WHITE HOUSE PHOTOGRAPH BY PETE SOUZA
Looking back to Lincoln’s vision, Obama said: The United States must be a “great nation” that “must care for the vulnerable, and protect its people from life’s worst hazards and misfortune . . . that preserving our individual freedoms ultimately requires collective action. . . . Now, more than ever, we must do these things together, as one nation and one people. . . . For we, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it. We believe that America’s prosperity must rest upon the broad shoulders of a rising middle class.” A year later President Obama returned to this theme when he said, “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American dream, our way of life, and what we stand for around the globe.”
President Obama was not optimistic about overcoming the difficulties he faced in making progress toward the goals he believed he shared with Lincoln. In a conversation with the editor of the New Yorker at the end of his fifth year in office, Obama said, “I think America was very lucky that Abraham Lincoln was President when he was President. If he hadn’t been, the course of history would be very different. But I also think that, despite being the greatest President, in my mind, in our history, it took another hundred and fifty years before African Americans had anything approaching formal equality, much less real equality. I think that doesn’t diminish Lincoln’s achievements, but it acknowledges that at the end of the day we’re part of a long-running story. We just try to get our paragraph right.”
Obama had reason to be concerned about his ability to improve economic conditions. Facing a Congress unwilling to act on his proposals, Obama abandoned efforts in 2014 to gain acceptance of the new positive government programs he favored to improve the economic condition of Americans. The public, disheartened yet again, turned against the president in the 2014 midterm elections for what they felt was a lack of presidential leadership.
Voters gave a resounding victory to Republican candidates for the US Senate and House of Representatives in 2014. They also elected more Republican state governors, bringing the total number of Republican governors to thirty-one. The newly invigorated Republicans continue to claim the economy will automatically right itself for the benefit of poor as well as rich Americans if the country reduces individual and corporate taxes and balances the budget. They have proposed little else to improve the economic status of most Americans.
While US gross domestic product improved modestly in 2013 and 2014, the majority of Americans continued to react negatively to the lack of a substantial improvement in their economic conditions. Today politicians in Congress continue to engage in highly specific debates about how to reduce government deficits by reducing government spending. They focus on attempting to prove that government programs are inefficient rather than how to restore the Lincoln and Roosevelt visions of positive government action to reinvigorate America’s middle-class economy and society.
There is little opportunity today to gain the support of a majority in Congress for a positive economic program supported by an active federal government. The middle-class and working-class shares of national income continue to decline. Supply-side programs to provide direct financial support to financial and nonfinancial businesses and wealthy individuals continue to dominate government policy.
Corporations have substantial funds available for investment from their increased profits and their ability to borrow funds at low rates, but they have little incentive to increase production or employment because US consumer demand is constrained by the reduced growth in the real income of a majority of Americans.
A recent study by Nobel Prize–winning economist Joseph Stiglitz reminds us that current policies and practices have all been choices. We can choose to do things differently. To fix the economy for average Americans, he says, we need to change the rules and institutions that have generated low investment, sluggish growth, and runaway incomes and wealth for the wealthiest 1 percent. He emphasized that “Corporations have gone from serving all of their stakeholders—workers, shareholders, and management—to serving only top management.” Stiglitz’s approach to increase economic growth and fair treatment for all Americans centers on increasing private and public investment in our future and ensuring that everyone benefits from an economy that is working at full steam to provide genuine economic security and opportunity for all Americans. He also urges the Federal Reserve to fund a large infrastructure program to increase employment and to restore our roads, airports, and energy and telecommunication systems to a world-class level.
The American middle class—once protected and celebrated by presidents like Lincoln and Roosevelt—has been under threat. The share of middle-income jobs in the United States fell from 52 percent in 1980 to 42 percent in 2010. Middle-income jobs continue to be replaced by low-income jobs, which now make up 41 percent of total employment. The trend is not reversing. Absent a change in economic policy, as we look to the future, lower-wage jobs are predicted to make up 60 percent of the total American workforce. Replacing traditional middle-income jobs with low-wage jobs that lack benefits, stability, and family-sustaining wages is profoundly undermining American communities, contributing to a host of social and political problems, including unemployment, underemployment, poverty, inequality, political apathy, and political polarization.
With the defeat of the Democrats in the 2014 midterm elections, President Obama became “unbound,” in the words of one astute New York Times journalist. Since he now believed there was little certainty he could achieve his goals through legislation, he decided to use the power of the presidency to take direct action to address major issues—immigration, removing barriers to gender equality, opening the door to rapprochement with Cuba, and addressing the worldwide climate-change issue by an agreement with China to reduce the annual increase in pollution of the atmosphere. Perhaps more important, the president was once again in a position to advocate the economic benefit and economic necessity to rebuild the nation’s infrastructure—an economic initiative consistent with Lincoln’s insight that infrastructure investment is the most direct and impactful economic program to build the nation’s middle-class economy and society.
