How Washington Orthodoxy Fails the Middle Class

Revitalizing the American middle class in a transformed global economy is a staggeringly complex task. And neither Democrats nor Republicans alone have the answer.

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On Tuesday, Barack Obama declared the debate over how to restore growth, balance, and fairness to the American economy the "defining issue of our time." "This is a make-or-break moment for the middle class," he said in a Kansas speech, "and for all those who are fighting to get into the middle class."

The following day, Republican front-runner New Gingrich said Mr. Obama "represents a hard left radicalism" and is "opposed to capitalism and everything that made America great." The best way to help the middle class, the former House Speaker argued, was slashing the size of the federal government and cutting taxes.

The arrival of the middle class at the center of the American political debate is a long overdue step forward, but Obama and Gingrich steered clear of an ugly truth. Revitalizing the American middle class in a transformed global economy is a staggeringly complex task. And neither Democratic nor Republican orthodoxy alone is the answer.

The Republican right, oddly enough, has become more doctrinaire, utopian and out-of-touch with global realities than the "Marxist" Obama administration.

A recent study by MIT professors Frank Levy and Thomas Kochan lays out the staggering task that revitalizing the middle class represents. Rising blue-collar employment after World War II allowed the United States to create what Obama called "the largest middle class and the strongest economy that the world has ever known." Now that those factories have moved en mass overseas, the U. S. faces a far more arduous undertaking. Levy and Kochan argue for a new "social compact" that includes a public-private partnership where the United States' unparalleled venture capital and research university systems create high-end design, production, marketing and distribution jobs. Reforming profit sharing, unions, higher education, on-the-job training and tax law would create higher-skilled American workers who benefit from company performance along with senior executives. They cite the training, innovation and profit-sharing practices of Wegman's, Cisco and Google as examples.

By contrast, Obama's most specific legislative proposal in his speech was a payroll tax cut funded by a surtax on millionaires. Economists say the cut is a helpful short-term stimulus, but the key to strengthening the middle class over the long-term is the difficult task of creating stable, well-paying jobs.

The United States is not alone. Developed economies around the world are experiencing the same income disparity and stagnation in middle class wages. The reasons for the change - and the potential solutions to America's economic woes - lie in the American middle class reinventing its place in a rapidly changing global economy. Sweeping technological innovations over the last twenty years have altered traditional economic dynamics. The Internet has created network effects in extreme, with hundreds of millions of worldwide users making Amazon, Facebook and other companies extraordinarily valuable in extremely short periods. At the same time, global, computer-driven financial markets produce staggering profits and losses at unprecedented speed.

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David Rohde is an investigative reporter for Reuters and a contributing editor for The Atlantic. A two-time winner of the Pulitzer Prize, he is a former foreign correspondent for The New York Times and The Christian Science Monitor. His latest book, Beyond War: Reimagining American Influence in a New Middle East, was published in 2013. More

He is also the author of Endgame and, with Kristen Mulvihill, A Rope and a Prayer. He lives in New York City.

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