Who's Your Daddy?

Thomas Palley
March 03, 2006


Thomas Palley runs the Economics for Democratic and Open Societies Project. He is the author of Plenty of Nothing: The Downsizing of the American Dream and the Case for Structural Keynesianism. His weekly economic policy blog is at www.thomaspalley.com

Jeff Faux and Gene Sperling are two titans of Democratic economic policy. Last week, at a forum sponsored by the Campaign for America's Future, they debated the core economic policy differences that define and divide old Democrats from new Democrats (click here for transcript).

Jeff Faux is the founder and former president of the progressive Washington think tank the Economic Policy Institute. Gene Sperling was the head of President Clinton’s National Economic Council from 1996 to 2000. Both have just published new books. Faux’s book is titled The Global Class War: How America’s Bipartisan Elite Lost Our Future—and What It Will Take to Win It Back. Sperling’s book is titled The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity.

The two books provide a marvelous window on today’s Democratic Party. Faux is an old labor Democrat, Sperling a new Democrat. It is striking that two leading Democrats could come up with such fundamentally different accounts of the American economy. This suggests that the Democrats are really two parties when it comes to the all-important economic agenda.

Faux is a political economist, and therefore emphasizes politics in his analysis. Political power lies behind economic policy. His core thesis is that America’s elite, drawn from both Republicans and Democrats, has abandoned America and joined a new global political party—the Party of Davos. Globalization therefore represents a new class war. On one side is a new globalized uber-capitalist class. On the other side are the rest of us, workers everywhere—not just in the United States.

Sperling is a policy economist, and accordingly his outlook emphasizes policy—fiscal responsibility, policies to help workers adjust to trade-related job losses, public investment in education and tax incentives to help people save and accumulate wealth.

These are the bright eye-catching differences between Sperling and Faux. However, there are deeper analytic differences rooted in competing assessments of today’s economic policy mix. Faux seeks a reconfiguration that is nothing short of paradigm change. Sperling accepts the current paradigm and is content with small adjustments. These foundational economic differences have not been adequately framed. Democrats must come to grips with them, so here is a stab at framing them.

Ron Blackwell, chief economist at the AFL-CIO, talks of how working families are boxed in by economic policy. This metaphor can be used to dissect the old (Faux) versus new (Sperling) Democrat debate. Imagine a square whose sides are labeled globalization, less-than-full employment, privatization linked to government spending cuts and “labor market flexibility.” Standing inside this square are working families.

The old labor Democrat interpretation of the box sees workers pressured from all four sides. Globalization is more about competition than trade—exerting massive pressure on private sector workers that drives down wages and benefits. Manufacturing has borne the brunt thus far, but the larger service sector is now increasingly in play because services can be provided over the Internet. Globalization brings lower prices, but it does so at the high cost of lower wages and job insecurity. Public sector jobs and wages are threatened by the “privatization and government spending cuts” side of the box which puts them in competition with private sector workers.

Both private and public workers are pressured from the other two sides. Less-than-full employment is where the Fed enters. Because the Fed puts a floor to the unemployment rate in the name of price stability, it contributes to weakening workers’ bargaining position. Meanwhile, “labor market flexibility” is code used by conservative business leaders for eroding the minimum wage and employee protections and attacking unions. This shifts bargaining power to business and lowers wages for all workers, not just union members.

New Democrats (Sperling) have a dramatically different take on the box. For them, globalization benefits working families by providing cheap imports that raise the standard of living, improve productivity via heightened competition, and provide jobs in the export sector. Sperling recognizes that this creates losers as some jobs are eliminated, and therefore calls for programs like adjustment assistance for workers displaced by trade—supposedly paid for from the gains of globalization.

In the new Democrat economy, working families benefit from the Federal Reserve’s less-than-full employment approach because it brings low inflation which brings down interest rates, thereby spurring investment and growth. This is why new Democrats were okay with Alan Greenspan, except when he strayed into Social Security or tax policy, as in 2001. Indeed, Alan Blinder—another highly respected new Democrat economic adviser—calls Greenspan “the greatest central banker ever.”

When it comes to privatization and cutting government spending, there is some agreement among new and old Democrats that resistance is needed. Thus, Sperling supports public spending on education and childcare. However, in the background lurks “Rubinomics ,” which means that budget constraints and fiscal responsibility can always put the kibosh on these plans.

Finally, new Democrats are largely silent on the “labor market flexibility” agenda, and appear uncomfortable confronting it. This is the case with Sperling’s book. While he does support the minimum wage, he says nothing about the right to organize unions or strengthening the minimum wage by indexing it to wages, so as to create a true floor that can rise with growth. This silence reflects new Democrats’ discomfort with questions of power—because the labor question has always been one of power in capitalist economies. This New Democrat silence contrasts with Faux's focus on the centrality of politics.

Republicans argue that all four sides of the box benefit working families. In many ways, that makes new Democrats closer to Republicans than to old Democrats. New Democrats are essentially on board with the corporate globalization and less-than-full employment agendas. At the same time, new Democrats are largely silent on the question of minimum standards and protections for workers. Additionally, Rubinomics and its focus on deficit reduction provide an escape from public investment commitments.

From an old Democrat perspective, new Democrats persistently seek to deal with effects and refuse to deal with causes. In other words, new Democrat policy solutions are simply not proportionate to the scale of the problems facing America’s working families.

That inevitably leads back to Faux’s focus on politics, money and power. Dealing with causes challenges the political and economic power structure. However, power pays the bills and new Democrats want the money that the powerful currently give them. Ergo, new Democrats refuse to challenge the power structure. Hence their band-aid approach to working families’ economic woes.