Is Obamanomics Conservative or Revolutionary?

There are two ways to see Obamanomics.

The first, much preferred by the White House, is as a set of initiatives so modest as to hardly merit a raised eyebrow. Yes, steps must be taken to deal with the current economic crisis. But assuming the economy recovers next year, Obama’s budget projects that government spending by the end of the decade will drop to around 22.5% of GDP, which is about where it was under Reagan.

What about those tax hikes on the wealthy? Obama merely restores the top two marginal income tax rates to what they were in the 1990s, the capital gains rate to its lowest level during that same prosperous decade, and the rate on dividends to a level even lower than it was in the 1990s. And even these modest reversions to the 1990s will affect only the wealthiest 3 percent of Americans, and not until 2011. Ninety-seven percent of small businesses won’t pay a dime more. True, the very rich won’t be able to deduct quite as much as they can now for their mortgage interest and charitable donations, but this is hardly revolutionary, either. In fact, it’s another throwback — to the limits in place under Ronald Reagan. All told, taxes are projected to total 19 percent of GDP by the end of the decade. That’s even lower than it was in the late 1990s.

Modest as they are, these taxes generate will enough revenue to pay for half of what’s needed for universal health care, and still reduce the deficit by about $750 billion over ten years — to 3.1 percent of the GDP by the end of the decade.

But isn’t universal health care itself a pretty radical step? Not according to this view. The other half of what’s needed to pay for universal health care will come from health-care savings that are also necessary to keep the current big health-care entitlement programs — Medicare and Medicaid — affordable. It’s just common sense: Allow government to use its bargaining leverage under Medicare and Medicaid to lower drug prices, strengthen Medicare pay-for-performance incentives, and institute better disease management, prevention, and health information technologies.

What about the environment? Isn’t cap and trade a huge deal? Not at all. Instead of heavy-handed regulation it’s a market solution to the problem of global warming. Government merely sets an overall cap on the amount of carbon dioxide to be allowed into the atmosphere, which drops annually, and then requires firms to bid for permits to pollute within that overall cap. Firms can buy and sell permits to each other; they can innovate to reduce pollution even further. Such a system will generate enough revenues to give 95 percent of Americans a yearly refundable tax credit of $400, and also finance research and development of renewable energy and a modernized electricity grid.

But isn’t Obanomic’s approach to educational reform expensive and intrusive? No. By this view, it’s very mainstream and incremental — and doesn’t impose on the prerogatives of states and locales. It expands the tax credit for college tuition to $2,500 a year and increases Pell Grants to $5,500 yearly — almost negligible increases, given how fast tuitions are rising. It cuts subsidies to banks participating in the student-loan program, which is exactly what Bill Clinton did, and it provides some funds for early childhood education.

So there we have it: Obamanomics as pragmatic, incremental, centrist, even conservative.

But there’s another way to view Obamanomics — as an economic philosophy exactly the opposite of the one that’s dominated America for more than a quarter century.

The basic idea of Reaganomics was that the economy grows from the top down. Lower taxes on the wealthy make them work harder and invest more, and the benefits trickle down to everyone else. Rarely in economic history has a theory been more tested in the real world and proven so wrong. In point of fact, nothing trickled down. After the Reagan tax cuts, increases in the median wage slowed, adjusted for inflation. After George W. Bush’s tax cuts for the wealthy, the median wage actually dropped. Meanwhile, most of the income went to the top. In 1980, just before the Reagan revolution, the richest 1 percent took home 9 percent of total national income. But by 2007, the richest 1 percent was taking home 22 percent.

Obamanomics, by contrast, holds that an economy grows best from the bottom up. Obama’s program increases taxes on the top, and uses the proceeds to raise the living standards of average Americans by giving them lower taxes, better schools, and more affordable health insurance. That may not seem very radical, but compared to the last quarter century it’s revolutionary.

Reaganomics didn’t believe in public investment, except perhaps when it came to the military. Everything else was considered government spending, which was assumed to be wasteful. Hence, the cuts (adjusted for inflation) during Reagan, Bush I and Bush II in education, job training, infrastructure, and basic research and development. And the reluctance to expand health insurance except when it came to corporate welfare for the pharmaceutical industry.

