Despite a Strong Debate, Obama Remains Vulnerable on the Economy

Oct 18, 2012Jeff Madrick

The president found his voice in the second debate, but he still needs to make a clearer case for the progress he's made.

There has been entirely too much celebrating about President Obama’s debate performance on Tuesday. He did very well, without a doubt. He won hands down. He didn’t get into the ring cold, and he showed that he knew his stuff—and that Romney really didn’t.

The president found his voice in the second debate, but he still needs to make a clearer case for the progress he's made.

There has been entirely too much celebrating about President Obama’s debate performance on Tuesday. He did very well, without a doubt. He won hands down. He didn’t get into the ring cold, and he showed that he knew his stuff—and that Romney really didn’t.

But the economy remains the ace in the hole for Romney and Ryan. We haven’t nearly recovered in terms of jobs, and that’s a tough fact to slide by. The unemployment rate rose rapidly in Bush’s last term to around 8 percent, then peaked in 2009 at 10 percent and slowly came down to its current level. So we are only back to the start of the Obama term. No one ever won the presidency with a 7.8 percent unemployment rate. And we know, as Romney keeps reminding us, that median family income is awful and that poverty is up.

Everyone knows this, and yet Obama did not have a good enough explanation of how much progress has been made. He sounded defensive. So Obama needs a strong, non-defensive explanation of his achievements, and one way to put it is what would have happened had Romney won the presidency in 2008. You’d have a 10 percent unemployment rate with Romney as president. Poverty would be way up. He’d be blaming Social Security and Medicare for all his problems, and he’s find economists to claim he was right. They might already be cutting these programs forever “in order to save them.” It’s triage -- throw the elderly out of the boat and let everyone else eat the rations. People would be poorer. They would get less health care. Those in poverty would have fewer benefits. Is that the kind of America you want?

Odds are that Romney, if he put the Romney-Ryan plan into effect, would create a bigger deficit, too. That’s actually what we need, but a deficit based on tax cuts will create few jobs. (EPI ran some numbers based on Mark Zandi's multipliers.) And if Romney did close the many tax holes he promises to, recession is almost guaranteed even as your taxes rise.

This concept is tough to communicate in a credible way. It just sounds like economists bickering. But there is a record out there: George W. Bush’s. His central economic policy was tax cuts for the rich, and he produced the slowest job growth of any president since the Depression. Romney will do that again. Promise.

Obama has to be clear: He stopped a depression. He is getting the housing market to come back after the worst devastation since the early 1930s. Employment stopped falling. But he shows hesitation in critical areas. Will he protect Social Security and Medicare? If so, then say so. The other guys will cut it, even gut it. But is he vacillating too much here. The talk about Dodd-Frank doesn’t win him many points because most of America thinks the banks got away with murder. He needs a better way of talking about that. As for Obamacare, he is talking about its good points, but he needs to be bolder still. List them all, and list them fast.

And when he says Romney is lying, which is a deliberate motif of the Republican game plan, don’t say he lied with a smile. Say, "It makes me very sad and disheartened when the governor misleads the American people. It is unfair to you voters. And when challenged, my opponent will come back and tell you again, that’s not what his program is, or he never said that. Be proud of your claims, Governor Romney; don’t back off them to win over some in the middle of the pack. Tell them where you really stand."

Finally, it is critical to be constructive about the uses of government. Tell America the only way the country will succeed and the economy will remain prosperous is if we bring everyone with us. Every American must be able to contribute to the economy with a good education and good health. Every region must have good, dependable transportation. Every part of America must breathe clean air. Government can do that.

Unfortunately, there is no third debate about domestic matters since the next one is on international events. But I bet we get back to the economy in the third debate. I hope so. Democrats have to realize that every time Romney says "just look at the record," they are behind the eight ball. Obama needs a very clear, persuasive statement about how bad the economy was in 2009 and how much he did. He stopped the bleeding. The patient was in the hospital. Who put him there? The Republicans, with the same plan Romney is offering today. The patient is resuscitated. Jobs are coming back. The housing market has turned the corner. Everyone is still getting Social Security and Medicare. And now 30 million more will have health insurance. 

Oops, I've already said all this. Sorry, readers. But why do I have to keep repeating it?

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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“We’re All in This Together” vs. “You’re on Your Own” Government

Oct 15, 2012Elizabeth Stokes

As the Roosevelt Institute | Campus Network begins work on building a Government By and For Millennial America, Elizabeth Stokes defends the idea of government as a steward of the common good.

As the Roosevelt Institute | Campus Network begins work on building a Government By and For Millennial America, Elizabeth Stokes defends the idea of government as a steward of the common good.

Despite no specifics on how they will slash taxes and also balance budgets, it is clear that the Romney-Ryan budget plan follows an ideology we've seen before. Seeking to block grant Medicaid and voucherize Medicare, the Ryan budget, endorsed by Romney, fundamentally warps the meaning and purpose of the social safety net. This ideology views government as important not for guaranteeing the collective success of all, but for protecting the individual’s right to make his own success. It views government as important not for creating a framework that meets the needs of all citizens, but for supporting and responding to the needs of the market. And it sees government, if it must offer public provisions, as an entity that works best when its services are farmed out to the private sector.

