McCain's New Square Deal

The GOP candidate hopes his wage insurance plan will ease concerns over globalization.

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Wall Street seems to be on full-blown recession watch, while Main Street is pretty sure a downturn is on its way. Yet even with Democrats referring incessantly to a "middle-class squeeze," some GOP hopefuls have still been talking up the six-year economic expansion. Worried workers? Blame the media, not the Bush boom. As Mitt Romney—second in Iowa, second in New Hampshire—told me a few weeks back, "There's no question that the media shapes a good deal of public perception, and there is nothing that sells like fright."

Expect that sanguine attitude to change. This week's Republican primary is in Michigan, where the unemployment rate is 7.4 percent, the highest in the nation. Then, next up, on January 19 is South Carolina, which has the country's fourth-highest jobless rate. What's more, the two big Republican caucus and primary winners so far have been John McCain and Mike Huckabee, candidates who haven't been running "Morning in America" campaigns. Huckabee has blasted Wall Street greed and CEOs offshoring jobs to China. McCain continues to insist that voting against the Bush tax cuts was the right move, partly because they were too heavily weighted toward the rich—though now he's for keeping them—and has been critical of the "power of pharmaceutical companies."

Wall Street seems to be on full-blown recession watch, while Main Street is pretty sure a downturn is on its way. Yet even with Democrats referring incessantly to a "middle-class squeeze," some GOP hopefuls have still been talking up the six-year economic expansion. Worried workers? Blame the media, not the Bush boom. As Mitt Romney—second in Iowa, second in New Hampshire—told me a few weeks back, "There's no question that the media shapes a good deal of public perception, and there is nothing that sells like fright."

Expect that sanguine attitude to change. This week's Republican primary is in Michigan, where the unemployment rate is 7.4 percent, the highest in the nation. Then, next up, on January 19 is South Carolina, which has the country's fourth-highest jobless rate. What's more, the two big Republican caucus and primary winners so far have been John McCain and Mike Huckabee, candidates who haven't been running "Morning in America" campaigns. Huckabee has blasted Wall Street greed and CEOs offshoring jobs to China. McCain continues to insist that voting against the Bush tax cuts was the right move, partly because they were too heavily weighted toward the rich—though now he's for keeping them—and has been critical of the "power of pharmaceutical companies."

"Wage insurance." But this may be more than just populist rhetoric. McCain, for instance, recently suggested to the Detroit Free Press that when a middle-class worker is laid off and takes a job at a fast-food restaurant to make ends meet, government should lend a helping hand as long as he is retraining for a new job. "If someone has to work at McDonald's, I will compensate them for the loss of income for some period of time," he explained.

What McCain seems to be proposing is a "wage insurance" program where a laid-off worker who once earned $60,000 and found a new job paying just $30,000 might receive $15,000 a year for a couple of years after the initial layoff. Many Democrats—including Hillary Clinton and Barack Obama—and left-of-center think tanks have long been pushing such an idea. "Along with universal health insurance, it would be an important component for workers in a dynamic economy," says economist Jason Furman of the Brookings Institution.

Consider this maverick McCain's version of his hero Teddy Roosevelt's Square Deal. Just as those antitrust and regulatory policies were TR's push back against unfettered Gilded Age capitalism, this is a response by McCain—an ardent free trader—to globalization or, more accurately, his response to middle-class concerns about globalization so Americans won't turn protectionist.

Of course, there are downsides here. A big one is that the program might grow ever bigger, becoming a massive new entitlement. A grander version of wage insurance can be found in Denmark's much-lauded "flexicurity" system. In that country, workers who lose their jobs have almost their entire salary replaced by the government but are also required to aggressively look for new employment or accept retraining. It's pricey, costing Denmark 5 percent of gross domestic product. For the United States, completely copying the Danish model could cost some $400 billion to $500 billion a year.

What's more, many trade experts, such as Terry Miller of the conservative Heritage Foundation, argue that most job churn is caused by rising productivity and innovation, not outsourcing. "The fluidity in our economy is actually one of our great strengths," he says. True enough, but right now that fluidity may force Republicans to offer voters something beyond tax cuts and optimism.