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Paul Rosenberg
Paul Rosenberg
Paul Rosenberg is the senior editor of Random Lengths News, a bi-weekly alternative community newspaper.
Prosperity economics: Answering America's top unasked questions
The whole narrative of the economic crisis facing America has been framed wrong since the beginning.
Last Modified: 10 Sep 2012 12:22
The economic crisis in America has been hamstrung due to asking the wrong questions, says Rosenberg [REUTERS]

Economist Dean Baker was one of the pioneers of blogging in the late 1990s, when his "Beat the Press" blog began as a weekly online column consisting of concise critiques of economic stories in the New York Times and Washington Post. He's still at it, but with more continuous posting and a wider range of targets - up to and including America's establishment press corps as a whole. Such was the case with a recent post, "'Are Americans Better Off Today Than They Were Four Years Ago?' The Question That Exposes Incompetent Reporters".

Why is this question a sign of incompetent reporting? Baker deftly explains:

"Suppose your house is on fire and the firefighters race to the scene. They set up their hoses and start spraying water on the blaze as quickly as possible. After the fire is put out, the courageous news reporter on the scene asks the chief firefighter, 'is the house in better shape than when you got here?'

"Yes, that would be a really ridiculous question... A serious reporter asks the fire chief if he had brought a large enough crew, if they had enough hoses, if the water pressure was sufficient. That might require some minimal knowledge of how to put out fires.

"Similarly, serious reporters would ask whether the stimulus was large enough, was it well-designed, and were there other measures that could have been taken like promoting shorter workweeks, as Germany has done."

There's one more point Baker could have made: Even if you want to know what shape the house is in and why, you have to ask these other questions in order to make sense of the situation. Even wrong questions make more sense when you start with the right ones.

Unfortunately, what Baker is pointing out is not merely a matter of individual bad reporting. Rather, it reflects on the American media establishment as a whole - and the incompetence affects virtually every issue in the news, not just economics. I could write an entire column on that topic - from the Iraq War to the housing bubble and the Great Recession that followed, America's media establishment has been either AWOL or wrong about the biggest political stories of the new millenium. It's not just that they got the wrong answers. As Baker makes clear, they were asking the wrong questions.

But there's a more immediate reason to take note of Baker's point: Because it applies equally well to coverage of the economic choices before America today. The questions Baker raised - was the stimulus large enough, was it well-designed, could other measures have been taken - are backward-looking ones, but it's not that hard to come up with forward-looking ones, too. Here are two obvious important ones, for example: "How do we get tens of millions unemployed, and underemployed back to work?" and "How do we rebuild the sort of sustained, broad-based prosperity that America and Western Europe enjoyed in the post-World War II era?"

The right questions

These are questions that go against the grain - just the sort of questions that reporters ought to be asking. They're also at the core of a new proposal laid out in a recent report, "Prosperity Economics: Building an Economy for All", which is supported by leading labour, civil rights and community organisations, and is being adopted by a growing list of progressive Democratic candidates. "Prosperity economics is built on three pillars: growth, security and democracy," the report explains. "These pillars reinforce one another and are intertwined politically and economically."

In a recent teleconference, the reports' lead author, Yale political science professor Jacob Hacker, explained, "Instead of the austerity agenda that we have now, focused on debt, this growth agenda is focused, really, on restoring broad-based economic growth and our democracy."

"The current debate is focused on how severly to cut, not whether to cut" government spending, Hacker added, "That's diametrically at odds with dealing with the two great challenges we face today, which are not the deficit, but rather the jobs crises, and the long-term stagnation and decline of the middle class." 

Once again, the same pattern holds: Even if you want to know about controlling the federal deficit - the wrong question to be obsessing over at this time - you have to ask about these other questions about restoring broad-based prosperity in order to make sense of the big-picture situation. As I pointed out in a recent column, even Paul Ryan understood the need for deficit spending when he was defending Bush's third stimulus package back in 2002:

"We've got to get the engine of economic growth growing again, because we now know, because of the recession, we don't have the revenues we wanted to, we don't have the revenues we need to fix Medicare, to fix Social Security, to fix these issues, we've got to get America back to work."

There are a lot more people out of work now than there were in 2002, so Ryan's logic then applies even more forcefully than it did back then. But Hacker and his co-author, Nate Lowentheil, have a much  deeper understanding of what this requires. It's not just a matter of knowing the economic history of how mass middle classes were created via modern welfare states in Europe and North America after the devastation of the Great Depression and World War II, though that certainly helps. In the report itself, the authors restate the accumulated wisdom borne of that experience:

"Prosperity doesn't just 'trickle down' from the top. It depends on the common investments and sources of security we agree on as members of a democracy, on institutions - especially unions - that ensure that gains are broadly shared, and on a healthy democracy that can sustain sound economic policies and prevent today's economic winners from undermining the openness and dynamism of the economy."

But they don't just rely on broadly-shared experience. They also point directly to the work of economist Daron Acemoglu and political scientist James Robinson in their book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, which argued for a strong connection between government responsiveness to a broad citizenry and successful policies that create long-term growth. Put simply, broadly inclusive governments produce stronger economies over the long haul - and the US traditionally was a prime example of this.

Extractive societies

But in a more recent paper, last November, "Is This Time Different? Capture and Anti-Capture of US Politics" Acemoglu and Robinson find the US falling short. As Hacker and Lowentheil put it, in an article for Politico: "We increasingly display elements found in less successful societies, including runaway inequality, influence-buying, corporate and financial lobbies that tilt government and the market in their favour", along with "under-investment in our human capital, infrastructure and basic research and development".

