Getting on Track

Getting on Track

By William Spriggs

President Obama has kicked off a series of talks to America's working families on the economy. He started in Galesburg, Ill., where he succinctly described a solution to our economic troubles: making the middle class the engine of American prosperity.

Obama said: I care about one thing and one thing only, and that's how to use every minute of the 1,276 days remaining in my term to make this country work for working Americans again. Several things flow from the emphasis on the middle class. The president indicated that policies in recent years have focused too heavily on what government could do to help the wealthy.

For instance, he pointed out a major switch in post-World War II economic policy when, beginning in the 1980s, "Washington doled out bigger tax cuts to the rich and smaller minimum wage increases for the working poor." And, he observed, "Even though our businesses are creating new jobs and have broken record profits, nearly all the income gains of the past 10 years have continued to flow to the top 1%. The average CEO has gotten a raise of nearly 40% since 2009, but the average American earns less than he or she did in 1999." This switch in policy and the outcome of growing inequality were fueled in a belief that the engine of American prosperity lay in its wealthy entrepreneurs-not in its vibrant middle class.

Thank you for signing up to receive our blog alerts. You will receive your first email shortly. The president summarized this as bad economics: "This growing inequality isn't just morally wrong; it's bad economics. When middle-class families have less to spend, businesses have fewer customers. When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy. When the rungs on the ladder of opportunity grow farther apart, it undermines the very essence of this country."

Several things flow from this analysis that aren't as clearly articulated by the president's speech at Galesburg. First, the continued emphasis in Washington on runaway government spending and deficits is really a conversation based on a belief that the engine of American prosperity is a rich and privileged class that doesn't have to pay taxes. Profits are up. American growth-the GDP measuring the size of our economy-has recovered and continues to grow. The ability of America to pay its bills is not falling, the willingness of the rich to pay their fair share is. But a conversation dominated by what the rich are willing to pay is a diversion from a conversation on what America needs to sustain its growth. And, it is that frank conversation that people want to take place; then we can judge if spending is growing too fast or deficits are out of control.

The president did mention the middle class grew when unions could fight for workers. And that has not changed. Middle-class values go to democracy in economic activity-balancing the power of employers and employees. Unions and the right of workers to organize and raise their voices at the table when the pie is being cut are essential to a vibrant middle class. The president must have an agenda to strengthen the rights of workers to organize.

Middle class-led growth had several dimensions to it. The president touched on a few of those elements. One was education and the affordability of a college education. But he left out access to a high-quality education for middle-class children. The massive defunding of public higher education by American states means the greater challenge to middle-class children is access to a high-quality college. The president talked about cost savings that public colleges could engage in, like online course work. I know that the parents who are paying Harvard tuition would not welcome paying for online course work.

In the past, we made the likes of the Universities of California-Berkeley, Michigan and Virginia the public "Ivies," high-quality research universities with rankings that rivaled Ivy League schools but with public "endowments" to level the playing field with the vast endowments of Harvard and Yale so top faculty could be recruited to teach middle-class students. And, in part, the rise in public funding led to a rise in competition for leading professors. This is an element of rising inequality the president did not mention, but must be part of the rebuilding of a middle class-not simply cheapening middle-class educational opportunity.

Middle class-led growth means admitting that people can legitimately demand public goods-like high-quality colleges. The American middle class of the post-World War II era was very dependent on a renewed sense that people could demand public goods-high-quality primary and secondary education, libraries and public parks and quality public roads and highways. In the post-World War II era, much of that demand was met through state and local efforts. But, based on arcane local taxing schemes that often segregated high-quality public goods-like public primary and secondary education on tax sources tied to income segregation. Still, the public sector and public goods are vital to a functioning middle class.

This economic recession was the most severe of the post-war era in shrinking the revenues of state and local governments. The president must address the dying public sector. While he touts the growth of private-sector employment, this recovery has uniquely been marked for the shrinking of public-sector employment. Yet, the demand for schools has not gone down, the demand for public safety-police, firefighters and emergency health responders-remains constant. The president must show more leadership on this.

President Bush responded when the financial sector was collapsing, forcing the American people to see the essential nature of a functioning finance sector-even one that was corrupt and had speculated the nation into a recession. President Obama must make the same case for the public sector. If the financial sector is the "heart" of the economy, then the public sector is the economy's "kidneys." You won't live without a heart, but you also will not live without kidneys.

So, if the lesson that Bush pushed was that there were banks too large to fail, President Obama must be leading us with actions because there are cities too big to fail. The loss of revenue for Detroit-a city straddled with a byzantine fiscal structure designed by Michigan politicians at odds with its major city, and based heavily on income taxes-is not simply the result of a shrinking population base, but a collapsed labor market. The downward spiral the city was sent in by the 2001 economic downturn and the weak recovery through 2007 is a cautionary tale of where we are in state and local finance, not a singular event tied to Detroit's political leadership.

Certainly, the banks saved by the TARP under President Bush and continued when President Obama took office were not managed in a stellar way, either. And, similarly, their failures could be explained away as the function of rotten morals and misguided incentives. But, those truths would not outweigh the calculus of the necessity of their sector to function so we can have a modern economy. Similarly, no truths about Detroit outweigh the necessity of functioning, high-quality, well-funded schools, safe streets, regular sanitation, clean water and well-maintained transportation structures-whether buses or smoothly paved streets.

The president did mention poverty, and among the key elements of the post-war middle class were programs aimed at middle-class safety nets. We don't operate an economy that guarantees success, but a middle class is dependent on an economy that prevents people from falling too far. Today, we are continuing to pull away in the quality of that safety net. Southern states, long in rebellion against a middle-class nation, are speeding up their pulling away from the fabric of America's social safety net. It is why the South is disproportionately the home of America's poor and, as we are learning from recent research, the cradle of the growing immobility of poor.

The South breeds poverty not just through its porous safety net that would prevent poverty, but that same crashing of incomes flattens the mobility of those who do become poor from climbing back. A strong middle class means a renewed commitment to a national set of standards for the adequacy of benefits for unemployment, Medicaid and Temporary Assistance to Needy Families. And it means the president must be unequivocal that a solid middle class rests on no cuts to Social Security benefits. In fact, the post-war middle-class society was marked by expansion and increases in Social Security benefits.

The president signaled he had responded to all the Republican criticisms. His health care reform was not slowing job growth. His initial economic plan that passed with no Republican votes reversed the accelerated loss of jobs to continued and steady private-sector job growth. The deficits he inherited from massive tax cuts for the wealthy and unfunded wars were now almost half their size relative to the size of the economy. Now, he wants to have the conversation on restoring the middle class.

Let's hope the talking heads of Washington and the media consensus move with him in describing the nation's problems and change the page with the president. Let's hope the conversation that moves forward is on the real deficits that affect America's working families-the deficit of jobs for our young people, the deficits of quality school slots for our children and the deficit of security for our retirements and health. Fiscal deficit debates need to be relegated to a past vision of America that thought we could grow a country by feeding the rich. That vision failed. The president wants to reignite the American dream; a country of prosperity for all based on the engine of the middle class.

William Spriggs serves as Chief Economist to the AFL-CIO and is a professor in, and former chair of the Department of Economics at Howard University. Bill is also former assistant secretary for the Office of Policy at the United States Department of Labor.
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