But this view of government completely ignores its role as steward of the common good. To see why this role is so important, just take a look at the recent financial crisis. It has shown us that macroeconomics is more complex and more unpredictable than our economics textbooks would have us believe. Restricting government’s scope as the precondition of a “freely” functioning market is not enough to make the market provide effectively and justly for all. As the Census Bureau recently reported, even though GDP has grown, 2011 saw huge income gains for the top 5 percent of income distribution, declines for the middle, and stagnation at the bottom. Evidently, the market alone cannot allocate resources in a way that a just democracy demands, nor can it be relied upon to stably ensure the wellbeing of our most vulnerable.

But this is the problem with the Romney-Ryan ideology: it completely misunderstands what a just democracy demands. As Jeff Weintraub puts it, the democratic ideal requires active participation in collective decision-making, carried out within a framework of fundamental solidarity and equality. The Romney-Ryan ideology severely jeopardizes this ideal. How can democracy be fully realized if 47 percent of citizens are viewed exclusively as rapacious moochers and not as fundamental equals in a shared political community? How can self-governance be possible when we fail to guarantee a fundamental baseline for all and let market-generated inequalities distort political equality?

The fundamental equality democracy requires cannot be satisfied by a handful of political rights (not that these mean much anyway given voter suppression efforts). Rather, government must also guarantee what T.H. Marshall would refer to as the social elements of citizenship: equal access to basic essentials that relieve people from the constant struggle for survival and thus provide them with the time and energy to participate in political society as engaged citizens. These basic essentials are not simply an assortment of handouts for the destitute, but are universal and based on generally shared rights of citizenship (the 96 percent know what I’m talking about). Ensuring such a baseline enables us to do away with the artificial distinctions of makers or takers, and instead binds us in a community of mutual sacrifice and success. 

Guaranteeing these social elements of citizenship also entails containing the market and money’s influence so that a person’s life chances and engagement with democracy are not exclusively determined by market position. It is therefore important to have non-market institutions, such as government, direct the market in order to uphold the common good and redress market-generated inequalities. This does not simply mean redistribution policies that tax the rich and give to the poor – after the fact mop-ups via social spending are not enough to make up for the disempowering processes that lead to market-generated inequalities in the first place. Rather, we must also focus on predistribution, i.e. the way in which the market distributes its rewards to begin with (such as regulations that protect consumers and empower workers).

The concept of government as steward of the common good recasts its role in society, seeing it less as a third entity that runs alongside the market economy and the private household but more as a force in the service of the common good that is prior to both and directive of each. Government should act as the framework that both enables and is subject to democratic decision-making in society. It should ensure all people have the minimum they need to participate and engage as citizens and its fundamental direction should be shaped by public voice and societal goals that are collectively and consciously decided.  

Ryan lauds choice, competition, and self-sufficiency as the pillars of his social safety net, implying that marketization will enhance liberty as well as efficiency. However, these words are pure rhetoric and pretense. By putting the market in charge of the common good, he would fundamentally transform basic welfare goods, which are shared in common by all citizens, into commodities, which are bought by individual consumers in a volatile marketplace. While the ethos of social insurance is “we are all in this together, rain or shine,” marketization says to the citizen “here’s some money, you’re on your own.” The Romney-Ryan ideology not only severely undermines one of the most important pillars of government, but also bars those subsets of the population who are reliant on government benefits from the democratic community. 

Elizabeth Stokes is a Working Group Fellow for the Roosevelt Institute | Campus Network's national initiative, Government by and for Millennial America, and a senior at the University of Pennsylvania.

 

Teamwork image via Shutterstock.com.

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Still No Straight Answers on Social Security

Oct 12, 2012Tim Price

After two debates, progressives are left with more questions than answers about the fate of one of our most important social programs.

After two debates, progressives are left with more questions than answers about the fate of one of our most important social programs.

It’s been a few decades since then-House Speaker Tip O’Neill first referred to Social Security as “the third rail of American politics,” but judging from the way the candidates in this election have avoided the subject, it still has plenty of juice left. There was a brief dust-up last fall when Rick Perry claimed the program was a Ponzi scheme, but his subsequent flameout in the Republican primaries was so spectacular that the details were quickly forgotten. Since then, most of the focus has understandably been on Paul Ryan’s plan to turn Medicare’s guaranteed benefit into a voucher that grandma and grandpa can add to their coupon clippings. If we’re really lucky, sometimes we even get to debate the wisdom of dismantling Medicaid. But in the last two debates, the candidates have made statements about Social Security that raised more questions than they answered and suggested that the program’s future may be in doubt regardless of the election’s outcome.

Aside from the fact that President Obama seemed to have downed an entire bottle of Nyquil before his first debate with Mitt Romney, one of progressives’ biggest gripes about his performance concerned his decision to take Social Security off the table. “You know, I suspect that, on Social Security, we’ve got a somewhat similar position. Social Security is structurally sound,” Obama said last Wednesday, adding that “It’s going to have to be tweaked” but “the basic structure is sound.” That raises two questions: First, do they actually agree, or was Obama overcome by the spirit of compromise that sometimes compels him to give his opponents the benefit of the doubt when they’ve done nothing to earn it? Second, and perhaps even more importantly, exactly what sort of “tweaks” would the candidates support?

