President Obama's Speech: America's 'Basic Bargain' Is Broken—Now What?

A reader's guide to the president's Tuesday speech on the economy

615 obama speech 1.jpgReuters

Combining the Occupy movement's rhetoric with a nod to American populism, President Obama's economic address Tuesday in Osawatomie, Kansas, reads like a history lesson, a campaign platform, and a policy primer all wrapped into one.

Better than most of his addresses to date, this speech drew a bright line between the White House and Republicans, including the GOP presidential nominees, and aligned the administration with the broader interests of the Occupy Wall Street movement by identifying income inequality as the economy's chief moral failure.

Consider this a reader's guide to the speech's biggest points, with analysis on how they stand up to facts, and where they fit in the landscape of the public debate.

The Fundamental Issue: A Broken Bargain

For most Americans, the basic bargain that made this country great has eroded.  Long before the recession hit, hard work stopped paying off for too many people.  Fewer and fewer of the folks who contributed to the success of our economy actually benefitted from that success.

The erosion of a "basic bargain" is an apt frame for seeing the motivations behind the both Tea Party and Occupy movement. These sweeping protests did not come out of nowhere. Middle class tensions have rumbled for years before the recession, as globalization and technology reduced opportunities for the middle class (especially for middle class men) and health care costs stripped more from our compensation, leaving workers with less to take home to their families. Each side has its own boogeyman. The Tea Party (largely) blames Washington and Obama. The Occupy protesters (largely) blame the 1 percent and the financial sector. I happen to think it's more complicated, and that there are in fact too many culprits to blame for us to march against them all at the same time. But my opinion doesn't really matter insofar as we're identifying the origins of American rage. The concept of a broken bargain hits it on the head.

Why the Economy Still Feels Broken

Everyone else struggled with costs that were growing and paychecks that weren't - and too many families found themselves racking up more and more debt just to keep up. For many years, credit cards and home equity loans papered over the harsh realities of this new economy.  But in 2008, the house of cards collapsed.

Another substantively correct section. Necessities like health care, college, housing, and energy did indeed get more expensive in the last decade and paychecks weren't keeping up. Household climbed above 120 percent of income. What Americans couldn't bring home from work, they borrowed. Credit made the 2000s feel better. The credit crunch has made the Obama years feel worse.

What We're Debating Now: Who Pays First?

Most immediately, we need to extend a payroll tax cut that's set to expire at the end of this month.  If we don't do that, 160 million Americans will see their taxes go up by an average of $1,000, and it would badly weaken our recovery.

But in the long term, we have to rethink our tax system more fundamentally.  We have to ask ourselves:  Do we want to make the investments we need in things like education, and research, and high-tech manufacturing?  Or do we want to keep in place the tax breaks for the wealthiest Americans in our country?  Because we can't afford to do both.  That's not politics.  That's just math.

"That's just math," is the president's new slogan for raising taxes on the wealthy. He's half right. In the long term, we have to raise taxes on more than the top two percent. Otherwise, sensible deficit reduction (in the rage of $4 trillion over ten years) will come down in draconian fashion on domestic investment and entitlements. That, too, is just math.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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