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Moving toward economic populism
Posted by: McQ on Monday, July 16, 2007

Fair warning:
On Capitol Hill and on the presidential campaign trail, Democrats are increasingly moving toward a full-throated populist critique of the current economy.

Clearly influenced by some of their most successful candidates in last year’s Congressional elections, Democrats are talking more and more about the anemic growth in American wages and the negative effects of trade and a globalized economy on American jobs and communities. They deplore what they call a growing gap between the middle class, which is struggling to adjust to a changing job market, and the affluent elites who have prospered in the new economy.


But the latest populist resurgence is deeply rooted in a view that current economic conditions are difficult and deteriorating for many people, analysts say, and it is now framing debates over tax policy, education, trade, energy and health care. Last week, Senate Democrats held hearings on proposals to raise taxes on some of the highest fliers on Wall Street, the people at the top of private equity and hedge fund firms.
Or said another way, the Democrats intend to tell you that you're living through very difficult economic times ... even if you aren't. And they further intend to tell you that only they can save you from that since it is they who have identified the problems - the 'free market' policies of the Republicans and globalization.

How will they accomplish this economic miracle where you, the American worker, will be protected from the effects of the "free market" and globalization? Well the answer is to be found in the term "populism", which, whether it comes from the left or the right, is a dangerous "ism". And, as you read through the outline of the Democrat's plan, you'll see that in reality it comes down to that old "class warfare" meme that radical egalitarians so love to invoke to rationalize their call for government intervention.
In the House, Representative Barney Frank, the Massachusetts Democrat who is chairman of the Financial Services Committee, convened party leaders and economists for a searching discussion of “globalization, outsourcing and the American worker — what should government do?” Speaker Nancy Pelosi, Democrat of California, offered the participants some blunt marching orders: “The American people want to know what we’re doing about their economic security.”
Nice framing.

Of course, the bottom line is they're going to mess with the economy. They're going to tax the "rich" (you know, only those folks "at the top of private equity and hedge fund firms"). Most likely that will actually see an increasing tax burden fall on those who are considered upper middle class all the while seeing more people at the other end of the spectrum essentially taken off the tax rolls. I like to think of that as a little 'vote insurance' for Dems.

Outsourcing, of course, is a red herring. However it is a wonderfully useful scare tactic. And while everyone realizes that globalization is inevitable and will inevitably be a net positive, again, it serves politically as something which can be used to scare a voter into voting for Democrats. And it also serves as a rationalization for protectionist legislation as it concerns trade. That translates into votes from unions who then can continue their non-competitive practices and wage demands. A win-win, politically, for the Dems.

This is nothing more than a political exploitation game where a party is helping to both establish and then exploit basically unfounded fears:
But Democrats say they are responding to economic trends that the statistics in the headlines do not capture, including middle-class insecurity about jobs, the affordability of health insurance and the costs of education. The times have changed, these Democrats argue, and six years of Republican tax and economic policies have heightened the inequities.
The siren call of radical egalitarianism. Hillary Clinton can't resist it:
Even as Mrs. Clinton has sought to associate herself with the economic growth of her husband’s administration, she, like other Democratic presidential candidates, has been expressing a sharp skepticism toward trade and globalization under President Bush. In recent weeks she has announced her opposition to the proposed South Korean Free Trade Agreement and denounced globalization that “is working only for a few of us.” She accepted the endorsement of former Representative Richard A. Gephardt, who spent much of his political career fighting what he asserted were unfair trade agreements.

And Mrs. Clinton has increasingly focused on “rising inequality and rising pessimism in our work force,” and suggested that another progressive era is — and ought to be — at hand.
And, of course, it's John Edwards favorite cup of tea:
Former Senator John Edwards, another Democratic candidate, staked out similar positions months ago and regularly notes that in the last 20 years, “about half of America’s economic growth has gone to the top 1 percent.” Mr. Edwards praises recent efforts to raise taxes on private equity and hedge funds. His campaign manager, former Representative David E. Bonior, notes that Mr. Edwards has been sounding these themes since his first presidential campaign in 2004.