Sadly, we didn’t learn the answers to either of these questions, since moderator Jim Lehrer is allergic to follow-ups, but commentators on the left have hazarded a few guesses, and most of them aren’t very optimistic. Writing at The American Prospect, Robert Kuttner makes one of the stronger cases for why we should worry about Obama’s commitment to preserving Social Security benefits. He notes that Romney has pledged no changes to Social Security for those in or near retirement, which carries the unsubtle implication that everyone else is probably screwed. But Kuttner argues that instead of going on the attack, the Bowles-curious Obama “is softening up public opinion to accept very similar cuts” and “giving away what should be one of the clearest differences with Romney.” Dean Baker concurs that “tweak is a code word used by people who want to cut Social Security but lack the courage to say it explicitly.”

While it might be safer to assume the worst, it would be more charitable to read Obama’s comments as an acknowledgment that there are policy tweaks that would genuinely strengthen Social Security. Jeff Madrick provides a good overview of some ways we could extend the program’s solvency without reducing benefits or raising the retirement age. He also notes that Social Security is in no real danger and that fixing its finances is a fairly easy task, even though it’s often lumped in with Medicare and Medicaid as part of an all-encompassing “entitlement crisis.” But raising the cap on payroll taxes doesn’t seem to be the type of tweaking Romney has in mind, and even with no changes the program is projected to pay out full benefits for another 21 years. So why wouldn’t Obama choose to heighten the contrasts instead of conceding the argument before it’s begun?

That question only became more urgent at last night’s vice presidential debate, as Paul Ryan defended his support for privatization. Responding to moderator Martha Raddatz’s comment that “Medicare and Social Security are going broke” (they’re not), Ryan agreed that “these are indisputable facts” (see above) and argued that “if you reform these programs for my generation, people 54 and below, you can guarantee they don't change for people in or near retirement.” Well, that’s great for them, but what does it mean for the rest of us who were sort of planning on growing old one day?

Ryan, who once derided Social Security as a “collectivist system,” is the author of a failed plan that would have transferred some Social Security funds into private investment accounts (more on that in this great piece by Mike Konczal and Bryce Covert). Last night, Ryan again claimed that privatization would “let younger Americans have a voluntary choice of making their money work faster for them,” whatever that means. It’s certainly true that if his plan had come to fruition after he originally proposed it in 2004, their money would have disappeared a lot faster during the financial crisis. Luckily, that proposal became so toxic when President Bush tried to pass it that his own party wouldn’t allow it to come to a vote. That’s probably why Ryan took care to point out that Mitt Romney doesn’t support such a plan. Instead, Romney wants to “slowly raise the retirement age over time,” an extremely regressive policy that would disproportionately hurt the poor people who most depend on Social Security. What a relief.

Biden offered a much stronger contrast on Social Security than Obama did, but he still left some questions unresolved. He stated clearly and firmly that the Obama administration would not privatize Social Security, which is the least we can expect from a Democrat given that the public version is one of his party’s greatest legislative achievements. He also argued that “to cut the benefits for people without taking other action you could do to make it work is absolutely the wrong way,” which is more reassuring but still leaves the administration some wiggle room to accept cuts as part of a Grand Bargain™. It’s certainly a weaker promise than the one he made in August, when he told supporters, “I guarantee you, flat guarantee you, there will be no changes in Social Security” if President Obama is reelected. Thanks, Mr. Vice President, but is there any chance we can get that in writing?

If Social Security wasn’t so essential -- if it didn’t lift millions of elderly people out of poverty, offer peace of mind to all Americans in their retirement, or provide critical survivors benefits that Ryan acknowledges his own family received – it might be easier for progressives to accept this kind of hedging as part of the vagaries of messaging in an election year. But Social Security really is that important, and it has powerful allies arrayed against it in Washington who make little secret of their desire to take an axe to the program. It deserves to have an equally powerful and committed advocate defending it in the White House. It’s clear that Mitt Romney won’t fill that role, especially after he chose the architect of privatization as his running mate and heir apparent. Barack Obama still could, but progressives will have to convince him that there’s no room for ambiguity.

Tim Price is Deputy Editor of Next New Deal. Follow him on Twitter @txprice.

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Obama Failed to Defend Government from Romney's Bluster

Oct 4, 2012Jeff Madrick

Obama failed to defend his policies or the positive role of government. But next time he'll be ready.

President Obama lost the dabate. A night’s bad sleep did not change my mind about that. But let’s be clear that, if more relaxed and clear, Romney was the same as ever. There is no new Romney. He dissimulated, did not address details, and refused to answer what few charges Obama brought up.

Obama failed to defend his policies or the positive role of government. But next time he'll be ready.

President Obama lost the dabate. A night’s bad sleep did not change my mind about that. But let’s be clear that, if more relaxed and clear, Romney was the same as ever. There is no new Romney. He dissimulated, did not address details, and refused to answer what few charges Obama brought up.

He opened with a brilliant debating tactic—really a war tactic: open a second front and retreat on the first one. Romney tacked to the middle. No, he won’t cut any taxes he can’t pay for. No, it isn’t a $5 trillion plan. Obama wasn't ready and didn't seem able to adjust. But what is the Romney policy? He never said. More upsettingly, Obama noticed but never truly pressed him on it. 
 
