Last week, President Obama delivered an impassioned address about growing income inequality and declining mobility, correctly identifying the trend as both a problem long in the making and the seminal economic challenge of our time. Inequality in the U.S. has not just meant a growing divide between the rich and the poor, but a weakening middle class, with median wages declining to $51,404 a year, down from $56,000 a year in 2000, all while productivity increased. As President Obama put it, “We know from our history that our economy grows best from the middle out, when growth is more widely shared.” But this belief that a strong and growing middle class is key to economic growth and that inequality actually harms the economy is not an argument Obama pulled out of thin air. Rather it is a theory at the core of the Democratic Party, adhered to by both recent and long past Presidents. Indeed, Bill Clinton who titled his campaign book “Putting People First,” made the same argument when he accepted his party’s nomination for the middle class, stating he was doing so “in the name of all those who do the work, pay the taxes, raise the kids and play by the rules.” And of course, FDR was the father of middle-out economics, adopting demand-side Keynesian economics in the face of the Great Depression.
That’s why it was so surprising that the day before Obama’s speech hosted by the Center for American Progress, Third Way’s Jon Cowan and Jim Kessler declared economic populism “a dead end for Democrats.” They argue that messages about income inequality are overly idealistic and claim that the progressive economic agenda doesn’t excite voters outside of midnight blue districts. Of course, they ignore that it was a populist message about reducing inequality that won Obama reelection just over a year ago.
However, the push from leading progressives for Democrats to embrace a policy agenda that says the promise of America should be for all wasn’t born from a political playbook, but from the economic reality of the last decade. Wages have been unacceptably stagnant: in 2000 the median American worker earned $768 per week, in 2012 that worker still makes $768 per week even as productivity increased over the same time period by 23 percent. Inequality is on the rise. Between 2009 and 2012, 95% of the country’s income gains went to the top 1% of earners. An overwhelming majority of Americans—85 percent—feel that it’s more difficult for middle-class families to maintain their standard of living now than a decade ago. It is in response to this economic hardship and widening income inequality that Americans have embraced a policy vision that rejects failed austerity measures in favor of smart investments in the middle class.
This vision is far from “fantasy-based blue-state populism.” In fact, it’s budget-hawks whose arguments for austerity find support in fictional evidence. The deficit is falling fast—in 2013 it decreased by 37 percent. Where in 2010, the Congressional Budget Office projected deficits would exceed 8 percent of gross domestic product by 2023, today deficits are projected to average around 3 percent of GDP; the unemployment rate, on the other hand is higher today, averaging 7.5% this year, than the CBO predicted it would be by this year , 6.7%. But unemployment isn’t following the same trend. While debt projections are no longer threatening to spiral out of control, budget hawks continue their relentless focus on deficit reduction. And Washington's obsession with fiscal “solutions” that are in search of a problem has made it harder, not easier, to create good jobs, to increase wages, and to boost overall economic growth.
This is the reality not only in true-blue districts and states, but across the country. That’s why a focus on inequality and requiring the wealthy to pay their fair share has not just been a successful political strategy for Bill de Blasio and Elizabeth Warren, but for leaders in Ohio, California, Maryland, and across the country.
In Ronald Reagan’s home state of California, Gov. Jerry Brown fought for a proposition to raise taxes on those making $250,000 or more a year and to increase the state’s sales tax by a quarter-cent directly to Californians in 2012. The establishment of a “millionaire tax” didn’t drive away innovators, but allowed the state’s leaders to say no to painful budget cuts and turned California into a global model for how to make an economy that works for everybody. Brown turned a $27 billion deficit into a surplus, brought down California’s unemployment rate, and improved the state’s credit rating. As Brown’s progressive, middle-out economic agenda paid dividends, his approval ratings soared.
Kessler and Cowan disingenuously term the serious policy ideas put forward by progressives as a “‘we can have it all’ fantasy.” But what’s lofty about a proposal to enable every child the opportunity to attend preschool when the plan would dramatically expand opportunity by boosting children’s lifetime earnings, reducing teen pregnancy rates, and lowering the chances of future arrest and incarceration? Making smart investments in early childhood education could not only generate more than $7 of economic benefits over a child’s lifetime for every dollar spent up front, but would also benefit our economy in the immediate term by providing parents with increased workplace flexibility. In pursuit of pragmatic, big ideas like universal pre-k, progressives are more than willing to talk about entitlement reforms that don’t hurt beneficiaries. In fact, the idea that every child should have access to high quality pre-k in return for enormous economic dividends is simply smart economics, not fantasy.
The most confounding piece of Kessler and Cowan’s argument is that they don’t distinguish between tax increases that affect everyone and tax increases that impact the wealthy. They argue that Democrats should learn a lesson from Colorado’s recent decision to turn down an across the board tax. While raising taxes on the wealthy has proven to be both good policy and good politics, there’s no doubt that raising taxes on everyone, as Colorado attempted, may be difficult to do—especially when wages are down. But, Bill de Blasio and Elizabeth Warren aren’t arguing that everyone should pay more in taxes, but only that the wealthy should pay their fair share. President Obama is advocating for the idea that when the top 10 percent of earners take home 50 percent of the country’s wealth, it’s reasonable to ask that the wealthiest Americans pay their fair share to ensure that all Americans have a shot at economic success. There’s another politician who raised taxes on the wealthy by raising the top marginal rate who was handily reelected President: Bill Clinton.
Neera Tanden is president of the Center for American Progress. Follow @neeratanden on Twitter.