The economic debate we should be having
Passing the tax compromise between President Obama and congressional Republicans would be a notable achievement - but mainly a negative one. It would avoid a contraction of the economy in January, when tax rates are scheduled to broadly rise. Deficit hawks are unhappy with another round of borrowed stimulus. But the first step in the recovery of economic health is the avoidance of self-inflicted wounds. On this commitment, at least, bipartisanship has returned.
Yet the deal also sparked an ideological argument on the nature of economic fairness. To some on the left, the refusal to raise taxes on the wealthy was a moral failure - a surrender to inequality. Conservatives generally countered that economic inequality is a matter of indifference, as long as the economy is growing. Both arguments are notable for their shallowness.
The liberal case was carried by Bernie Sanders, who provided eight hours of outrage on the Senate floor concerning the unjust concentration of American wealth - assuming the roles of both Mr. Smith and Mr. Engels. Progressives, who have dismissed the charge of socialism as a libel, seemed happy to accept ideological leadership from a self-described democratic socialist. The message was clear: If the Democratic Party were pure and courageous, it would be the British Labor Party.
The problem with this view is not that it is too radical but that it is too simplistic. Economic redistribution can meet some basic needs. We provide food stamps to relieve hunger or vouchers to make housing more affordable. But social equality is not achieved through redistributing cash. "Our research," argue Isabel Sawhill and Ron Haskins of the Brookings Institution, "shows that if you want to avoid poverty and join the middle class in the United States, you need to complete high school (at a minimum), work full time and marry before you have children. If you do all three, your chances of being poor fall from 12 percent to 2 percent."
So the main reasons for inequality are failing schools, depressed and dysfunctional communities and fragmented families. For the most part, inequality does not result from a lack of consumption by the poor but from a lack of social capital and opportunity. Addressing these challenges is more complex than fiddling with the top tax rate.
This does not release conservatives from responsibility because the distribution of social capital and opportunity is dramatically unequal. Economic inequality can be justified as the reward for greater effort - so long as there is also social mobility. In the absence of mobility, capitalism becomes a caste system. And this is what America, in violation of its self-image, threatens to become. The United States has less upward economic mobility among lower-income families than Canada, Finland or Sweden. Americans who are born into the middle class have a roughly equal chance of ascending or descending the economic ladder. But Americans born poor are likely to stay on its lowest rungs.
Addressing the actual causes of inequality should be common ground for the center-left and center-right - and politically appealing to American voters, who are generally more concerned about opportunity than income equality. A mobility agenda might include measures to discourage teen pregnancy; increase the rewards for work; encourage wealth-building and entrepreneurship; reform preschool programs; improve infant and child health; increase teacher quality; and increase high school graduation rates and college attendance among the poor. Children of low-income parents who gain a college degree triple their chance of earning $85,000 a year or more. If America had the same fraction of single-parent families as it had in 1970, the child poverty rate would be about 30 percent lower.
During the initial stage of Republican House control, the focus will be on steep budget cuts. But a successful Republican presidential candidate in 2012 will need to speak of opportunity, not just austerity, to a dispirited nation.
Obama has that chance right now - as well as a progressive model to follow. The leader of Britain's Liberal Democrats, Deputy Prime Minister Nick Clegg, recently addressed the meaning of economic fairness. "Social mobility is what characterizes a fair society," he said, "rather than a particular level of income equality. Inequalities become injustices when they are fixed; passed on, generation to generation. That's when societies become closed, stratified and divided. For old progressives, reducing snapshot income inequality is the ultimate goal. For new progressives, reducing the barriers to mobility is."
Come January, an effective State of the Union address will have less Bernie Sanders and more Nick Clegg.