In fact, Romney's is the same old George W. Bush policy, and it didn’t work then. Obama got to this point, too, but didn’t bring it home strongly enough. Job growth was the slowest under Bush of any other postwar president. Obama said it. Doesn’t anyone remember his saying it? But Romney dissimulated again, because he can’t pull this grand four or five point strategy off, just like he couldn't pay off his original tax cut program. Obama could have asked him how much he plans to cut tax rates. He would have dodged it, but in dodging it he would have looked more like the old Romney than the new, bold Romney. Obama could have pressed harder on the details of closing loopholes. He didn’t.
 
Romney ignored the facts time and again, a tried and true debating technique. Obama pointed out that in a Medicare voucher program with choice, the insurance companies will steal the elderly who are healthy and raise costs for Medicare, jeopardizing its future. Romney simply ignored the point and went on to say, as if Obama said nothing, that Medicare would still be there under his voucher program and if it worked better, it would stand. 
 
In his attacks on the role of government, he persistently said the private sector can do better. But private sector health care costs have risen faster than Medicare. Why is that? He pushed the old ideological sticking points. Government is bad, private enterprise good. No facts, mind you. Just shibboleths. Keep the federal government out of health care. Give it to the states. Should we keep the federal government out of Social Security and Medicare, too—both very popular programs?
 
But if Romney’s bluster was strong, Obama lost the debate more than Romney won it. He seemed incapable of defending Obamacare. He couldn’t even counter the alleged Medicare theft of $716 billion well. He didn’t defend his green investments. Ninety billion dollars is not much when you consider Japan will probably spend nearly $500 billion on renewables. He only passingly defended his stimulus bill, repeating the error of neglect he has made for most of his administration. In fact, he hardly defended his record at all, for fear it reminds people that unemployment is stil high, as is the deficit. The point is they'd both be higher under a Romney plan.  
 
And what of the policies for 2013? Where was talk of Obama's American Jobs Act? Why not say that Romney’s policies will bring you a recession, sure as you’re sitting there?
 
And what about bipartisanship, of which Romney bragged during his governorship in Massachusetts? Could Obama have pointed out that he couldn't deal with Republicans who proclaim their first priority is to stop his reelection? Did any prominent Massachusetts Democrats threaten Romney that way?
 
Now, the media will start analyzing the Romney promises, and therein will lie some justice. He won’t be able to defend them except in the same general, non-detailed ways. The Democrats have to counter-attack. There will be plenty of room to do so. 
 
And one other point: I think Obama will be ready next time. He went into the ring cold. Every boxer knows you have to warm up and break a sweat before the first bell. I think he learned. He almost got knocked out in the first round. Not again, I don't think. 
 

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

 

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The Recession Ends. Then What?

Sep 24, 2012

It may be hard to imagine, but (we all hope, anyway) some day the recession and meager recovery period will come to an end. At that point, will the debates we're having now about the economy become completely irrelevant? What will we have to fight about? Roosevelt Institute Fellow Mike Konczal and EPI's Josh Bivens took this question on in the latest Fireside Chats episode on Bloggingheads:

It may be hard to imagine, but (we all hope, anyway) some day the recession and meager recovery period will come to an end. At that point, will the debates we're having now about the economy become completely irrelevant? What will we have to fight about? Roosevelt Institute Fellow Mike Konczal and EPI's Josh Bivens took this question on in the latest Fireside Chats episode on Bloggingheads:

As Mike points out, "Right now the debates seem very focused on things very specific to this recession," such as what the Federal Reserve could do to make things better or whether we should reduce mortgage burdens to boost consumption. Those are "very technical and very important debates to be having," he points out, "but they’re very narrow to the moment we’re in right now." Once we one day leave these issues behind, what will liberals decide to promote? And will we all be able to get on board?

The first issue Josh sees rearing its head is what we consider the "natural" rate of unemployment to be. Right now it's pretty obvious that unemployment is too high. At what point does it fall so much that some people, including the Fed, start to say it shouldn't go any lower? This question will have larger implications as well. As Mike says, "You see policy experts running around trying to figure out how to boost the wages of the lower quintile, but we know what has done it in the past 30 years, and it’s when unemployment is below 5 percent for a sustainable period of time." In fact, he says, a low unemployment rate "is the ultimate jobs program, it is the ultimate policy solution," and boosts wages for everyone -- not just those at the bottom.

What else will we squabble over when the economy once again booms? Bivens predicts social insurance programs -- Social Security, Medicaid, and Medicare -- will have to be on the agenda. And related to that will be just how high we can go with tax rates on the rich. "Obviously you can have a fairness argument and a just deserts argument, but the economic case is pretty clear that [tax] rates [on the wealthier] could go much higher," Mike says. "But we’re seeing resistence to just getting to near 40 percent at this point." Brace yourself, political battles are coming.

Watch the full episode below, in which Mike and Josh discuss how little we all take home and whether inequality and the social safety net have anything to do with it:

 

Crossroads image via Shutterstock.com.

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The Romney-Ryan Medicare Plan is Bad for Students and Seniors

Sep 21, 2012Rahul Rekhi

Shifting health care costs onto seniors will break a social compact that all Americans rely on.

Shifting health care costs onto seniors will break a social compact that all Americans rely on.

With Election Day finally in sight, the last few weeks have been brimming with slogans, speeches, and sound bites. But while Republicans and Democrats are working from a similar playbook, there’s a gaping chasm between their competing visions of the social safety net, and the future of Medicare hangs in the balance. In short, the Republicans claim their voucher plan would reduce health care costs, but the truth is that the seniors who depend on Medicare would be forced to pay the price.

