Several recent news articles have suggested that, in the words of a Washington Post headline, “there’s … a big economic fight happening in the Democratic Party.”
It’s true. The corporate-friendly policies of the party’s more conservative wing have fared poorly, both as policy and as politics, and as a result the party has moved to the left. The insurgent candidacy of Bernie Sanders is the most conspicuous sign of this shift. It's a major setback for the so-called “New Democrats” who have dominated the party since the election of Bill Clinton in 1992.
Nearly twenty-five years after they rose to power, the ideas of the “New Democrats” don’t seem so new. Hence, the phenomenon that The Huffington Post’s Sam Stein describes as “the panic of Democratic centrists.”
Now they’re fighting back. A Wall Street-funded Democratic think tank called Third Way has released a lengthy report that argues an inequality-based, populist theme will doom Democrats. Its board member, former White House Chief of Staff (and JPMorgan Chase executive) Bill Daley, even insisted to HuffPo's Stein that Sanders’ political positions are “a recipe for disaster.”
The Third Way report is available online. It introduces a number of catchphrases, often paired in threes: the Hopscotch Workforce, the Nickel-and-Dimed Workforce, and the Asset-Starved Workforce; Stalling Schools, the College Well, and Adult Atrophy; the Upside-Down Economy, the Anywhere Economy, and the Malnourished Economy.
Sadly, most of the content amounts to Misleading Minutiae, Gimmicky Wordplay, and Downright Deception.
Here's an example of the latter: The paper’s authors use a poorly sourced Wall Street Journal article, rather than solid economic data, as a citation for their claim that Bernie Sanders’ Medicare For All plan would cost the economy $15 trillion over 10 years. This figure is flatly false, and that article's gross inaccuracies have been documented by a number of economists and commentators (including Robert Reich, among many, many others). It is surprising that any policy group, much less one comprised of self-professed Democrats, would use it as a citation.
In an attempt to dismiss the harm caused by inequality – and by its own preferred policies – the Third Way paper dwells at length with the story of Kodak’s “disruption” into bankruptcy by new technologies. The Kodak story is a familiar one to readers of popular business magazines and Silicon Valley websites. (It is sometimes accompanied by the observation that Kodak, which once employed 145,000 people, has largely been replaced by Instagram, which employs 13.)
In telling this story, the authors are suggesting that technology, not trade or unequal wealth, is killing American jobs. Unfortunately, Kodak’s anecdotal evidence is not borne out by solid economic data. As the Economic Policy Institute (EPI) reported in August of this year:
“The United States lost 5 million manufacturing jobs between January 2000 and December 2014. There is a widespread misperception that rapid productivity growth is the primary cause of continuing manufacturing job losses over the past 15 years. Instead, as this report shows, job losses can be traced to growing trade deficits in manufacturing products prior to the Great Recession and then the massive output collapse during the Great Recession.”
This directly refutes the "Kodak argument." What's more, both of the job-destroying events cited by EPI can be directly traced back to New Democratic policies. The trade deficits in manufacturing products was spurred by NAFTA and other trade deals, while the financial crisis that triggered the Great Recession was the product of a fraud-riddled Wall Street left unsupervised by deregulation.
Third Way's argument against inequality as a leading source of our current economic woes puts them directly at odds with leading economists, including Nobel Prize winner Joseph Stiglitz. “Politicians typically talk about rising inequality and the sluggish recovery as separate phenomena,” Stiglitz wrote in 2013, “when they are in fact intertwined. Inequality stifles, restrains and holds back our growth.”
The evidence is in, and the key economic policies of the “New Democrats’” have failed. Consider:
Wall Street deregulation. When Bill Clinton signed the Gramm-Leach-Bliley bill in 1999 he said it would “enhance the stability of our financial services system.” We now know better. Estimates for the total amount of national wealth lost as a result of that crisis range from $12.8 trillion to $25 trillion – or, by another measure, from $20,000 to $120,000 for every man, woman, and child in the United States.
Trade. The “free trade” deals they have promoted have led to the loss of American jobs, as the EPI and others have demonstrated. One deal alone, NAFTA (the North American Free Trade Agreement), is estimated to have caused the loss of one million jobs in this country.
Austerity. “New Democrats” urged cuts in government spending, especially in the wake of the 2008 crisis. The result, as Paul Krugman puts it, has been “catastrophic … going far beyond the jobs and income lost in the first few years.” As Krugman notes, the long-run damage could easily “make austerity a self-defeating policy even in purely fiscal terms.”
Welfare reform. When he signed the “welfare reform” bill in 1996, President Clinton said that it would “end welfare as we know it and transform our broken welfare system by promoting the fundamental values of work, responsibility, and families.” We now know that poverty increased as a result of this bill, and there is compelling new evidence which shows that welfare undermines neither the work ethic nor the personal values of its recipients.
The Third Way authors are as misguided on politics as they are on policy. They argue that “the narrative of fairness and inequality has, to put it mildly, failed to excite voters.” This is precisely backward. As the polls make clear, populism is popular.
President Obama was foundering in the polls after embracing the “New Democrat” agenda for much of his first term. His political fortunes were restored when he tacked somewhat further left rhetorically - in response to, among other things, the rise of the Occupy movement.
The Democratic congressional debacles of 2010 and 2014, on the other hand, can be directly attributed to the reluctance of many candidates to embrace a populist agenda. Many insisted that they needed to lean right in order to reach “swing voters.” But that’s a demographic that, by and large, doesn’t exist. (From political scientist Corwin D. Smidt: “The observed rate of Americans voting for a different party across successive presidential elections has never been lower.”)
The Democrats’ shift to the right suppressed turnout among the base and failed to reach disaffected unaffiliated voters. As a result, they lost the House in 2010 and were routed again in 2014. Under the tutelage of Third Way and their fellow New Dems, those disasters are likely to be repeated again and again. Fortunately, fewer Democrats seem to be listening.
Today's real "New Democrats" can be found among the many thousands of people who have turned out for Bernie Sanders' rallies, many excited by the political process - and the Democratic Party - for the first time. Other potential "New Democrats" can be found in the nation's minority communities, and among the non-college-educated white Americans whose lives are being cut short by despair and self-destruction.
But Democrats won't win these voters with a Third Way agenda. It will take a platform that speaks directly to them - to their needs, their hopes, and their pain.
There are grains of truth to be found in the Third Way’s report. Automation is a legitimate concern, even though it is not yet a major driver of unemployment. Several of their minor proposals could be useful, even though they would not offer significant relief to large numbers of Americans.
That does not change the fact that, once again, Third Way and its allies are gravely misreading the economic and political moment. If their influence continues to wane, perhaps one day Americans can stop paying the price for their ill-conceived, corporation- and billionaire-friendly agenda.