President Bush has never shown much understanding of the American economy or its global environment, but yesterday he at least acknowledged that all is not as it could be: Income inequality has been rising, he said, for more than 25 years. Actually, that’s not true: The distribution of incomes and wealth is less equal today than it was 25 years ago; but the record is that those distributions deteriorated in the 1980s during the Reagan and first Bush administrations, improved significantly in the 1990s during the Clinton years, and then turned much less equal under this President’s watch.
The President is correct that the rising return on higher education and skills plays a role – but he apparently missed the point that the Clinton administration did something about it by expanding government assistance and tax benefits for higher education and skills training. He cut back that assistance, and now he’s surprised that inequality in up?
Clinton and the Congress during his terms also used government to ameliorate inequality, by expanding the Earned Income Tax Credit and raising the minimum wage. George W. Bush let the value of both decline with inflation, and now he’s surprised that inequality is up?
Clinton also recognized that American prosperity requires full engagement in the global economy, so he successfully completed negotiations on the most important trade-expansion agreement in 50 years – the Uruguay Round that gave rise to the World Trade Organization – and won its approval in Congress. Bush offered piecemeal protectionism and let the next major round of global trade talks collapse. Clinton also recognized that in a global economy, rising health insurance costs would erode the ability of American business to create jobs and raise wages. He failed to pass his overall reforms but succeeded in a number of smaller ways, including extending health coverage for children and promoting the expansion of HMOs. Bush ignored the problem entirely – and now he’s surprised that inequality is up?
Finally, President Clinton saw that globalization raises the returns on capital—he took the stock market boom seriously—and responded by making the tax code more progressive. He raised rates on the wealthy while cutting tax burdens on everyone else. Bush surveyed the same forces driving greater inequality and decided to accentuate them by cutting taxes much more sharply for the very wealthy then for anyone else. So, no, he cannot be surprised that inequality is now up.
If President Bush expects his comments about inequality to pass the laugh test of the American people, he’ll have to take steps that could actually do something about it – which in his case would mean reversing most of his economic program.
Last night, the President was a little more realistic about some of the country’s domestic issues than about Iraq, but not more forthcoming and honest.
So, he spoke of cutting the budget deficit in half without acknowledging that it was a deficit he created. He talked about eliminating the deficit entirely in another five years – long after he’s gone -- again without acknowledging that federal spending has grown faster under his watch (and under of Republican congresses) than anytime since LBJ.
He talked about creating 7 million jobs under his watch, without acknowledging that the first 3 million replaced the 3 million jobs lost in the early years of his presidency.
He mentioned climate change for the first time, without acknowledging that he spent five years denying it was a problem and pulled the United States out of the global talks on the issue. And by the way, his grand response would cut CO2 emissions in 2017 by perhaps 2 percent – far too little to have any effect on climate change.
He proposed an interesting direction in health insurance – recovering revenues from the tax deductions for “Cadillac plans” and using them to help support coverage for the uninsured – but again, without acknowledging that the number of uninsured has risen sharply on his watch. He also didn’t mention that his new tax deduction would take the place of the current untaxed treatment of employer-provided health coverage.
He talked about his administration diplomatic efforts, without acknowledging its role in allowing multilateral trade talks to collapse.
And on the great economic challenge facing Americans – globalization -- he said … nothing.
If our country is to be governed honestly or wisely in the next two years, it certainly seems like the leadership will have to come not from this President, but from innovative Democrats and perhaps a few dissident Republicans.
This is an important time for the cause of open markets and trade liberalization. The current round of global trade negotiations, the Doha Round, has collapsed; and we will soon learn whether the Administration and other leaders can restart them. As British Chancellor of the Exchequer Gordon Brown wrote recently, ” … the world economy faces an uncertain autumn … (from )not only the impact of terrorism and geopolitical uncertainty on our economies, but also a surge of protectionism.” Brown also yesterday called for the restarting of Doha at a meeting in Singapore in the coming months.