The policy clash boils down to a single notion: vouchers. Mitt Romney and Paul Ryan are proposing a voucher-based Medicare system—one in which seniors are given vouchers to trade for insurance plans on a national exchange or market. The value of these vouchers is capped at a specific value, with the aim of curbing rising health care costs. And in fact, it is completely true that the Romney-Ryan voucher system will reduce Medicare costs, as promised. But it will do so by pushing those expenses onto Medicare enrollees, by forcing them to pay more out of pocket to cover their medical expenses as health care costs rise. What the GOP is proposing, in other words, is not exactly cost-cutting, but rather cost-shifting from government to seniors. If the yearly national allowance of vouchers has expired and your heart begins to fail, well, at least take solace in the fact that Mr. Ryan’s plan lowers Medicare costs by 20 percent.

If you’re only looking at the arithmetic, voucherizing Medicare is a clear and easy solution to bending the health care cost curve. Unlike, say, prevention and wellness campaigns, it’s not hard to project the level of cuts such vouchers will allow for. But this policy simplicity and straightforwardness mask an equally straightforward truth. Rather than attempt to extract amorphous, messy savings through biomedical innovation, electronic records, waste reduction, comparative effectiveness research, or incentivizing quality of care—in other words, achieving collective savings through progressive reforms—Romney and Ryan propose to gut Medicare and hand senior citizens the entrails. And this is hardly hyperbole; the nonpartisan CBO itself stated that the plan “could lead to reduced access to health care; diminished quality of care for Medicare beneficiaries…[and] less investment in new, high-cost technologies.”

That’s not to say that changes to the structure of Medicare are not needed, or will not require tradeoffs; they will. Real discussions, for instance, will have to be had over such hot-button topics as end-of-life care, or limits on the use of expensive, clinically unproven medical technologies. Refinements to these policies would bring Medicare into the 21st century, making it more nimble and in tune with technological advancement and social change. But they also preserve its central guarantee: that our nation’s retirees, having put in a lifetime of hard work and civic service, will receive quality, affordable health care to support them through their later years.

Fifty years ago, with the creation of Medicare under LBJ, thousands of soon-to-be enrollees—aunts, uncles, professors, my friends’ parents and my own—grew up trusting in this promise. And though, as a student, it will be nearly half a century before I qualify for the program, I recognize all too well the gravity of the decision we now face. It is one, after all, that will be borne most heavily by my peers, since the costs that are shifted to seniors today will be thrust upon us tomorrow as health care costs continue to rise. And young Americans will feel the consequences of voucherization well before we reach the age of eligibility, for the security that Medicare provides allows us to take risks when we're younger, to try to create the next Facebook or Instagram, rather than play it safe for fear that we'll be left destitute or denied care in our later years. To chip away at the heart and soul of our social safety net is, in a sense, to hinder innovation itself.

Ultimately, the choice we face is simple: to uphold this mandate or reject it fundamentally; to maintain the promise of health care access for our elderly or begin chipping away at the coverage we provide in the name of budget-balancing. This debate is about a decades-old American social compact, and its effects will reverberate, shaping the futures of not only my own generation but also the ones to come. For the health of our citizens and our safety net, there is only one right answer.

Rahul Rekhi is a student at Rice University and the Senior Fellow in Health Care Policy for the Roosevelt Institute | Campus Network.

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The Theory of the Moocher Class

Sep 18, 2012Mark Schmitt

The conservative narrative of the "entitlement society" ignores the fact that most Americans are both givers and takers.

The conservative narrative of the "entitlement society" ignores the fact that most Americans are both givers and takers.

As David Brooks points out, Mitt Romney's remarks describing 47 percent of the population as, in effect, moochers who would vote for Obama because they got government benefits were not “off the cuff,” as he described them today. There is a carefully developed theory behind his words, which has seen expression in previous Romney speeches, such as one last December in which he described Obama's vision as an “entitlement society” in which “everyone receives the same rewards,” but in which “we'll all be poor.”

The lab where this theory that we're headed toward a radical egalitarian state is being developed is the American Enterprise Institute, the oldest of the conservative think tanks and one that, much like Romney, has forsaken the traditional business-minded conservatism of, say, the first President Bush, for hard conservatism in which everything is a grand showdown of incompatible worldviews. The two recent books by the current AEI president, Arthur Brooks (The Battle and The Road to Freedom) embody this apocalyptic approach, as does a recent essay-with-graphs by longtime AEI scholar and accomplished demographer Nicholas Eberstadt, called “A Nation of Takers.”

AEI invited me to participate on a panel with Eberstadt a few months ago, when the essay was just a series of unpublished PowerPoint slides. I welcomed the invitation, but had to cancel due to a conflict. However, I wrote up notes at the time, and what follows is adapted from those notes.

“A Nation of Takers” shows in some detail the expansion of government benefits since the 1960s and the share of the population they reach. The data is not wrong, but it's selective, and the story that Eberstadt has wrapped around them – that receipt of benefits makes people “dependents,” that people are becoming “chiselers,” choosing to maximize benefits, that the expansion of entitlements was a political effort by the left that slowly overcame “resistance” from real Americans -- is highly tendentious. The reality is that people who receive benefits are no more or less “dependent” than corporations that get tax breaks or legal protections, that the expanding costs of major entitlements are about rising health care costs and, to a lesser extent, the demographics of an aging nation rather than more people becoming “takers,” and that the expansion of some benefits to the lower rungs of the middle class was a bipartisan project in which conservatives should take pride.

