It's the Policy, Stupid

Like Mark Schmitt, I've been reading the Third Way's strategy paper on the economy, especially it's attack on the "myths of neopopulism," and like him I'm not totally thrilled with it. I continue, however, to have the same basic puzzlement as to why the "optimism versus pessimism" argument is thought to be so central to disputes and why the Third Way thinks it should be able to sell its policy agenda with so little discussion of, um, the policies.

As a purely political matter, optimism versus pessimism strikes me as a fairly easy question to answer. You need to look at the specific geographic area where the candidate is running, and then tailor a message to extremely short-term economic trends in that geographic area. Whether or not people aged 25-59 in 2006 are or are not better off than people aged 25-59 in 1976 has precisely nothing to do with effective political messaging (I aim this critique at both Third Way-style optimists and EPI-style pessimists) since, after all, virtually nobody aged 25-59 in 2006 was in that age bracket thirty years ago.

As a policy matter, you actually need to look at the policies. The Third Way has done enormous work convincing Democrats that they should promise to make college tuition tax deductible. This is, simply put, a bad policy idea for reasons I can discuss elsewhere. Conversely, the "baby bonds" idea is a good one. But the merits (or lack thereof) have nothing to do with the "how well off are the middle class?" question.

Should we adopt universal health care? Should we significantly reform the tax code? These are big issues. And the answers to those issues stem from analysis of the policy issues like, what would the impact of a universal health care program be? Or, would equalizing the tax code's treatment of wage and investment income really reduce savings and could any reduction be offset in a more progressive manner than the status quo? These are the questions that need answering. To just propose a random hodge-podge of tax deductions, some of which are seriously ill-considered, isn't really grappling with the issues facing the country.

2/20/07 10:25AM del.icio.us this incoming links

Comments

This "New Rules Economy" document seems little more than a lengthy statement of the obvious. Success requires a college degree. Good jobs are in offices, not factories. Climbing the ladder will be done in multiple companies. Most mothers expect to work. These are not brilliant insights, and it amazes me that it took five authors and a document of nearly 50 pages to put them forth.

Their conclusion, that the "progressive optimism" of President Clinton is what is needed to advance our nation, and our economy, is not supported by anything they say in the document. Yes, the Clinton years were a time of exceptional prosperity. But correlation doesn't imply causation, and even if it did, Clinton wasn't the only one shaping policy during those years. The Republican Congress, Alan Greenspan, and technological change also contributed to the economic changes of the 90s.

Nick Kasoff
The Thug Report

Posted by: Nick Kasoff - The Thug Report on February 20, 2007 11:15 AM

The only tax deduction Democrats should ever propose is to increase the standard deduction. They should increase it every year. All these other piecemeal deductions for this-and-that are nonsense because they just drive more people to itemize.

If the standard deduction were doubled, the only people who bothered to forage for deductions would be rich enough to hire someone else to deal with it. This would do more to deflate the Republicans' hate-the-government crap than just about anything else.

Posted by: Jalmari on February 20, 2007 11:22 AM

i haven't had time to read the report closely, but i agree that a random mix of tax deductions is probably not the way to go as far as addressing the middle class' concerns.

some disclosure...let's just say i'm pretty familiar with TW's operations...i always thought it was funny that they are (we were, not sure if they moved) across the hall from the Prospect. Matt, i seem to remember seeing you smoking cigarettes downstairs on a couple of occasions.

anyway, if i remember correctly a lot of the middle class work at the time was devoted to expanding on jacob hacker's great risk shift idea...that the middle class (and most of the population generally), really has started to shoulder much more of the burden in the modern economy, and that income volatiliy has increased markedly. i think this sort of message, while maybe more complicated, has a lot more going for it, and theoretically leads to some better policy proposals. too bad the direction of their analysis didn't stay focused on this area.

Posted by: looj on February 20, 2007 11:27 AM

virtually nobody aged 25-59 in 2006 was in that age bracket thirty years ago.

Why virtually nobody? Isn't it just flat out nobody, period? More to the point, if there is someone in the 25--29 bracket right now who was also in it 30 years ago, I'd very much like to know about it so that I can replicate the feat 30 years from now.

Posted by: flippantangel on February 20, 2007 11:34 AM

If Matt is a smoker, that goes a long way towards explaining his focus on the "extremely short-term" economic picture.

Posted by: Steve on February 20, 2007 11:56 AM

Flippantangel, today's 58-year-olds were in that bracket 30 years ago when they were 28. I'm guessing you misread a number somewhere.

