ousted incumbents who wanted to stay the economic course, choosing instead Democratic challengers who questioned free-trade orthodoxy. In the exit polling, a plurality said they believed that life for the next generation of Americans would be worse than it is today.

All wings of the Democratic Party seem to understand the extent of America's economic problem. The architects of Bill Clinton's economic and trade policies, as well as their more liberal critics, all agree now, in the words of Clinton Treasury secretary Lawrence Summers, that "the vast global middle is not sharing the benefits of the current period of economic growth -- and that its share of the pie may even be shrinking." The era of globalized free trade that Summers and his iconic predecessor at Treasury, Robert Rubin, sped on its way, Summers admits, has benefited many Asians and, here at home, has been "a golden age for those who already own valuable assets. . . . Everyone else has not fared nearly as well."

Concerned that the American dream is fading for the middle class, and fearful that said middle class may turn against the global free-trade order he helped erect, Rubin has created the Hamilton Project, which, in the spirit of its namesake, our first Treasury secretary, proposes a series of enlightened Tory solutions to address these conundrums. The project has called for greater public investment in education, health care, research and development, and infrastructure; balancing the budget; and wage insurance for workers compelled to take lower-paying jobs in our Wal-Mart-ized economy.

But are these solutions remotely adequate to the problem, which is ultimately that of wage convergence in the globalized economy? Even its proponents seem not to think so. "Let us be frank," Summers wrote in a Financial Times column. "What the anxious global middle is told often feels like pretty thin gruel. . . . [More] education [can't] be a complete answer at a time when skilled computer programmers in India are paid less than $2,000 a month."

When Rubin was pressed by the Nation's William Greider in June as to whether he thought the project's proposals would arrest or offset the global convergence of wages, he said, "I don't know the answer to that. I would guess that the answer to that question is no."

For the Democrats who now run Congress, not to mention those planning to run for president, the fact that the party's economic gurus have devised a policy that they themselves believe isn't up to the challenge at hand can't be greatly heartening. Happily, this is not the only project whose work the Democrats will be able to access. This June, in response to the Hamilton Project's creation, a group of some 50 liberal economists loosely affiliated with the Economic Policy Institute (EPI) began work of their own. Their project, yet to be named (its founders have resisted the temptation to call it the Aaron Burr Project), will be unveiled in January.

The fundamental difference between the two projects -- that is, between the two primary schools of Democratic economics -- is that Rubin's largely believes the rules of the market to be immutable and sound (though it's precisely the rules of the market that are depressing American incomes), while EPI's, in the words of economist Mark Levinson, "rejects the notion that what has happened to this economy is inevitable. Policy can turn this around." (Full disclosure: Levinson is an old friend.)

For starters, EPI's project will call for a pay-or-play health insurance system (employers can cover their own employees in private plans or pay taxes into an expanded version of Medicare that will cover everyone else) and for a retirement system in which employers can offer their employees pensions or, with their employees, pay into a system administered by Social Security. It will suggest a series of policies to decouple globalization from downward pressure on wages -- adding some enforceable labor standards, for instance, to the rules of the World Trade Organization.

Less cosmically, economist Jeff Faux pointedly asks, "Why should middle-class taxpayers fund Harvard to dream up new products that will be made overseas? We need to condition greater R&D funding to production here at home."

Over the next two years, both projects will barrage the Democrats with their ideas. At times their perspectives may converge. (Rubin seems to be edging closer to acknowledging a need to reestablish workers' rights to join unions, long a priority of the EPI crowd.) But the creation of EPI's project balances the scales in the Democratic universe. The Hamilton Project is the policy voice of the party's largest business donors. In the project to be unveiled in January, the party's voters get a policy voice, too.

meyersonh@washpost.com


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