For those of us who believe government can be a positive force in the lives of working Americans, President Barack Obama’s State of the Union address was less than heartening. He took one step forward in vowing to use his executive authority to raise the hourly wages of workers employed by companies with federal contracts, but took two steps back in signaling his narrow vision of an activist government. “Tonight, I ask more of America’s business leaders to… do what you can to raise your employees’ wages,” he said. Indeed, the current crisis, simply put, is that there are more people looking for jobs—good-paying or otherwise—than there are jobs to be had. This leads to what economists call a weakening of “aggregate demand,” which means people have less money to spend on products and services that businesses sell, which leads to poor sales and weaker hiring on the part of businesses, which in turn leads to even weaker demand. Most economists have been arguing since 2008 that Congress must flex its fiscal muscle and issue a massive jobs bill in addition to the initial stimulus. That consensus still stands.
In fairness, Obama called on Congress to raise the federal minimum wage and to pass transportation and waterways bills that would ensure work for about 3 million construction workers, but overall, the president was mindful that Washington, especially Congressional Republicans, has no appetite for spending, even if it’s on historically nonpartisan matters such as research, infrastructure and education. The Republicans really do believe that free markets can perform better than government despite the plain-to-see fact that it doesn’t.
If John Boehner’s reaction to Obama’s decision to raise the minimum wage of federal-contract workers is any indication, the Republican leadership is taking the bait. The House Speaker said that paying workers more actually hurts them, because wage requirements increases costs for businesses. Aside from the fact this claim has been debunked time and again, Boehner was, in essence, taking a stand against workers. In this climate, that’s deadly.
Even so, there were signs of hope that fiscal policy is not completely off the table. I don’t mean that Obama hinted at it. Not at all. What I suggest is that the president has settled on a political strategy that could eventually lead to a debate on greater federal stimulus. Of course, debating something isn’t the same as acting on it. This president entered the White House under extraordinary circumstances and if he were able to leave office having legitimized a debate over expanded fiscal policy, he will have succeeded in moving the political center away from the right and back to where it belongs: the actual center.
Obama’s strategy can be seen in two distinctions he made during his address. First, that he’d explore the limits of his constitutional authority to act when Congress fails to act. This is what most news outfits have been reporting, and this is what most pundits are going to ponder for a while: the legal, political and practical implications of Obama’s go-it-alone strategy. But more important is the second distinction, which Slate’s William Saletan first pointed out with welcomed clarity: between capitalism and the American work ethic.
“That’s the debate ahead,” Saletan wrote. “Can the free market be trusted to lift working families out of poverty? If not, should the government step in? Ultimately, do most Americans believe more in capitalism or in labor? Do they see government as a threat to freedom or as an ally of honest work?… For more than 30 years, Republicans prevailed in that debate because people had lost faith in government. But what happens if they lose faith in the economy? When the free market stops serving the work ethic, look out.”
There’s substance to Saletan’s claim. A recent survey by the Pew Research Center found a majority of Americans (69 percent) want government action on diminishing opportunities for economic mobility. While the poll indicated plenty of partisan disagreement, there was a striking degree of agreement. For instance, 90 percent of Democrats said the federal government should do “a lot/some” to reduce inequality while 69 percent of independents and 45 percent of Republicans agreed. As to what the government can do to reduce poverty, the survey found 75 of Democrats approve of raising taxes on the rich and a majority of independents (51 percent) and nearly a third of Republicans (29 percent) agreed. If nothing else, these findings suggest a wavering of faith in free markets.
I wonder if they suggest more. If nearly a third of Republicans approve of taxing the rich to help the poor, many more would surely support a fiscal stimulus plan to redevelop infrastructure, fund research and education, and create millions of jobs (paid for by either taxing the rich or borrowing, which is cheaper now than in decades). Republicans have in the past gotten behind such spending measures because roads, new technologies and elementary-school teachers yield dividends. You get something for your money.
So public sentiment appears to be changing, and the turn has come at the right time. “Aggregate demand,” as the economists say, continues to weaken in the rich nations like the U.S. and Japan. That hasn’t bothered markets much yet because they can rely on countries like China, India and Brazil to fuel growth. The problem is that growth has been slowing in recent months, leading to worries of deflation, said Immanuel Wallerstein, a historian of global capitalism at Yale. To him, "it sounds like barely contained panic.”
“Few seem to be ready to admit that global effective demand is the real problem,” Wallerstein wrote in his syndicated column. “But one senses that, just below the surface, they understand this. This is why they panic.”
Still public sentiment is one thing. Political will is another. That’s why the president’s decision to go around Congress is so clever. By drawing a line in the sand and, in essence, saying that “I’m for Americans who work,” Obama is daring the Republicans to stand against the American work ethic. At the same time, by standing with workers, Obama may be able to turn the debate around, from one obsessed with austerity to one focused on refueling “aggregate demand” and easing the quiet desperation already felt in the markets.