Posted by: Neil the Ethical Werewolf on February 20, 2007 12:04 PM

If Matt is a smoker, that goes a long way towards explaining his focus on the "extremely short-term" economic picture.

I quit. Smoke-free since 1/1/07.

Posted by: Matthew Yglesias on February 20, 2007 12:26 PM

Neil, you're right. I read it as "25--29" not "25--59" and was filled with hope of literally remaining 29 forever.

Posted by: flippantangel on February 20, 2007 12:30 PM

Making college tuition tax deductible is a bad idea? Really? Could you please enlighten me on this?

(I'm serious, it's an open question. I really like the idea, so I'd be happy to read counterintuitive stuff about it.)

Posted by: PEG on February 20, 2007 12:31 PM

Hey, what am I? Chopped liver? I was in the 25-59 bracket in 1976 and remain there today. And My name is legion!

Posted by: Gene o'Grady on February 20, 2007 12:39 PM

Making college tuition tax deductible is a bad idea?

Government spends X dollars directly subsidizing higher ed, money goes to students according to some criteria of need and/or merit. Gov't spends the same dollars on tax deductions, and now otherwise identical students get different amounts of aid in proportion to their family's tax bracket, and students whose families don't itemize (or who are too poor to pay income tax) get no aid at all.

Seems pretty obvious, no?

Posted by: lemuel pitkin on February 20, 2007 12:40 PM

That alst bit should read: "Gov't spends the same dollars on tax deductions, and now the amount of aid depends only on a family's tax bracket, with students whose families don't itemize (or who are too poor to pay income tax) getting no aid at all."

Posted by: lemuel pitkin on February 20, 2007 12:49 PM

1/1/06 myself...best decision you'll make i guarantee, as much as it pains me to say.

oh, and regardless of how trite i find it, using new year's as a smoking end date has a certain great finality about it. that being said, 1/1/05 was the first try.

Posted by: looj on February 20, 2007 12:50 PM

I think Mark Schmitt's analysis is exactly right. The Third Way is simply politics driving policy. They have decided that, like Bill Clinton and the DLC, the only way to win elections is to pander to the upper middle class swing voters. Once you look at it is this light, all of their policy proposals make sense.

Posted by: BillS on February 20, 2007 01:17 PM

I suspect the optimism is relavent because if one believes "everything is essentially fine," all we have to do is tinker around the edges.

Though I think the pessimism/optimism dichtomy is a bit false between the two groups. Many of the so-called optimists seem to be saying, "this is as good as gets, so quit whining." Whereas those with populists with proposals like universal healthcare, can point to a much better future if we change our policies.

Posted by: AJ on February 20, 2007 01:22 PM

Obviously it's the case that Johnny "bitchen populist" Edwards is like way more populist than lib Hitler Hillary and his own policy proposals aren't just warmed over DLC-ism with a bitchen populist face. You see: what America needs now is universal health care by individual mandate that would make comprehensive policies unaffordable to working and lower middle class people who currently have them through their employers enacted by a bitchen populist type with a southern accent rather than universal health care by individual mandate that would make comprehensive policies unaffordable to working and lower middle class people who currently have them through their employers enacted by some lib Hitler Hillary type. There is little to no possibility that health care vouchers could be far more easily doled out by income level and therefore more progressive than individual mandates could ever be in practice.

Posted by: Linus on February 20, 2007 02:33 PM

Triangulation Way Ignores Values, Huge Swaths of Economic Activity

There is no legitimate economic, moral or practical justification for granting Big Pharma taxpayer subsidies to develop drugs (like Taxol), then forcing taxpayers to pay full price for the drugs when they become ill.

There is no legitimate economic, moral or practical justification for the Federal Government to deny states the right to negotiate lower prices for seniors' prescription drugs.

There is no legitimate economic, moral or practical justification for granting politically connected ranchers, mining and energy companies government-subsidized grazing rights, mining rights and oil leases; there's no legitimate justification for eliminating the Estate Tax for executives of such companies who extracted their profits on the taxpayers' dime.

The middle class isn't stupid and will not settle for the Triangulators' psychobabble about so-called "optimism" while conservative elites pick their pockets.

Populism is about American values, foremost of which are fairness and economic justice. But being conservatives (i.e. cynics), the Triangulators "know the cost of everything and the value of nothing."