On this side of the Atlantic, Brown’s warning should have the distinct ring of truth. Pascal Lammy might have said this week that he is hopeful for a re-start, but there is little sign that the current administration will expend much political capital making this happen. More worryingly, The Times yesterday ran a timely piece arguing that the size of Bush’s trade deficit is a threat to growth not just in America, but for the rest of the world too.
In the wake of five years of accelerating globalization during which American wages have stalled and job creation has slowed, the national consensus to continue to liberalize trade –one that has held fast for more than fifty years -- is in danger of unraveling, To rebuild that consensus, we need a clear vision, strong leadership and a serious program to ensure that working Americans benefit as much from globalization as American businesses.
For the past half century, open trade has been a crucial part of the formula for global peace and prosperity; and America’s greatest leaders have maintained a broad, bipartisan consensus against protectionism. FDR and Harry Truman created the architecture for an open post-war system. JFK launched the modern series of multilateral trade talks. President Reagan began the Uruguay Round and the NAFTA negotiations – and President Clinton enacted both with bipartisan support.
President Bush has failed to show any comparable leadership through the Doha Round and his broader economic policies. Whatever we do, globalization is not going away or even slowing down. As FDR, Harry Truman, JFK and Bill Clinton all understood, liberal trade and globalization are ultimately progressive causes. Progressive need to rebuild the national consensus for trade and globalization with a new program that will ensure that all Americans can benefit from both.
As Director of NDN’s Globalization InitiativeI’m pleased welcome our readers to a new experiment - two days of economic debate on our blog. Today we are launching new report – The Bush Economic Record. It is a guide to the President's economic mistakes. More than that, it is a reason why this administration must be held accountable for its failed economic stewardship in November elections.
Over the next two days we have invited various guest bloggers to debate the administration's record, to highligth the key economic issues facing our country, and to discuss the priorities for progressives to make our economy work for all Americans once again. Over the coming days you will see contributions from:
The debate about the economy is becoming more important by the day. Driven by the issue of stagnant wages and flat incomes, a new CNN poll this week showed that the economy is the single most important issue for most voters in deciding how to cast their vote in November. For the first time the economy is more important to voters than Iraq, terrorism and immigration.
The administration has tried, and will continue to try, to spin its dismal economic record. But it will fail because ordinary Americans know that they're not gaining ground under Bush when they manage their real paychecks and bills every month. Finally, the political establishment is also waking up to the fact, as this Washington Post editorial said over the weekend, that most Americans just are not benefiting from our current growth.
We hope that today’s report, and the debate on this blog over the next few days, will help to further focus attention on the current administrations poor economic choices, and what we as progressives need to do ensure our economy works for all American’s once again. And I encourage anyone reading this to take part, either by blogging the report or by offering comments to any of our guest posters.
Once again, administration officials are corrupting a branch of economic science, and the American economy will pay a much bigger price than they realize. This week, the Treasury announced that based on spending and revenue data through May, the 2006 budget deficit will be some $100 billion less than the Treasury estimated just last February. The White House used the new estimate to trumpet the success of its tax cuts – which makes no economic sense, because Congress hasn’t passed tax cuts since February that could affect current economic activity in any way.
That leaves two possibilities. Either the revenue estimators at Treasury and spending estimators at OMB are wildly incompetent, and only recently became so – which frankly is not very likely. Or, the Treasury and White House manipulated the February estimate upward -- for example, using the most pessimistic economic assumptions available and massaging pay-out formulas for entitlements – so they could claim progress for their controversial policies in July. For an administration that has pursued political gain at almost any price, time and again, that seems entirely likely.
When the senior economic agencies and officials of the United States Government produce deficit estimates which wouldn’t pass muster in economic forecasting 101, they mislead the capital markets. Tens of billions of dollars in investments are made assuming that these estimates are as accurate as humanly possible – and no private forecaster can do an equally authoritative independent estimate, because nobody outside government has the Treasury’s revenue datasets and OMB’s spending datasets.
When these estimates are manipulated for cheap political purposes, it corrupts vital information flowing into U.S. capital markets, impairing their basic efficiency and distorting the distribution and cost of investment capital. And if it becomes a pattern – and when has this administration given up any of its bad habits? – the markets could simply stop trusting government data, and then the American economy could really suffer.