Wall Street Democrats Try to Revive Clintonomics


There is supposed to be a battle brewing in the Democratic Party–particularly over trade–between pro-growth centrists who want a return to Clintonomics (300 free-trade agreements, 23 million new jobs, a $6,200 increase in real median income) and spread-the-wealth neopopulists who argue that government needs to focus on stemming rising income inequality through higher taxes and nationalized healthcare.

But it hasn't been much of a fight so far. Democratic presidential candidates have mostly talked about the so-called middle-class squeeze and blamed the policies of President Bush for it. (Of course, it's hard to even think about embracing President Clinton's policies of cutting capital-gains taxes and signing free-trade agreements when you're bashing Bush for doing the very same thing.) There has been very little about promoting economic growth or the use of market forces to create better economic outcomes.

But Third Way, a centrist Democratic think tank backed by Wall Street money, is trying to create a pro-growth, pro-free-market economic agenda. (Of the group's 18 board members, 14 are current or former CEOs or investors including several hedge fund managers and the cohead of global equity trading at Goldman Sachs.) Third Way just released a report entitled "The New Rules Economy," arguing for a return to Clintonomics:

The Clinton era was, in fact, the most prosperous period our nation has seen in modern times. It was brought about not by shrinking government's role but by prudent policies–fiscal discipline, investments in human capital, and openness to trade–that worked with the markets, not against them…

The report explicitly takes on the neopopulists like Sen. Jim Webb of Virginia:

Neopopulists see change as mainly a threat that requires American economic policy to turn inward. They believe that the tide of change will bring an unfettered race to the bottom, in which the rich get inexorably richer while the rest of America works harder to earn less. Capitalism, they argue, must be vigorously restrained, and workers shielded from the risks of competition and from corporations in search of a better, cheaper, faster way to produce goods and services. Reviving old suspicions about capitalism and markets, neopopulists want government to rewrite the rules to recapture a bygone era. It's an idea that itself is deeply conservative—to turn back the clock "to reinvent the managed capitalism that thrived between the late 1940s and early 1970s," as leading neopopulist Robert Kuttner recently wrote.

The report argues that the middle class is not stagnating, not drowning in debt, not being victimized by free trade. It notes, for instance, that the median income of married-couple households is more than $72,000, up 22 percent since 1979 when adjusted for inflation. And real net worth for middle-income families has increased by 35 percent since 1989. For preretirement households (ages 55 to 64), real net worth has risen by a whopping 72 percent. In 2004, the median net wealth for households in this age group was $248,000. Yet, the group contends, more must be done to help Americans compete in our dynamic, volatile economy. Among the policies it advocates:

  1. Eliminating the term "nontraditional students" and encouraging adults to go back to school to gain a degree and learn new skills by offering generous grant or loan programs for adults who want to–or are forced to–pursue a second career.
  2. Creating mandatory, automatic, and portable 401(k) accounts that are owned by the worker and to which employers contribute.
  3. Establishing estate builder, or "worth at birth," accounts for all newborns (to be used for wealth-building activities such as college tuition, affording a home, starting a business, or cashing in at retirement).
  4. Mandating minimum employer/employee pension contributions and making maximum 401(k) contributions the default option.
  5. Reforming unemployment insurance to allow for re-education, retraining, and labor mobility.
  6. I'll be keeping an eye on Sen. Hillary Rodham Clinton to see if she embraces any policies that resemble these as she fleshes out her economic plan. After all, if Mrs. Clinton isn't for a return to Clintonomics, who will be?

    Comments or questions can be sent to me at jpethokoukis@usnews.com.