There is a story implied in the very word, “takers,” which is reminiscent of former Senator Phil Gramm's oft-repeated metaphor of a wagon: there are “people riding in the wagon,” he would say, and “people pulling the wagon,” and the people riding need to get out and pull. But while you can't pull a wagon and ride in it at the same time, you can certainly be a taker and a giver at the same time, or at different times in life. For example, Eberstadt's charts show that the government benefit that grew fastest in recent years, not surprisingly in a recession, is Unemployment Insurance. Everyone who receives benefits from Unemployment Insurance, without exception, has worked – usually full-time and steadily for at least a year – and paid into the system through their employers. And they will (they desperately hope) work again and pay even more. Some people might end up receiving more, over their long working lives, while others might pay in while having the good fortune never to be unemployed. But that's the nature of insurance. Most of us, other than the permanently disabled, are givers and takers to government, because that's what it is to be part of a community or a nation.

A look at the individual programs behind all of these charts indicates that the big story is the extension of the social safety net from the very, very poor to the lower rungs of the working poor, particularly through expansion of Medicaid and tax credits for working families. With bipartisan support, these innovations have fundamentally changed the social safety net that both conservatives like Charles Murray and Lawrence Mead and liberals like David Ellwood described in different ways two decades ago: a system in which it really did make more sense for poor parents not to work than to give up the linked package of benefits that went with non-work, including welfare, Medicaid, and food stamps. Meager as those benefits were, they were often economically preferable to a minimum-wage job without health care or other assistance, and with the added costs of child care.

Changing that system was not just a matter of imposing work requirements, but of smoothing the path into the workforce and toward self-sufficiency. Medicaid eligibility was delinked from welfare and linked instead to income, starting at 100 percent of the poverty level and reaching 185 percent in the Affordable Care Act. Together with the State Childrens' Health Insurance Program, expansions of the Earned Income Tax Credit, the Child Tax Credit, the Refundable Additional Child Tax Credit, the Child and Dependent Care Credit, the Make Work Pay Credit, expansion of child care, the after-school and summer food programs, and others, we have created a safety net that extends well into the low-income working population. These individuals, too, are both takers and givers – they are working hard, contributing to the economy, and while some of them may not pay federal income taxes at the moment, they will as they move up.

This dramatic reorientation of the safety net didn't just happen; most of these initiatives had significant bipartisan and cross-ideological support. Not only do they provide a ladder out of poverty and reward work, they also make possible the relatively low-wage, low-security labor market that gives employers enormous flexibility. Conservatives used to argue, for example, that raising the EITC was a better alternative to raising the minimum wage, and they mostly won that fight. The result is that low-wage employment is essentially subsidized, and businesses are able to hire at very low cost and low commitment, with none of the barriers to either hiring or firing that are common in Europe. Paul Ryan, Mitt Romney and others in the current wave of conservatism seem to have entirely forgotten the merits of these innovations, and in their promise to protect programs only for the very, very poor, they threaten to restore the hopeless poverty traps of the 1970s and 1980s.

It's also worth noting that most members of the “Nation of Takers” probably don't think of ourselves as “takers.” In her important recent book, The Submerged State, Suzanne Mettler of Cornell looked at data asking people whether they had ever benefited from a government social program. While most participants in the classic, older transfer programs were aware that they had benefited from programs, most of the newer programs, especially those delivered through the tax code, were invisible to a majority of their beneficiaries. (Even 45 percent of Social Security recipients said they had never used a government program, which may reflect the belief that they are receiving benefits they've paid for.)

While many on the left latched onto this data as evidence that Americans, especially conservatives, are hypocrites who revel in public benefits while maintaining an anti-government stance, there's really much more to it than that. Delivering benefits through “submerged state” programs has broken any kind of connection between citizens and the benefits we receive. We can't have a clear debate about whether we're a “Nation of Takers” or whether these benefits are essential to maintaining the promise of a middle class country if most of us don't even know the role that government plays in our lives.

Conservatives and liberals built the submerged state together, often sharing a preference for delivering benefits through the tax code. But a concerted effort to reduce the long-term budget deficit, with tax reform at the center of it, creates an opportunity to surface submerged programs and replace them with far more efficient, visible, direct programs. When the public is fully aware of the benefits it's receiving, it's possible that voters will recoil in shock at the degree of their dependency, or perhaps they will regain a healthy respect for the role of government in providing some of the security that helps them take full advantage of their capacities and opportunities.

It's disappointing that Romney shows no interest in either drawing out the submerged state or in the bipartisan project (of which his health reform in Massachusetts was a part) of smoothing the path to economic success for families. Instead, he just sees half the country as people who can't be convinced “that they should take personal responsibility and care for their lives.” That's a very strange view of this country and a tragic development in modern conservatism.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

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Should We Stop Referring to Student Loans as "Financial Aid"?

Sep 14, 2012Mike Konczal

Students who take out loans aren't receiving special favors. They're making financial transactions like any other.