But Obamanomics is a commited to these forms of public investment. And there’s good reason: In a global economy, capital moves to wherever it can get the best deal around the globe. That means capital and jobs go to nations that can promise high returns either because labor is cheap and taxes and regulations low, or because labor is highly productive — well educated, healthy, and supported by modern infrastructure.

Which do we want? For the better part of the last quarter century our implicit economic strategy has tended toward the first. But that’s a recipe for lower wages and lower living standards for most Americans, along with widening inequality. The only resource that’s uniquely rooted in a national economy is its people — their skills, insights, capacities to collaborate, and the transportation and communication systems that link them together. Everything else — including capital, technology, designs, even plant and equipment — can move around the globe with increasing ease.

Bill Clinton talked a lot about the importance of public investment but he failed to do much about it because he came to office during an economic expansion, and the major worry was excessive government spending leading to inflation. Obama comes to office during the biggest downturn since the Great Depression, and although he doesn’t talk much about public investment his plan represents the largest commitment to it in forty years.

Reaganomics’ third principle was that deregulated markets function better. They do, in many respects, but not always. And when they don’t, all hell can break loose. Energy markets were deregulated and we wound up with Enron. Carbon emissions weren’t controlled, and now we face global warming. Financial markets were deregulated and we have a global meltdown. Obamanomics, by contrast, accepts that government has an important role in setting the rules of the capitalist game: Setting an overall cap on carbon emissions, ensuring that products and foods are safe, maintaining the solvency and security of financial companies.

robert_reich.jpgUnder Reaganomics, government was the problem. It can still be a problem. But Obamanomics recognizes there are even bigger problems out there that can’t be solved without government. By building the economy from the bottom up, recognizing the central importance of public investment, and understanding that markets cannot function without regulation, Obamanomics finally reverses and repudiates the economic philosophy that has dominated America since 1981.

If you look only at the small print, Obamanomics looks conservative. If you look at the big picture, it’s revolutionary.

by Robert Reich

Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.

This article first appeared on Robert Reich’s Blog. Republished with permission

LA Progressive

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Comments

  1. jacksmith says

    Finally, the time has arrived to fix Americas Healthcare crisis, and Americas healthcare knightmare. Hundreds of thousands of you are killed needlessly every year by your healthcare delivery system in a rush to profit. And because of a rush to profit Hundreds of thousands more of you are needlessly dying from treatable illness that people in other developed and civilized countries don’t DIE! from. Rich, middle class, and poor alike. Insured, and uninsured. Men, women, children, and babies.

    Additionally, thousands more of you are driven into financial ruin, and bankruptcy just because you, or one of your loved ones got sick or injured. And all of this is happening at a time when America spends twice as much of it’s GDP (Gross Domestic Productivity) on health care than any other country in the developed world. Individual Americans spend about ten times as much on health care as any other people in the developed world. This is a CRIME AGAINST HUMANITY. AND IT MUST END!

    But before we can truly fix this healthcare crisis and disgrace, everyone needs to clearly understand what the problem is. And everyone needs to clearly understand the real enormity of the problem. The problem is that HEALTHCARE AND MEDICAL DELIVERY IN AMERICA IS SEVERELY CORRUPTED AND COMPROMISED BY GREED! AND THE PRIVATE FOR PROFIT MOTIVE. And it is corrupted, and compromised IN EVERY ASPECT, AND EVERY PLACE OF HEALTHCARE AND MEDICAL DELIVERY. Unfortunately for all Americans, compromised healthcare ALWAYS results in needless suffering, injury, disability, and or death. Which is exactly what is happening now in America in shocking numbers.

    Health care is NOT! a private for profit business. Healthcare is an essential public service. Like police, and fire. And healthcare is also a human right! PRIVATE FOR PROFIT HEALTHCARE IS AN OXYMORON, AND AN IMMORAL AND UNETHICAL PERVERSION OF HEALTHCARE AND HUMAN RIGHTS.

