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The go-go '00s: can an updated Clintonism fix the economy? Maybe
Washington Monthly, Jan-Feb, 2006 by Sebastian Mallaby
The Pro-Growth Progressive By Gene Sperling Simon & Schuster, $26.95
Gene Sperling is one of Washington's good guys. If you admire brains and compassion, and if you are at all stirred by the idea that government is about helping people, it's impossible not to like him. So I begin this review with an honest disclosure: I do like him, a lot. This doesn't mean that I always agree with him.
Sperling's book states the case for Clintonomics, the bundle of policies he helped to create during his eight years in the White House where he served as Deputy National Economic Adviser during the Clinton's first presidential term and National Economic Adviser during the second one.
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Clintonomics was about two things--market-driven growth on the one hand, progressive social goals on the other--and this explains Sperling's rifle: The Pro-Growth Progressive. Faint-hearted readers should be warned: This is a book by a policy wonk, for policy wonks, and you have to be interested in refundable tax credits to make it from cover to cover. But if you want to get your mind around what the centrist wing of the Democratic Party is thinking, Sperling provides a sophisticated argument.
One of the best parts of the book comes fight at the outset. In a "Memo to Progressives," Sperling lays out why free-market competition and economic growth can be good--not just for corporate profits but for ordinary people. Competition brings prices for consumers down; it can create more jobs than it demolishes. Anybody inclined to think that economic churn is bad should regard 1999 (number of American jobs destroyed: 32.9 million) as a worse year than 2003 (number of jobs destroyed: 30.2 million). But 1999 was, in fact, the better year for American workers because turbocharged job creation outpaced job destruction by 2.6 million positions, whereas 2003 witnessed a net loss in the number of jobs available.
The globalization wrought by the collapse of communism and technological advance is often viewed with suspicion by many on the left. But Sperling reminds us that these shifts coincided with tremendous gains for poor Americans (not to mention the fastest progress the world has made against destitution in developing countries in history). From 1992 to 2000, every quintile of the income distribution in the United States saw incomes increase. Those in the bottom fifth saw a gain of 22 percent, and the income growth of the average African-American family outpaced that of the average white one. By 2000, the end of the first decade of globalization--the poverty rate had fallen to its lowest level since the second oil shock and home ownership was at a record high. As Sperling gently suggests, this "should make progressives think twice about whether slowing the pace of change is a surefire way to achieve progressive goals."
Having made the progressive case for economic growth, Sperling devotes much of his book to programs that could make it more equitable. He is cautious about policies that impose expensive mandates on employers, for the good reason that such mandates may burden firms and slow job creation. He is more enthusiastic about government programs, even though these have to be paid for with taxes that could be said to burden economic activity. Thus, he doesn't want to mandate that firms provide retirement plans for their workers. Instead, he wants government to provide 401(k) accounts to everyone, with generous tax-funded matching payments for low-income savers.
I suspect Sperling is right: It's better to try to accomplish progressive goals by using government tax policies and programs than by using employer mandates. But this is a rich and interesting debate that Sperling could have addressed more explicitly. His friend and Clinton administration colleague, former Treasury Secretary Larry Summers, once explained the case for the superior efficiency of employer mandates in an academic paper. If 80 percent of firms are already providing a certain benefit, forcing the other 20 percent to do so represents a relatively small government "distortion" of the economy; But providing a government version of the benefit will cause most firms to quit providing it themselves; taxes will have to be raised significantly in order to provide the government benefit to everyone, so the economic distortion will be larger. A version of this debate has surfaced recently around Wal-Mart, with some progressives supporting local government ordinances to force the retailer to raise wages and provide better benefits, and others (most vocally Jason Furman, another ex-Clintonian Sperling friend) preferring to help Wal-Mart's low-paid workers with government programs, such as an expanded Earned Income Tax Credit.
When it comes to advocating programs, Sperling's persuasiveness varies. He's clearly right to support an expansion of the Earned Income Tax Credit, under which government supplements the wages of low-income workers: The program is directly targeted at the working poor and is easy to administer. Likewise, Sperling mounts a devastating attack on the outrageous patchwork of tax breaks for savings that government now provides, which line the pockets of the rich without inducing them to save extra. His proposal to target government saving incentives at the poor is both socially fair and, probably; economically beneficial--the poor barely save now, so any saving that they do represents a net gain for the economy. Sperling also makes a powerful case for Head Start-type programs that improve poor children's performance in school, fielding a more skilled workforce on the one hand and a smaller dysfunctional underclass on the other. The false economy of skimping on education is clear: Indiana once used the number of second graders reading below grade level as a factor in planning prison construction.
