In “The Center-Right Moment”, New York Times columnist David Brooks identifies the most influential economic theory of the center left in the U.S. as entirely redistributionist. In fact, every policy Brooks associates with “opportunity progressives” features strongly in the Inclusive Prosperity Commission Report and emphasizes helping markets deliver more for the middle class. This is a much more difficult policy challenge than after the fact redistribution. As sponsors of the IPC report, the Center for American Progress is publicly addressing his mischaracterizations.
It’s important to note that the starting point of the IPC report is a dynamic and well-functioning market system produces not only growth and increased productivity, but also wages and incomes for the middle class that move in step with that increased productivity. There is nothing natural about productivity gains only going to the top. Indeed during much of the last century, in which the U.S. economy became the engine of middle class growth, middle income workers were rewarded for their productivity gains with rising incomes.
The middle-class squeeze
Yet, the link between productivity and wages for the bottom 90 percent has broken down over the last generation. Since around 1980, with the exception of expansion in the ’90s, productivity growth has diverged from wage growth. This divergence has intensified in the past 15 years, and has made it increasingly difficult for people who aspire to middle class standards of housing, education, health care, and retirement to realize them. As we laid out in a recently, there is good empirical evidence that the middle class is being squeezed between stagnant incomes and rising costs of the basic elements of a middle class life. And in our view, addressing these challenges is precisely about expanding opportunity. Wage stagnation limits opportunity, it does not enhance it.
The IPC report takes account of these facts, but also recognizes that markets can deliver far better results than they currently do. Policy decisions and institutional arrangements have an important influence on how the gains of increased productivity are shared. So the IPC report takes the reasonable step of identifying a broad range policy changes that will encourage middle-class wage growth in the short-term by running a high-pressure economy with a tight labor market while making investments that raise long-run productive capacity.
A more broadly shared prosperity
The emphasis throughout the report is on helping markets deliver a more broadly shared prosperity, not on after-the-fact redistribution. For example, the IPC recommends several policies that will ensure that market outcomes are more equitable based in part on the experience of countries, like Canada and Australia, where workers’ wages and productivity have more closely tracked each other. This includes increasing the economic incentives for profit sharing, empowering workers to bargain with their employers, and establishing a robust minimum wage.
Moreover, the IPC report recommends family-friendly labor-market policies and universal pre-K education that will increase workers’ take-home pay in the short run while increasing female labor-force participation and human capital accumulation in the long run. The IPC report also provides specific ideas about increasing opportunity, productivity, and innovation. It recommends eliminating financial barriers to higher education, supporting apprenticeship and other skills straining, and supporting innovation clusters.
What really happened with the UK elections
The column also misinterprets the UK election and the dynamics at play. The Conservative party led by David Cameron campaigned on a mixed agenda of more austerity at the same time that they promised additional funding for the ever-popular National Health Service.
Meanwhile, the UK Labour party was not offering a coherent, progressive economic alternative. Labour presented a strong critique of rising inequality, but sought to respond with an austerity-lite agenda that lacked any vision for how to grow the UK economy. Those who came closest to what Brooks calls “redistributive progressivism” were the Scottish National Party, who won 56 of 59 seats that they contested.
Germany is offered as the other poster-child for austerity, a fact that is considerably at odds with IMF data showing Germany responded to the recession with one of the larger budget deficits in the developed world.
Perhaps Brooks and others are satisfied with the fact that middle class wages in the U.S. have been stagnant for over a decade. We are not. We believe that nothing grows opportunity more than ensuring hard working middle class families are rewarded with higher wages from the wealth they are creating.
Neera Tanden is President of the Center for the American Progress; Marc Jarsulic is Vice President, Economic Policy at the Center for American Progress; and Matt Browne is a Senior Fellow at the Center for American Progress.