In my first column here, I argued that the American economy is broken, and that to fix it we’ll have to banish the thinking that’s dominated policymaking for far too long – fairy tales about how unregulated financial markets will police themselves, and how supply-side, trickle-down policies will lift the rowboats by helping the yachts.
In its place, I argued, we need a new model, one that admits that markets can – and often do – fail, and that government has an essential role to play in the economy by addressing market failures, like financial bubbles, excessive economic inequality and immobility, and inadequate investment in infrastructure, environmental protections, and health care.
I got a lot of mostly positive feedback, but an important challenge surfaced from readers’ responses, which I’d summarize like this:
“OK, we agree with your diagnosis, and await your prescriptions. We may well agree with them, too. But so what? As you say, the political system seems utterly incapable of a serious discussion of what’s wrong, never mind coming up with actual solutions. So, beyond some nice conversations with the choir, what’s your theory of change?”
Fair question. So here’s my response: A journey of 1,000 miles begins with a single step.
It’s true that reflexive Republican opposition to any policy that sees a positive economic role for government makes large-scale policy change unlikely, especially in an election year. But turning our country around is not going to be all about sweeping reform at the federal level. To be sure, in emergencies it’s going to take exceptional, temporary measures, like the successful $800 billion in stimulus passed by the Obama administration in 2009 – something we could use more of right now, given that economic demand remains weak. But it’s also going to take lots of small policy changes from obscure agencies that cumulatively recalibrate the balance of power between the very rich and the rest. That is, much of it will be single steps, not leaps and bounds.
What kinds of steps begin such a journey? Recent headlines offer some good examples.
Last week, President Obama got the Consumer Financial Protection Bureau up and running by recess-appointing its first head, Richard Cordray, in the teeth of fierce GOP (not to mention Wall Street) opposition. This is a strong play on many levels. First, the existence of the CFPB is the law of the land, as part of the Dodd-Frank financial reform legislation passed in 2010. The brainchild of Elizabeth Warren, the bureau’s job is to guard against deceptive practices in financial products, with the potential to protect consumers from getting ripped off on cell phone bills or mired in debt thanks to “innovative” mortgage schemes.
Cordray is off to a strong start. (I don’t know him, but you gotta love the way he’s breaking out of the gate: He’s already working on bringing unregulated nonbank lenders, like mortgage companies and payday lenders, under the same rules as banks.)
Second, this appointment is a smart political move, since it fits snugly into a critical narrative: One side is fighting for the middle-class, the other to protect the interests of the wealthy. In this particular case, the CFPB is about protecting families from exploitation by financial firms, whose lobbyists and political allies have been fighting to block the law – not a bill, mind you … but a passed law – that created it.
There are other simple steps. A few of my favorites come from recent work by the National Labor Relations Board, an independent government agency that oversees union elections and investigates claims of unfair labor practices. (This institution is also back up and running – again, in the face of GOP opposition – because the President just recess-appointed three new members.)
The Bush administration, ever keen to weaken unions and so reduce any countervailing bargaining clout from the uppity working class, packed the board with anti-labor types who weakened worker protections. More recently, the Republicans blocked the president from making the appointees needed for the board to function, and the backlog of complaints about anti-union practices piled up. Research has shown that more people want some kind of labor representation – not least because unions are the most effective defense we have against growing income inequality – and that one of the reasons they don’t have it is because the union organizing playing field has been seriously tilted away from those who want to collectively bargain.
The board’s most important rule change, just finalized in recent days, will help workers who’ve petitioned to form a union to have more timely elections. In a climate where management can and often does block elections with impunity, all this does is remove some of the above-noted-tilt. But it’s a step in the right direction. (For another example of how the NLRB is helping to reset the balance between workers and employers, see here).
There’s more. Eight states just raised their minimum wages, a great way to help low-wage workers get a bit closer to a livable wage – and one that’s been shown, again through solid research, to not have anything like the job-killing effects that some economists claim.
And then there are Pell Grants, which give lower-income students the chance to go to college. Congressional conservatives are going after them, but the grants been significantly boosted in recent years. They’re another key building block in an economy with high inequality and limited mobility – and ever more vulnerable to global competition – where economic rewards increasingly go to the educated.
This short survey is not intended merely to point out a couple of bright spots in an otherwise dismal climate. It’s part of my answer to the challenge: What’s the plan? Those of us who want a fairer economy must break change down into small pieces, fighting – against powerful, deep-pocketed interests – for policies that protect consumers against financial predation and return some bargaining clout to the broad middle class, some earning power to low-wage workers, and better educational opportunities to the least advantaged – policies that have the potential, over time, to rebalance power from the bottom up.
You can email me at email@example.com. I look forward to your feedback.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities. From 2009 to 2011, he was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team.