On January 10, 2015, the US Department of Labor reported that 3.95 million new jobs had been created in 2014, the largest number since the expansive last years of the Clinton administration in the 1990s. The unemployment rate dropped from 6.4 percent to 5.6 percent, the largest one-year decline since 1984.
The economic news was greeted with little enthusiasm by the president’s critics. The American Action Forum said, “A strong labor market attracts people to participate and pays them higher wages. It is hard to say the labor market is strong despite the robust top line numbers. The U.S. economy is healing but not yet healthy.” Diane Swonk, the chief economist of a Wall Street investment company, pointed out, “This is still a buyer’s market, in terms of labor. . . . [E]mployers still have their pick.” Jason Furman, the chairman of the President’s Council of Economic Advisers agreed: “[T]here is more work to be done to raise wages and address longer standing challenges around family income.” Indeed, there was more work to be done. More than 8 million workers were still looking for full-time employment. Many others were working in part-time jobs. The number of people in their prime working years who had officially dropped out of the labor force had more than tripled since the 1960s.
The improving economic data in January 2015 raised President Obama’s spirits and led him to take the offensive in the economic debate in Washington. All was not yet well, he said, but it was time to take further steps to improve the economic condition of the underadvantaged segments of the population. “The rising tide of this economic wind at our backs has to lift more boats,” Obama’s secretary of labor said in a telephone interview on January 9, 2015. “The nation’s wage situation is a crucial part of the ‘unfinished business’ of the nation’s economic recov
ery.”
President Obama was finally girding his loins to follow in Lincoln’s footsteps and take new steps to use the power of the presidency to improve the status of middle-class and working-class members of the American community. The White House said, “President Obama will not be satisfied until every American who wants work can find a job. That’s why he is working to grow our economy, so middle class families feel confident in their futures and their children’s futures. . . . Getting back to pre-recession status is not enough; we’ve got to restore America’s middle class.”
On January 7, 2015, Obama announced “a major step” to increase home ownership by making mortgages more affordable to “creditworthy families who can afford—and want to purchase—a home.” They “are shut out of homeownership opportunities due to today’s tight lending market.”
He took another step forward in the continuing debate on raising the minimum wage for American workers. He reminded American business owners that he had required all government contractors to pay a minimum wage of $10.10 starting in 2014 and recommended that all states with a lower rate should increase their minimum wage up to $10.10. He also tackled the nation’s tangled immigration problem. “The American immigration system is broken,” he said, and he announced a plan “to help build a system that lives up to our heritage as a nation of laws and a nation of immigrants.” He said he would take executive action that “offers 4 million undocumented immigrants a path out of the shadows with no fear of deportation.”
President Obama surprised both Republicans and Democrats in Congress when he focused directly on taxes and spending in his State of the Union address on January 20, 2015. In a return to Lincoln’s vision of a just and generous nation, Obama said his central theme was “middle class economics.” He said the nation’s economy could not grow effectively if middle-class and working-class Americans’ income was declining. He said that government could not play its critical role in increasing jobs if the taxes paid by wealthy Americans were too low to provide adequate funding for rebuilding the nation’s roads, bridges, and airports and to provide funding of students’ higher education.
The president addressed these issues directly with specific proposals. In particular, he called for a substantial increase in the taxes paid by the wealthiest citizens to provide adequate funds for the nation’s infrastructure. At the same time, he proposed a program to use federal funds to pay for two years of community-college tuition to support young people seeking training to qualify for the middle-class jobs available in the nation’s new economy. Clearly, the president who had previously despaired of his opportunity to restore Lincoln’s ideal of a middle-class society was now actively engaged in an effort to achieve it.
History tells us to suspect the persistent claim that positive government action is inherently inefficient and ineffective. Presidents from Lincoln to Roosevelt have found effective and, in many cases, nonbureaucratic methods of accomplishing major economic and social objectives. Lincoln spearheaded incredibly innovative programs such as the Morrill Land Grant Act to establish colleges, the Homestead Act to provide land inexpensively to Americans migrating west, tariffs to encourage the development of domestic manufacturing, and land grants to provide the funding of the first transcontinental railway in the United States. In the twentieth century, Roosevelt established economic programs such as Social Security, unemployment insurance, and the GI Bill. Both presidents’ efforts show that the federal government can accomplish major positive economic and social objectives with a minimum of bureaucratic interference in the economy. And government can undertake nonbureaucratic programs to increase the incomes of lower- and middle-income families to provide the demand-side impetus to support economic growth.
There was no expectation in 2015 that the new Republican majorities in Congress would respond positively to all or any of President Obama’s economic policy proposals. They were determined to reject any proposals to increase income or estate taxes. They were even more resistant to providing new funding for the president’s new infrastructure and education initiatives. Gridlock was the most likely condition for the immediate future.