    So how do we fix this healthcare disgrace? I believe the fix for Americas healthcare disaster is essentially the same thing that every other developed country in the World has essentially done. “NOT FOR PROFIT, TAX PAYER SUPPORTED, SINGLE PAYER, AUTOMATIC, FREE UNIVERSAL HEALTHCARE FOR ALL. Essentially HR676 (enhanced, and expanded medicare for all). Just like every other CIVILIZED! country in the developed World has. There is no other way to truly fix and reform our current disastrous healthcare delivery system.

    All Universal health care systems work best when everyone participates. But I know that the healthcare lobby, and some politicians will try and undermine “Not For Profit, Tax payer supported, Single payer, Automatic, Free Universal Healthcare for all” by falsely claiming that it will limit your choice, and require you to participate.

    So, I propose that everyone be included in the national plan unless they choose to opt out. If you opt out and need medical care the national plan will insure your provider that they will be reimbursed under the rules for members in the national plan. But those who opted out, and their insurer will be responsible for the FULL! cost to the national plan for providing your care if you or your private insurer fails to reimburse the provider or the national plan in a timely manor to at least the standards of the national plan.

    Including reporting you to credit agencies, withholding of taxes, leans, and garnishment of wages for unpaid medical bills. Just like you have now under private for profit healthcare, and private for profit health insurance.

    Further, people who opted out will be required to provide proof of financial responsibility for future illness or be required to participate in the national plan. And everyone with children will be required to participate in the national plan. Or provide proof of insurance coverage on each child to the standards of the national plan. It will be against the law to report anyone in the national plan to a credit agency for unpaid medical bills.

    Frankly, only a dope would want to opt out of the national plan and opt to keep our current disastrous private for profit medical, and insurance plans. But they will be free to choose. The most important thing is that the vast majority of Americans that want the protection, benefits, and higher quality of a universal national plan have that choice.

    You see, one of the most important aspects of a universal healthcare system is easy access, and patient protection. This is accomplished by having a single payer without a conflict of interest in patient care. And by having a payer who has the power to enforce minimum standards of excellence in healthcare delivery for everyone in the plan. This is much of what Medicare does now for senors. “Aeger Primo” (The patient first). Unfortunately in our healthcare system the patient comes last. We are just a peace of meat to them. Cash cows to be slaughtered for profit.

    So this is IT! my fellow Americans, My fellow human beings, My fellow World Citizens. And my fellow Cyber Warriors. :-) The time has come. D day. H hour. HEALTHCARE REFORM THIS YEAR! Let no one stand in our way. Contact your representative and tell them you want “Not For Profit, Tax Payer Supported, Single Payer, Automatic, Free Universal healthcare for all. And tell them you want that choice now. Tell them you want President Obama’s budget passed as is, without delay. President Obama’s budget is brilliant. And exactly what is needed now.

    President Obama, and his allies will need all the support you can give them. The healthcare lobby will try to take out his people if they can, like they did with Tom Daschle and Nancy Killefer. And they will try to neutralize President Obama’s popularity, and political power. Or they will try to take him down someway. Don’t stand for it. If they attack him. Go after them ten times harder and remove them from office. We had an election. And you the people chose President Obama’s leadership, and change agenda. Let no one in government disrespect the will of the American people and remain in office.

    To President Obama, his Cabinet, the Congress of the United States, and the Supreme Court. I have noticed for some time a disturbing tendency for key members of your bodies to come down with illness, or medical problems at critical legislative times. This may just be coincidence. But I can tell you that there are a million subtle ways to medically injure someone just by doing nothing when something needs to be done. Or by doing things to someone when nothing needs to be done except to give them reassurance. I know for a fact that there are those that would have no qualms about hurting any of you to preserve our current disgraceful medical status quo.

    So, I recommend as a matter of national security that you enlist the help of a friendly power to regularly review, and oversee the medical care you receive from your local regular healthcare providers. Briton, France and many other countries have excellent medical providers. As well as Canada. Briton, and Canada may be less of a language barrier for Americans.

    Let’s get this healthcare reform done now my fellow Americans. This year. Take no prisoners.

    God Bless All Of You

    Jack Smith — Working Class :-)

    http://jacksmithworkingclass.blogspot.com/
    (http://jacksmithworkingclass.blogspot.com/)

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