Time for Another New Deal

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Is America ready for a "new" New Deal? When you put together all the various strands coming out of Democratic politics and liberal think tanks these days, it's pretty clear that plenty of people on the left-of-center side of things sure think so. Consider this new effort from the New America Foundation. The D.C.-based policy shop calls it the Next Social Contract Initiative. Here is the group's thesis:

"America's social contract—the complex, largely unwritten deal between workers, employers, and government that gives individuals the security they need to navigate a dynamic economy—is eroding. Reliable pension plans are a thing of the past, the number of Americans without health coverage is quickly approaching 50 million, real wages are stagnant, income and wealth inequality has reached record levels, and more families are falling out of the middle class than are rising into it...The situation calls for a fundamental rethinking of the principles as well as the policies underlying our inherited social contract...We should think from scratch about the appropriate roles of each sector of society—government, employers, individuals, and civil society—in managing an information-age economy that is characterized by global labor markets, frequent job changes, mobile capital, rapid technological change, and increased pressure for short-term profits...A new social contract should be designed to support entrepreneurship and risk-taking, encourage long-term growth and broadly shared prosperity, and support individuals and families not as employees, but as citizens...The Next Social Contract Initiative will put forward concrete policy proposals on affordable healthcare for all, broad-based asset ownership, retirement security, lifelong education, balancing work and family, fundamental tax reform, basic economic security, public goods, and investment, [and] paying for the Next Social Contract."

My take:

1) Elements of this analysis are already seeping into the Democratic presidential race, such as Hillary Clinton criticizing Republicans for wanting to create an "On Your Own Society." Yet notice that the Next Social Contract seems all about helping Americans thrive in a warp-speed, globalized economy while at the same time better shielding them from risk, perceived or actual. In the "compete or retreat" debate, this initiative is about competing. Don't expect any talk of withdrawing America from the World Trade Organization or putting tariffs on Chinese goods.

2) Just a guess, but I would wager that the group's final policy recommendation will advocate radically expanded unemployment insurance—or even wage insurance, government-funded universal savings accounts from birth, a partially privatized/personalized Social Security system, new national infrastructure spending, and higher taxes on wealthier Americans. In other words, it will look like an Americanized version of the "flexicurity" setup that Denmark has—an arrangement that is noted for flexible labor markets (it's easy to hire and fire) and deep and mandatory worker retraining programs but also unemployment insurance that pays you almost what you were making when employed.

3) I will be very interested in that last part, on "paying for the Next Social Contract." While the next president may get the gift of a balanced budget, multitrillion-dollar Social Security and healthcare bills are looming, though clearly dealing with those issues is part of this effort. In a world of global capital markets, any New Deal/Great Society effort has to be fiscally responsible, or politicians had better brace themselves for a return of the Bond Market Vigilantes and higher interest rates.

4) I wonder if Americans really have a craving for any of this, especially by Election Day 2008. While it ' s true that public opinion of the economy is pretty negative despite strengthening wage and income growth, a reaccelerating economy, low unemployment, and a record-high stock market, I think a lot of that pessimism is because of Iraq and—heaven help me!—gas prices. Fifteen more months of economic growth might alter public opinion considerably. Back in August 1983, with the economy only a couple of quarters into what would become the longest peacetime expansion in American history, 44 percent of the American public, according to Gallup, thought Reaganomics would make their family's financial situation worse vs. 32 percent who were positive. By September 2004, 53 percent though it would make their family's finances better. The current expansion has been ongoing since late 2001, but we just came through a four-quarter soft patch.

New Deal