What seemed certain was the rhetorical and political battle to rebuild America’s middle-class economy and society had entered a new phase. The battle lines were now clearly drawn—to provide a clear framework for the debate on economic policy for the next two years. But there was little expectation of a substantial change in economic policy until after the presidential election two years away in 2016.
There is one bright spot on the horizon. Writing in 2014, John Micklethwait and Adrian Wooldridge, the editors of the Economist magazine, argued that the current dysfunction of our economic and political system is not the only way forward. They believe that the economic and political malaise in the United States and Europe can be overcome by a revival of the “third way” approach to government policy, the model championed by Bill Clinton during his presidency.
Micklethwait and Wooldridge suggested that the United States and its European cousins look to the Nordic states, Denmark, Norway, and Sweden, which, they wrote, “continue to pride themselves on the generosity of their welfare states” and continue to build prosperous, well-governed liberal democracies. They believe these countries have found the way to address the three major problems that modern democratic societies face:
• eliminating crony capitalism that has turned “public goods to private gains” by providing “subsidies to the rich and well connected”
• lightening the burden imposed by inefficient and burdensome overregulation of economic life by introducing more consumer choice in government-funded entitlement programs
• restoring the budgeting system “to solvency through implementing a relatively gentle set of taxing and spending reforms”
Micklethwait and Wooldridge reminded readers that Denmark, Norway, and Sweden dealt effectively in the past two decades with seemingly impossible economic conditions. They developed solutions that eliminated crony capitalism and, at the same time, reduced the cost burden of their welfare states by engaging their citizens in making cost-benefit economic choices. Using Sweden as an example of the Nordic solutions the United States might adopt, they wrote:
Sweden has reduced public spending as a proportion of GDP from 67 percent in 1993 to 49 percent today. It has also cut the top marginal tax rate by 27 percentage points since 1983, to 57%. . . . Its public debt fell from 70 percent of GDP to 37 percent in 2010, and its budget moved from an 11 percent deficit to a surplus of 0.3 percent over the same period. This allowed a country with a small, open economy to recover quickly from the financial storm of 2007–8. . . . [I]ts public debt is still below 40% [of GDP]. . . . Indeed, Sweden has done most of the things that politicians know they ought to do but seldom have the courage to attempt. . . . They continue to believe in combining open economies with public investment in human capital. . . . The Nordics are important for three reasons. First, they are the part of the West that has hit the future first. . . . Second, they settled one of the central debates about Leviathan: whether it can be brought under control at all. . . . Third, they have only just started to exploit the powers of technology. . . . The Nordics reached the future first. They were forced to change because their old model went bust, and they kept on changing once they discovered that they could produce a better state.
Denmark is particularly notable in providing adequate tax revenue to sustain an efficient modern democratic society. It has the highest level of tax revenue as a percentage of GDP (48.2 percent) and the most income equality of any advanced Western country. By contrast, in the United States tax revenue as a percentage of GDP is only 24.8 percent.
Lincoln’s dream of a middle-class society is alive and well in the Nordic countries. But the United States today is not pursuing the Nordic approach, however effective it appears to be to astute observers. Congress is still engaged in efforts to reduce taxes of all kinds on the richest citizens, including estate taxes. In 2002 the tax rate for
estates of $1 million or more was 50 percent. Now it is at the historically low rate of 35 percent, with a $10 million exemption for married couples. Even the renowned conservative prime minister of Britain Winston Churchill argued that an effective estate tax provides “a certain corrective against the development of a race of the idle rich.” At the turn of the twentieth century, the wealthiest self-made American, Andrew Carnegie, echoed this sentiment: “I say the community fails in its duty and our legislative fail in their duty, if they do not exact a tremendous share” when a wealthy citizen dies. Conservative prime minister of Great Britain David Cameron went even further when he said in January 2012, “Capitalism will never be genuinely popular unless there are genuine opportunities for everyone to participate and benefit.”
The majority of Americans are still searching for a return to Lincoln’s dream of a successful middle-class economy and society. Can the American political process find its way to a positive Lincolnian approach consistent with the positive “third way” solution pioneered by President Clinton in the United States in the decade before the turn of the new century? Only concerted efforts of concerned citizens can produce the desired future result.
Epilogue. GOVERNMENT FOR THE PEOPLE: LINCOLN’S UNFINISHED WORK
Abraham Lincoln shares with George Washington and Franklin D. Roosevelt the status of most respected of American presidents in survey after survey among historians. The American public also celebrates these presidents’ leadership in office and their legacy to future generations. Today, at a time when Americans have little faith in their leaders, it is not surprising that we still hark back to Lincoln’s presidential leadership as a model for what we expect from current and future presidents.
A Just and Generous Nation Page 26