“John Edwards was there at the beginning of this,” Mr. Bonior said.
And Obama is onboard too. The point I'm attempting to make is probably best exemplified by the following statement:
Representative George Miller, the California Democrat who is chairman of the Committee on Education and Labor, said, “Trade may not be the reason, or the number one reason, they’re losing their jobs, but they think it is.”
And because they may 'think it is', that is political grounds for using that fear, even if it is unfounded, as the basis of the promises they'll make to "fix the problem" through government. That, of course means more government and more intrusive government.
It is not unusual for candidates seeking the Democratic presidential nomination to move left in the primary season; Mr. Clinton himself touched on some of these populist themes in his 1992 campaign. But all the major Democratic candidates for president are promising to use government to ease the insecurity of the middle class, on issues like education and health care.
If you want bigger, more intrusive and more costly government, you'll certainly have the opportunity to vote for it when November of '08 comes around. In the meantime, do yourself a favor and analyze the arguments you'll be hearing over the coming months as to why Democrats think this is necessary. I think the informed reader will find them lacking in factual substance and reject them. They, however and unfortunately, probably won't have the last say in all of this.
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Previous Comments to this Post 

Well, they’re certainly going out of their way to ensure that, no matter how dissatisfied I may be with Republicans, I won’t be voting for a Democrat...
Written By: Kevin R.
URL: http://
This is nothing more than a political exploitation game where a party is helping to both establish and then exploit basically unfounded fears
Right on the money, I’d say. Unfortunately for everyone, it’s also nothing less than that.
[A]nalyze the arguments you’ll be hearing over the coming months as to why Democrats think this is necessary. I think the informed reader will find them lacking in factual substance and reject them. They, however and unfortunately, probably won’t have the last say in all of this. [Irresistible edit mine.]

Written By: Linda Morgan
URL: http://
Employer-based healthcare interferes with entrepreneurship.

The existing laws governing labor relations are dramatically weighted toward capital.

While on a NET basis trade is a benefit, somehow the losers never seem to get fairly compensated.

The tax code favors capital over labor.

In general, it’s foolish to believe that wages are determined only in the context of pure libertarian competition. There are plenty of reasons to believe that the US government has a big thumb on the scales, allowing increased returns to capital at the price of decreased returns to labor. What’s heavily disputed is the consequences of changing that political preference.
Written By: Francis
URL: http://
In 1976 while in Britain, I met a wonderful couple. Later that evening we were discussing politics and economics and I was startled to learn that while they were both doctors, only one of them was working. They told me that, given the tax structure at the time, they actually ended up with more money if only one of them worked. I marveled at a tax structure that would do such a thing.

I’m a design engineer, and my wife is a teacher (with a BA and Masters in the language she teaches, and a BS in linguistics, and a minor in Math). After spending years in the government-schools, she finally found a place in a leading private school...and the increasingly collectivist slant of that school (following the government schools down the drain) has now convinced her to leave the teaching world.

What’s truly funny is that we have noticed almost zero impact in going from being a two-income couple to a one-income couple. Two professional incomes are now taxed in this country (and in our Soviet Socialist State of Minnesota) at such rates that our net income AFTER taxes is now almost exactly the same as it was with two incomes. This is "progressive", I guess. The last full year in which we had two incomes (again, just prototypical grunt-type, middle-class workers) we missed hitting the Alternative Minimum Tax by just a few thousand dollars of income.

We have essentially zero incentive for her to go back to work. At home, she can study on her own time, and volunteer for things she finds interesting (learning firarms safety training, for example). She’s now got time to indulge in her hobbies of cooking, and even shopping for grocery bargains is remarkably simple with the amount of free time she’s got. We have ended up spending less (fewer times when we’re both too exhausted to cook, so fewer restaurant/take-out times), and being happier.

But the removal of her talents from the market, and the reduction in the amount we’re spending (which reduces other tax income streams from stores, restaurants, etc), and the direct reduction in the income taxes confiscated from us are just unintended consequences of the level of taxation in this country.
Written By: blackwing1
URL: http://
Democrats are refusing to see the quagmire that the War on Poverty has become.
Written By: Neo
URL: http://
Funny, we could have all the excess labor in the world, but without capital, they wouldn’t have anything to do...

Since, in order to buy raw materials, or the machines to process them, or the buildings and land on which to site them, there’s not much for labor to do.
Written By: keith_indy
"But Democrats say they are responding to economic trends that the statistics in the headlines do not capture, including ... the costs of education."
The ineptness of the average political Democrat is thus demonstrated. The cost of education is rising in large part because politicians don’t stop out of control spending and look to subsidize the cost of education at every turn, thus shielding many students from the true cost of their 4 years. I just had a call from my alma mater seeking money and the primary justification offered was the rapidly rising cost of education. I’m not going to contribute to the problem. University spending has been out of control for decades. This is all, of course, compounded with the general cultural notion that a university education is essential and worthy of inelastic demand.

I’m sure Prof. Erb will disagree, but in my experience, when comparing pay to expected level of effort, there are few professions more favorable than university professor, except perhaps university administrator.