Posted by: Munguza on February 20, 2007 03:33 PM

I think Matt's pn the verge of the same breakthrough some random Republican operative clearly had in 1979. To put it simply: You can run on one thing, and then do what you want after the election because only the people who like you are still paying attention then. Then, when the campaign is 1 year to 6 months away, start talking magic talk again. Wash, Rinse, Repeat. Just make sure you realize the base is actually still paying attention and that they are the ones who vote for you, not Megahyperultraglobalnet. That way, you make sure the dull masses keep hearing "free puppies for everyone" and the base is still happy.

Posted by: Soullite on February 20, 2007 04:12 PM

All else aside, it's worth noting that the Third Way Kids engage in some fairly disingenuous cherry-picking of data in their criticism of "neopopulism."

The graph that compares corporate profits to national income, in particular, is very questionable. They don't really bother to specify which exact set of data they use for corporate profits, but it's pretty clear to me that they're using pre-tax corporate profits to hide the effects of corporate tax cuts, and they're using "national income" rather than the more conventional GDP data because this produces numbers more favorable to their agenda.

According to my math, here are some of the more relevant economic changes in recent years. (Only significant peak and trough years are included prior to 2001, for the sake of space)

Corporate Profits (after tax) v. GDP
1948 - 8.71%
1958 - 5.14%
1965 - 6.83%
1970 - 4.45%
1979 - 7.10%
1986 - 3.05%
1997 - 6.65%
2001 - 4.97%
2002 - 5.50%
2003 - 6.07%
2004 - 7.21%
2005 - 8.99%

As far as I can tell, 2005 represented a 57-year high in after-tax corporate profits as a share of GDP, and this represents an explosive growth during the Bush years.

Wages and Salary disbursements (pre-tax) v. GDP

1948 - 50.3%
1970 - 53.1%
1978 - 48.8%
1980 - 49.4%
1984 - 47.2%
1988 - 48.1%
1994 - 45.7%
2000 - 49.2%
2001 - 48.8%
2002 - 47.6%
2003 - 46.6%
2004 - 46.0%
2005 - 45.5%

Contrary to corporate profits, in 2005 wages were at their lowest level since the Depression as a share of GDP, and have dropped sharply since 2000. Of course, this doesn't even take into account the much-publicized increase in wage inequality, and the high-end income tax cuts that have exacerbated wage inequality.

Much of the decline in relative wages between 1970 and 1994 was related to an increase in non-salary benefits, but those have remained generally flat over the past 6 years. Additionally, much of the increase in the value of non-salary benefits simply reflects the rising cost of health care.

True, I'm just as guilty of cherry-picking data here as they are, but that's the point. They aren't "disproving myths", they're glossing over a set of trends that favor more populist set of policies, and offering very few policy changes to speak of.

Posted by: LaFollette Progressive on February 20, 2007 04:58 PM

Norton Garfinkle writes in "The American Dream vs. The Gospel of Wealth" that "the supply-side approach was about one-tenth economics and nine-tenths politics." It was an effort, he said, to solve a political problem (how to create a Republican majority) rather than an economic one. And then they started to believe their own b.s.
But after 26 years of this failed and phoney policy, we are in such deep trouble along with our trade deficit, that a tinkerer is not what we need. Hoover was actually doing some OK tinkering at the end of his term, but it was too late. What we will need is a real bold liberal who harks back to FDR and that is John Edwards. This is a guy who figured out the income disparity thing and the stress deal three years ago. And now he senses the urgency of our dilmemma.
I am coming to realize just how conservative Hilary really is.
And how she leans toward that authoritarian Hamilton side of the ongoing argument between Hamilton (exclusionary and non democratic) and Jefferson(inclusionary democratic). Time to shift dramatically back towards one nation of, by and FOR the people not the elite. TIme to dramatically turn away from "survival of the fittest."
As Garfinkle notes, we must make this a moral and political economy and not just a practical one. Does it work? Yes. But is is fair and will it keep our democracy and not slip further into facism.

Posted by: feral cat on February 20, 2007 08:44 PM

This "optimism vs. pessimism" is just an example of labeling. And we're for kittens and puppies and you're not. The "Third Way" seems just more warmed-over conservatism to me.

Posted by: ronin on February 20, 2007 10:29 PM

I've been in the 25-29 age bracket since 1976. Indeed, I've been in the 25-29 age bracket since 1890.

Posted by: Dorian Gray on February 21, 2007 03:59 AM

I have a different take on the Third Way paper. As policy, it's not great, but as an opening gambit, it's actually not a bad way of reaching out to the libertarian wing of the Republican Party. The longer version of the argument it available at Catallarchy.

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