Do we make both a conceptual and analytical mistake when we refer to student loans as a form of "financial aid"? Should that term be something to be resisted? Demos' Tamara Draut brought up this point in a conversation recently, and I think it needs to be explored further, because it frames how we speak about student loans.

Students who take out loans aren't receiving special favors. They're making financial transactions like any other.

Do we make both a conceptual and analytical mistake when we refer to student loans as a form of "financial aid"? Should that term be something to be resisted? Demos' Tamara Draut brought up this point in a conversation recently, and I think it needs to be explored further, because it frames how we speak about student loans.

The government records and documents student loans as a form of aid. Here's a list of the "amount of financial aid awarded to full-time, full-year undergraduates, by type and source of aid," and loans are listed right next to grants. When pundits say that "student aid" has exploded over the past decade, and argue that aid is driving increases in tuition, it disguises that the aid that has exploded is a signficant amount of debt for young people.

I've taken out loans and received gifts. When I've signed up for, say, a car loan, I never went "oh you shouldn't have" afterwards, like when I've received a really nice birthday gift. I understood that the creditor wanted to lend me a certain amount of money at a certain rate, and I wanted to borrow it. Full stop. Unless the interest rate charged is purposely manipulated for some reason [1], there's no reason to think of this as aid at all.

Student loans are an economic transaction, the same as if the government contracted out to build a bridge, or hired a person to serve in the military or police force or be a teacher. The money spent here isn't "aid." Hiring someone to build a bridge exchanges labor for cash. Student loans exchange cash now for cash later plus interest. Those student loans would be underprovided without the government, certainly, but in the same way that bridges and law enforcement and other goods would also be underprovided if they weren't done by government.

I think this clarifies some of the issues and responses I'm seeing in the discussion about whether or not higher education is driven by increases in so-called "aid." Megan McArdle wrote in Newsweek, "In a normal market, prices would be constrained by the disposable income available to pay them. But we’ve bypassed those constraints by making subsidized student loans widely available." Let's leave aside the issue that the vision of education constrained by disposable income is Mitt Romney's vision that students should get "‘as much education as they can afford." There's a bigger issue.

I'm not sure what "normal market" means here, but many kinds of markets, perhaps even all of them, aren't constrainted by disposable income. Major, long-term debt fuels all kinds of important purchases, from houses to cars to health care to big-ticket durable goods. Events like retirement or having kids are dictated by longer-term savings decisions. Much of your monthly spending, like your rent or your cell phone, is in a contract that stipulates some future payments must be made regardless of your disposable income. There's a reason economists talk about spending as influenced by lifetime incomes.

Student loans are a way of mitigating a credit constraint, which is different than providing aid. Here it reflects not subsidized demand, but actual demand smoothed over a long time period. That's going to put a lot of demand into play. It shouldn't surprise us that demand is very high when credit constraints are removed. Higher education is one of the most important mechanisms of social and economic mobility we have, and it is also one of the primary ways we have for people to fully develop their talents and capabilities.

If actual demand overwhelms the supply of the system, that's a problem of supply, not demand. And the obvious solution is to increase the supply. Throughout our country's history we've done that in landmark bills that do it through public provisoning paid for by taxation, bills like the Morrill Act and California Master Plan. Now, as that system is left to crumble, we are looking to the private, for-profit sector to fill that gap. I fear that will only exacerbate the cost problems we've seen so far, and the data is looking that way too

But if not as a form of financial "aid," how should we refer to student loans?

[1] There's a narrow, though important, question about whether or not student loans are a "subsidy" because their interest rates are too low or too high. The Department of Education found that (R-10) for ”Direct Loans, the overall weighted average subsidy rate was estimated to be -13.91 percent in FY 2011; that is, the overall program on average was projected to earn about 13.91 percent on each dollar of loans made, thereby providing savings to the Federal Government.” What's a good word for the opposite of a subsidy? Whatever it is, student loans are that. Others argue that there needs to be a higher discount rate used to calculate this, and then you would see a subsidy. Let's assume for this post that the interest rate is seen to be fair by all parties.

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Young woman paying bills image via Shutterstock.com.

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Two Issues with Megan McArdle's Piece on Higher Education

Sep 13, 2012Mike Konczal

Megan McArdle has a new cover story at Newsweek, "Is College a Lousy Investment?"  Is the benefit worth it with rising costs? Several people have addressed the benefit part, particularly Dylan Matthew here and Reihan Salam here.

Megan McArdle has a new cover story at Newsweek, "Is College a Lousy Investment?"  Is the benefit worth it with rising costs? Several people have addressed the benefit part, particularly Dylan Matthew here and Reihan Salam here.

I have a piece about higher education that I'm really excited about coming out in the next few weeks with Aaron Bady for Dissent, so I don't want to spoil it. But for now, I think there are two important things to engage with in McArdle's piece. The costs part is important, because this will likely be the center-right argument going forward, and I think it has problems in an important way. McArdle:

Vedder adds, “I look at the data, and I see college costs rising faster than inflation up to the mid-1980s by 1 percent a year. Now I see them rising 3 to 4 percent a year over inflation. What has happened? The federal government has started dropping money out of airplanes.” Aid has increased, subsidized loans have become available, and “the universities have gotten the money.” Economist Bryan Caplan, who is writing a book about education, agrees: “It’s a giant waste of resources that will continue as long as the subsidies continue.” [...]