In that paper, Acemoglu and Robinson explain that both inclusive societies and their opposites - what they call "extractive socieites" - are governed by self-reinforcing cycles. "[T]hough such positive feedbacks existed in the US, the system faced continual challenges, most obviously from the Southern states," they write. Regarding the South, they add, "The slave economy in the US South epitomises the nature of extractive economic institutions. Instead of opening economic institutions to everyone or allowing social mobility, extractive institutions restrict opportunities to a powerful few and block social mobility. The children of slaves were also slaves, slaves could not own property, had no opportunity for social mobility."

Thus, the inclusive message of the Democratic Party and the exclusionary message of the GOP have deep cultural and political roots. But today's Democrats are far too willing to compromise to be relied on to take the needed steps. 

With the debate still framed by asking the wrong question - about debt, rather than growth - Hacker  warned, "there is a real risk that even if President Obama wins, we could end up with a kinder, gentler version of austerity economics - tax cuts that are slightly less skewed, cuts in public investment, cuts in economic security that are only slightly less draconian than those in the leading budget blueprints on the right."

That's why there must be a shift in focus to understanding the processes that Acemoglu and Robinson write about, how they intertwine with and reinforce one another and how to strengthen and rebuild them for a more broadly prosperous future.

What shared prosperity looks like

Toward this end, a stand-alone summary of policy recommendations [PDF] at the Prosperity For All website briefly describes the three inter-locking pillars of the approach and how specific policies exemplify their synergy for America as a whole, as well as their direct value to individual Americans. The proposals aren't new, particularly. What is new is their presentation as part of an integrated vision of what shared prosperity looks like, and what it takes to achieve.

On the subject of economic growth, defined as "dynamic, innovation-led growth, grounded in job creation, public investment and broad opportunity", the authors write, "We must take immediate action to jumpstart our sagging economy. Going forward, we need to invest in people and productivity that will lead to good jobs and rising wages." Examples of specific policy recommendations include:

  • Invest $250 billion per year for the next six years to rebuild our nation's crumbling roads, bridges, ports, airports and public transportation systems.
  • Restore America's manufacturing base by ending the trade deficit and tax incentives for offshoring.
  • Provide help to states and localities to hire back teachers, first responders and other public servants.
  • Ensure decent wages and job quality by guaranteeing that workers have the right to form unions and to collectively bargain.

On the subject of economic security, defined as "security for workers and their families, the environment and government finances", they write, "Markets work better when working families feel a basic security for their futures. Only when families can be sure they will not be deprived of necessities like health care and retirement security can we create a dynamic and competitive economy." Specific policy recommendations include:

  • Build on the Affordable Care Act by adding a public option with the clout to push back against insurance companies so everyone has access to affordable, quality health care.
  • End the Bush tax cuts for the wealthiest 2 per cent of Americans. The Bush tax cuts are the largest single contributor to our current revenue shortfall.
  • Increase public investment in research and development for clean energy technologies by $15 billion per year. 
  • Implement a financial transaction tax to discourage short?term speculation and reduce the chance of financial crises. The tax would be invested publically and fund job creation.

On the subject of democracy, defined as "democratic voice, inclusivity and accountability - in Washington and the workplace", they write: "Democracy means we have a strong system of checks and balances both in our government and in the private sector that empowers citizens, guarantees more inclusive decision making and creates strong mechanisms of accountability." Specific policy recommendations include:

Protect the right to vote to ensure every voice is heard in the political process. Repeal disenfranchisement and voter ID laws and adopt same day voter registration, provisional voting and other measures to maximise voter participation and access.

Guarantee every worker has a voice in the workplace, including a quick, fair process for workers to choose union representation and have the power to bargain collectively. Enforce stronger penalties on companies that violate labor laws.

Free government from corporate interests by reinstating the firewalls between investment and banking.

Improve consumer protections against unfair credit card fees and practices, predatory lending and bankruptcy rules biased in favour of creditors.

The comprehensive framework of prosperity economics - and the research it draws on - provides the vital context for understanding these policies not as a laundry-list of disparate ideas, but as interlocking aspects of a single, unified vision.

'Grand bargain'

The just-completed Democratic National Convention sounded many notes in harmony with the prosperity agenda. That's hardly surprising, given the Democratic Party's long history of building American prosperity during the 20th century. But will Democrats actually stand firm for policies and programmes that will make shared prosperity a reality, or will they return to President Obama's mindless mad scramble for an unattainable and disastrous "grand bargain" that will slash prosperity-promoting government programmes in return for Republicans finally agreeing to some modest restoration of tax levels from the past? That is the real question that Americans should be worried about.

Some Democrats clearly understand the underlying synergistic logic of Hacker and Lowentheil's proposal. Liberal bloggers Howie Klein at Down With Tyranny and Digby at Hullabaloo have repeatedly called attention and urged support for a list of progressive Democratic challengers who've signed on to support the prosperity agenda, and Digby herself was partnered with Hacker on the teleconference I mentioned earlier.

But the logic of Obama's infatuation with a "grand bargain" is antithetical to the logic of prosperity economics. Prosperity economics and austerity economics have diametrically opposed purposes - sharing prosperity among the many vs hoarding it for the few - and each has its own self-reinforcing dynamic. There is no middle way that captures "the best of both", because each has a radically different idea of what "best" is. 

As Digby noted in response to Obama's convention speech, Obama has promised not to cut programmes to give tax cuts for millionaires. (That's certainly much better than Romney-Ryan, who plan to do exactly that.) But he did not promise not to cut programmes in return for tax hikes for millionaires - and that's the very essence of the "grand bargain" strategy, a strategy that only makes sense if you're forever focused on asking the wrong questions.

Paul Rosenberg is the senior editor of Random Lengths News, a bi-weekly alternative community newspaper.

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The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

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