Zombie Economics Is Winning—Here's How to Kill It (Again)

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Republicans want to cut taxes for the richest 0.1 percent of Americans by millions of dollars. How are they getting away with it? Progressives aren't telling the right story to distinguish between the policies that got us into the Great Recession and the policies that are helping us get out.

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The history of our political economy has led us to an extremely difficult moment. The underlying assumption that unfettered markets will police themselves, provide ample economic opportunities to the broad middle class, and distribute the fruits of growth in ways that most people would recognize as fair, has proven to be terribly wrong.

That's bad, but it's amenable to policy intervention. Yet, our politics are dysfunctional and thus we are unable to self-correct. A system that cannot self-correct cannot survive. Something's gotta give.

So let's work backwards. Imagine an electorate looking for solutions and think about how to provide them what they need to make the choice that best matches their aspirations and values.

How did the argument for lower taxes and fewer regulations come back from the dead to dominate today's debate?

We want voters to have the information they need -- the facts -- to make an educated choice about the policies they think are best (recognizing that those may not be the ones I think are best). But there's so much noise out there that you can't blame people for throwing up their hands and voting for the guy or gal with whom they'd most like to share a beer. So this is ultimately a question of: How do we get to a place where facts matter?

That is a tough map to draw.

First, think about the economic challenges we face:

--We need jobs, which are facing both a demand-crunch in the recession and a long-term structural challenge.

--We need to loosen the middle class squeeze and reduce income inequality.

--We need a sustainable budget path.

--We need to expand coverage and control costs in health care.

--We need adequate regulation in key sectors, including financial markets and climate.

--We need reinvestment in public goods, education, and infrastructure.

That's a surplus of needs next to a deep deficit of motivation. The GOP field of presidential candidates doesn't deal with any of them and often makes them worse. Gov. Rick Perry's tax plan, for example, cuts taxes for the richest tenth of a percent of households -- average income: $8.4 million -- by $1.5 million and loses $570 billion per year in revenue. Every one of the GOP candidates wants to repeal the Affordable Care Act and Dodd-Frank financial reform. Their jobs plans combine trickle-down, supply-side tax cuts with policy non sequiturs like shuttering the EPA.

President Obama has ideas that could help, but they won't get anywhere in Congress. His jobs plan has been scored as helping workers and reducing the deficit. His clean-energy agenda would put a price on carbon. His budget proposal achieves sustainability in the 10-year budget window. And health care reform and financial regulation are imperfect but sensible steps in an essential direction. We can have legitimate arguments about the effectiveness of these proposed solutions, but you can't argue the fact that they make clear attempts to address the long list of America's needs.

REMEMBER HOW WE GOT HERE

The public is actually quite supportive of the objectives and the policies that the president has put forth in all of the areas above. The components of the American Jobs Act poll in the 60s and higher. A majority of Americans want higher taxes on the rich, more support for jobs, more rules to rein in the banks, and broader health care coverage. But they also have increasingly diminished faith in the ability of government to get any of this stuff right. President Obama's approval rating is flirting with the low 40s. Congressional approval ratings have set all-time lows.

In other words, people are acutely aware of not just market failure, but of government failure as well. And to the extent that they're still paying attention to what passes for governing these days, they're reminded of the latter daily.

Yet, rewind the clock a bit, and one can achieve some clarity from this muddy picture. It was a blind faith in laissez-faire policies got us where we are. The great supply-side, deregulatory, self-correcting market experiment of the 2000s blew up in the lab and led to the election of a president who ran on change. And, in fact, that President legislated some big changes targeted at the above list, including the Recovery Act, and health care and financial reform. The latter reforms haven't much kicked in yet, but as for the Recovery Act, independent analysis shows that it clearly helped pull the economy back from the cliff it was zooming towards. When it comes to breaking the back of the Great Recession, government (along with the Fed) actually performed well.

But as the stimulus faded, further stimulus has not been forthcoming, and we've snapped back. The administration pivoted too soon to deficits instead of jobs. The recovery stalled. And the deep-pocketed opposition now has the opening it needs to launch a counterattack.

CONNECTING THE DOTS

People still remember that the Bush economy failed, but they have forgotten the policy map that almost drove us off that cliff. They need to be reminded of how putting those tax cuts and wars on the credit card led to structural deficits. People need to be reminded of the radicalism of the Republican/Norquist position against tax revenues. Past deficit reduction deals, including those under Reagan and George H. W. Bush, included significant revenues in the deal. They need to hear a lot more about the opportunity costs of a spending-cut-only approach to balance, with concrete information about what will be lost (talking in terms of cuts to the "non-defense discretionary" part of the budget won't help here).

Stark reminders are also necessary regarding the importance of regulating Wall St. The recent collapse of MF Global, a firm that leveraged up beyond 40 to 1 to bet on risky sovereign debt, suggests that, well, lessons have not been learned and secure leverage ratios have not been enforced.

The whole flat tax discussion is just thinly veiled trickle down, and most people, outside of my pal Larry Kudlow, know in their guts that this doesn't work. But they need help connecting the dots between what they're hearing in today's policy debates and what got us into this mess.

I think re-connecting these dots is a way back to fact-land. It's not going to be easy, because unlike 2008, the opposition has a new argument that other approaches--stimulus, health care reform, etc.--have failed. In fact, they haven't, and that's key part of the story too. But that chapter will have to wait for another month.

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Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden. More

Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama's economic team.

Bernstein's areas of expertise include federal and state economic and fiscal policies, income inequality and mobility, trends in employment and earnings, international comparisons, and the analysis of financial and housing markets.

Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute in Washington, D.C.

Between 1995 and 1996, he held the post of deputy chief economist at the U.S. Department of Labor.

He is the author and coauthor of numerous books for both popular and academic audiences, including "Crunch: Why Do I Feel So Squeezed?" and nine editions of "The State of Working America." Bernstein has published extensively in various venues, including The New York Times, Washington Post, Financial Times, and Research in Economics and Statistics. He is an on-air commentator for the cable stations CNBC and MSNBC and hosts jaredbernsteinblog.com.

Bernstein holds a PhD in Social Welfare from Columbia University.
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