In a normal market, prices would be constrained by the disposable income available to pay them. But we’ve bypassed those constraints by making subsidized student loans widely available. No, not only making them available: telling college students that those loans are “good debt” that will enable them to make much more money later.

This is based on something called the Bennett Hypothesis. In the 1980s Education Secretary William Bennett argued that increases in student aid largely just allowed colleges to raise their tuition, capturing all that money. If true, this would be the lowest hanging policy fruit imaginable: save money by not providing aid and lower tuition in the process.

Sadly, there's no evidence for this argument. And I mean "no evidence" not like "there's significant debate" or "reasonable people disagree," but like this has been extensively studied and the general consensus is that it is not true. I spent some time going through this research and couldn't find anything conclusive, and requests from others writing on this haven't been helpful. This could likely be true as it relates to for-profit schools -- there's a study somewhere that indicates this -- which shouldn't suprise us, as for-profits exist to suck up federal subsidies by business design. But it doesn't appear to be true for the vast majority of higher education, and to whatever extent it could be true it isn't a major driver.

 Here's a big post by David L. Warren, president of the National Association of Independent Colleges and Universities, listing all the institutions that have investigated this. Among other studies and experts quoted, here's:

“Regarding the relation between financial aid and tuition, the regression models found no associations between most of the aid packaging variables (federal grants, state grants, and loans) and changes in tuition in either the public or private not-for-profit sectors.”
 
– U.S. Department of Education National Center for Education Statistics, Dec. 2001, Study of College Costs and Prices 1988-89 to 1997-98, Vol. 1
 
“The Commission finds no evidence to suggest any relationship between the availability of Federal grants and the costs or prices in these institutions,” and “has found no conclusive evidence that loans have contributed to rising costs and prices.”
 
– National Comission on the Cost of Higher Education, February 1998, Straight Talk about College Costs & Prices
 
“After the change to the Stafford loan limits beginning in AY 2007-08, the price [of college] … increased at a rate generally consistent with prior years. [...] Overall, [previously conducted] analyses are descriptive and do not necessarily indicate a linkage between increases in the loan limits and changes in tuition or borrowing.”
 
– Government Accountability Office, May 2011, Federal Student Loans: Patterns in Tuition, Enrollment, and Federal Stafford Loan Borrowing Up to the 2007-08 Loan Limit Increase
This is important, because McArdle's argument allows her to make it seem like government action to provide for higher education is largely counterproductive. Rather than examining the decreasing support for higher education, the difficulty of finding "Baumol’s cost disease" in higher education, the growth of a "hybrid" design for our public education sector, the decrease in Pell grants relative to total college costs, the way that the for-profit industry is taking over for public institutions, or the issue of risk-shifting to the individuals and providing services out of fees instead of taxes - rather than it being a choice on how we provide the essential social good of higher education, and who benefits and who loses from those choices - McArdle can imply that if the government tried to make education more affordable it would backfire and just make the problem worse.
 
This becomes even more of a problem with the second issue, the likely transmission mechanism. Just because aid goes up doesn't mean that prices must go up - the increases in food stamps haven't caused an equivalent increase in food prices. In a follow-up post to her article, she alludes to the microeconomic issue at play: "Vedder’s theory is that, as he put it, universities are raising tuition 'because they can'."
 
In economics-speak, that means that the supply of higher education is inelastic relative to price. If that's the case, then the right course of action is for the government to provide more supply at a cheaper price; i.e., free higher education. JW Mason has argued that if supply is inelastic, "each dollar spent on grants to students reduces final tuition costs less than one for one, each dollar spent on subsidies to public institutions reduces tuition costs by more." Think of it as "the public option for higher education" argument, with the same motivations. This is not a new argument. in 1899, the president of Stanford argued that “if the State makes no provision for higher education there is no other agency on which we can depend to supply it.” That seems as relevant now, over 100 years later, as it did back then.
 

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New Article: On Paul Ryan's World of Welfare Capitalism

Sep 13, 2012Mike Konczal

I have a new article at The Nation with Bryce Covert titled How Paul Ryan Would Decimate the New Deal. "Ryan’s vision for reforming the social safety net can be explained in three verbs: he wants to block grant Medicaid, voucherize Medicare and privatize Social Security.

I have a new article at The Nation with Bryce Covert titled How Paul Ryan Would Decimate the New Deal. "Ryan’s vision for reforming the social safety net can be explained in three verbs: he wants to block grant Medicaid, voucherize Medicare and privatize Social Security. Yes, Medicare, Medicaid and Social Security would likely still exist, but those changes would mean a profound difference for the average person who receives government benefits over his or her lifetime."

We walk through how a specific person would encounter these programs as they are administered currently and under Ryan's vision. We then talk about Gøsta Esping-Andersen's idea of "Worlds of Welfare Capitalism" and try to understand what a social-democratic welfare state would look like versus a classically liberal (read: libertarian) welfare state. We use that to formalize Ryan's vision as shredding the remaining social democratic parts of the New Deal and Great Society's welfare state and replacing them with a new, libertarian framework.

I just had my mind blown from encountering Gøsta Esping-Andersen's work about six months ago. So even if you are tired of debates about Paul Ryan's budget from the blogosphere, this might be a helpful way to approach the topic from a new angle. Hope you check check out the new article!

 

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