Will Democrats' populist obsession with inequality be their downfall?
President Obama says America's greatest challenge is the income gap. A 74-year-old "democratic socialist" is the Democratic Party's hottest star. And the party's almost certain presidential nominee hedges on whether she's a capitalist.
The party's leaders are hardly without popular support for these stances. In a New York Times poll last summer, 83 percent of Democrats surveyed said government should deal ASAP with the income gap, with large majorities favoring higher taxes on the rich and Wall Street.
The Democratic Party clearly has an inequality obsession. But have liberals gone too far? "Yes," Republicans would surely say, while probably adding a zinger about "class warfare" or some such.
And if the debate ended along those partisan lines, there wouldn't be much to this story. But here's the thing: It's not just Republicans dinging the Dems for their inequality obsession. Several Democrats are getting in on the action, too.
The left's feverish focus on the 1 percent vs. the 99 percent strikes some Democratic-leaning wonks as well-intentioned but misplaced in a slow-growth economy. They see it as too much attention paid to wealth redistribution rather than wealth creation. Too much kvetching about unfairness and a "rigged" economy rather than dealing with the macro forces of globalization and technological change that are both creative and disruptive.
Robert Atkinson, president of the Information Technology and Innovation Foundation and long-time "New Democrat" policy guy, argues that the party's "middle-out" economics "actually will do very little to move the needle on the most important drivers of economic prosperity: productivity, innovation, and competitiveness." Similarly, Jim Kessler, head of the Third Way think tank and former policy director for Sen. Chuck Schumer (D-N.Y.), says Democrats should "rigorously question the electoral value of today's populist agenda."
Of course, it's hard to hold an intervention when everyone else thinks you're the one who needs help. And while Atkinson and Kessler — we'll call them Innovation Democrats — aren't alone, their influence is waning. It's Inequality Democrats, folks like Bernie Sanders and Elizabeth Warren, who seem to have the momentum. It's hard to be a pro-market, 1990s-style Clinton Democrat when even Hillary Clinton doesn't seem to be one anymore.
Still, Atkinson and Kessler are trying to nudge the party back to the center the only way wonks know how: through data-driven evidence. In a recent analysis, Kessler notes that the rich and the middle class grab about the same share of total national income as they did back in 2000. Income inequality hardly seems like a crisis, from that view.
And even when high-end inequality is rising sharply, it doesn't mean the middle class can't get ahead. Kessler points out that even though incomes for the top fifth of Americans doubled from 1980 through 2010, all income brackets saw gains of around 40 to 50 percent. "While income inequality may offend our sense of justice, its actual impact on the middle class may be small," Kessler concludes in a recent analysis.
Now, it's not that today's Democrats ignore economic growth. Instead they've glommed onto a flawed theory of how to achieve it. Atkinson, in his own report, notes that a recent study on "inclusive prosperity" from the Clinton-friendly Center for American Progress was "virtually silent" on innovation. Instead, "middle-out" economics focuses on consumer spending through redistribution as the key driver of growth. The Inequality Democrats would raise taxes on the rich, give the dough to the non-rich, and hope they spend it. The Innovation Democrats would increase America's growth potential by increasing private and public investment in smarter workers and better machines.
Innovation Democrats care about inequality. But they also know the difference between sound economic theory and a political marketing scheme. You can't redistribute wealth without first creating it. Raising the minimum wage or instituting paid leave may be good ideas, but they aren't necessarily growth-y ones. Rich countries get richer over the long term by becoming more productive. And that requires doing the things Inequality Democrats don't seem much interested in, such as free trade, deregulation, and corporate tax reform. Political parties ignoring that economic reality may indeed get an intervention, if not by internal truth tellers then eventually by voters.