Written By: Grimshaw
URL: http://
But the removal of her talents from the market, and the reduction in the amount we’re spending (which reduces other tax income streams from stores, restaurants, etc), and the direct reduction in the income taxes confiscated from us are just unintended consequences of the level of taxation in this country.
Well said blackwing. She has a host of talents that should benefit the country. It is shameful that her decision is forced by confiscatory tax laws.
Written By: meagain
URL: http://
"Employer-based healthcare interferes with entrepreneurship."

Great. Make people pay for the own healthcare plans and take away the "power" from the employer.

"The existing laws governing labor relations are dramatically weighted toward capital."

That’s why everyone invests in China now. Like my customers who have to hire private investigators to catch the guy with a bad back mowing his own lawn, lifting weights, etc.

"While on a NET basis trade is a benefit, somehow the losers never seem to get fairly compensated."

Francis, I just lost some business, about $500,000 worth, to a company in China. Please send me my compensation check.
Written By: Harun
URL: http://
On economics I find the view of Dr. Muhammad Yunus to be compelling. He is the founder of the Grameen bank and a Nobel Peace Prize winner. After noting he was left-progressive in his youth, studied some Marxist theory, came to a pragmatic view of markets, and a distrust of governments.

Here’s some excerpts from his book Banker to the Poor

P. 203: "In the US I saw how the market liberates the individual and allows people to be free to make personal choices. But the biggest drawback was that the market always pushes things to the side of the powerful...Another way (help to poor) to achieve this is to let a business earn profit that is taxed by the government, and the tax can be used to provide services to the poor. But in practice it never works that way. In real life, taxes only pay for a government bureaucracy that collects the tax and provides little or nothing to the poor. And since most government bureaucracies are not profit motivated, they have little incentive to increase their efficiency. In fact, they have a disincentive: governments often cannot cut social services without a public outcry, so the behemoth continues, blind and inefficient, year after year."

He believes government should pull out of almost all things, and let a "Grameenized private sector" take over (that meaning free market ideas guided with a social conscience, staffed by people who believe in it — for more you need to read his book.

P. 204: "Wherever possible, I try to avoid grandiloquent philosophies and theories and ’isms.’ I take a pragmatic approach grounded in social considerations. In everything I do, I try to be practical. I realy on learning by doing, while making sure I am moving towards achieving a social objective. I am not a capitalist in the simplistic left/right sense. But I do believe in the power of the global free market economy and in using capitalist tools. I believe in the power of the free market and the power of capital in the marketplace. I also believe that providing unemployment benefits is not the best way to address poverty. Hte able bodied poor don’t want or need charity, the dole only increases their misery, robs them of incentive, and more important, of self-respect. Poverty is not created by the poor. It iscreated by the structures of society and the policies pursued by society. Change the structure as we are doing in Bangladesh, and you will see that the poor change their own lives.

Grimshaw, it depends. For instance, those of us working at small teaching oriented schools that don’t have a big name earn less than half of those at prestigious schools. My teaching load is double that of friends who teach at nearby Colby College. During the nine month teaching year I average about 50 hours a week working, often losing a weekend day to grading and course prep. In summer I work on research projects, committee work (on four summer task forces this year), and summer teaching. I do think I have the best job one can wish for since I can teach my way, interact with students, know I’m making a difference, and while very busy, there is little stress. So I do think that in most cases effort and work level is very high for those in higher education (plus there is the opportunity cost of about a decade of education after college, where you tend to barely scrape by — lots of Rahmen noodles and mac and cheese). So just keep in mind that a lot of college professors are basically doing a working class sort of higher education, not the ivy league but in rural areas at financially strapped institutions. But I wouldn’t want to be anywhere else or have any other job!

Written By: Scott Erb
Scott, I have no doubt that there are plenty of college profs like you (I’ve had them) and I understand the sacrifice needed to reach tenure and higher pay, but at 3 non-prestigious state universities I’ve attended or worked at I’ve seen many profs draw large salaries and produce little value to show for it. Maybe that’s a function of being a state U; I’m not sure. I had good professors too, but not very many. It’s a completely different topic, but I think tenure does more harm than good.

Written By: Grimshaw
URL: http://
Grimshaw — you’re right, of course, but every profession has its slackers. Usually they are not protected by tenure. It would probably be best to have some way of removing tenured professors who do not meet job expectations (there are ways now, but it is difficult). Tenure could be re-defined to mean "as long as these well stated standards are met, you cannot be removed," to protect academic freedom but not academic incompetence. Now you almost have to get rid of an academic program to get rid of a tenured professor. It does happen, and those people have real difficulties finding jobs. I think that’s another reason people cling to tenure — if an administrator can remove you at will, it’s tough to get an academic job in a lot of fields, especially if you’re not willing to move anywhere there is a job opening. But laziness and even incompetence shouldn’t be protected.
Written By: Scott Erb

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