Fifteen years ago, the economic battle cry of the Reagan Revolution was growth--and the faster the better. The supply siders who descended on Washington in the early 1980s argued that big tax cuts would spur capital investment, which, in turn, would whip the economy into a growth frenzy unseen since the 1960s. America's problems would be swept away by a powerful tide of prosperity. As Ronald Reagan repeated throughout his Presidency: "America's best days lie ahead."
Today, the cry for supercharged growth is beginning again--only this time some of the most enthusiastic voices belong to liberal Democrats. While their optimistic rhetoric echoes the Republicans of the early '80s, these Democrats favor vastly different policies. Reaganites pushed tax cuts and staggering increases in defense spending to boost purchases of capital equipment--justifying all of it with rosy predictions for the economy.
"PUSH THE ENVELOPE." Pro-growth Democrats argue that government incentives should be targeted to human, not physical, capital. And to move the economy to a higher growth plane, they would spend billions of federal dollars on education, job training, research and development, and public infrastructure. Some even argue that government should slash income and payroll taxes and replace them with a levy on carbon-based fuels--a step they claim would both generate faster economic growth and cut pollution. Most controversial of all, they are insisting that a strong economy makes radical reform of Social Security unnecessary and imprudent.
House Democratic Leader Richard A. Gephardt (D-Mo.) is becoming the most visible advocate of go-go economics as he plans his race for the Presidency in 2000. In a little-noted speech last December, Gephardt said: "We cannot be the party of fairness without being the party of growth. We need to push the envelope of growth beyond what has been acceptable to the status quo."
A cadre of liberal economists, including Barry Bluestone of the University of Massachusetts, Bennett Harrison of the New School for Social Research in New York, and James K. Galbraith of the University of Texas, are providing the intellectual foundation for Gephardt's case. Insists Bluestone: "It is precisely by arguing for policies that will assure faster growth that we can encourage our redistributionist agenda."
Pro-business Democrats such as Senator Joseph I. Lieberman (D-Conn.) have been making their own growth argument for years. But such optimism doesn't come easy to the left--which for decades has tended to see the economic glass as half-empty. Even as a Democratic President presides over a powerful expansion, many liberals are focused on the problem of income inequality. Says Will Marshall, president of the Progressive Policy Institute, a centrist Democratic think tank: "The left seems to wish for bad news."
The New Growth Democrats are trying to break that mold. They still worry that the current boom has disproportionately benefited the rich. But unlike other liberals, they believe a powerhouse economy is the best way to spread the wealth.
Just as Republicans insisted that deficits shouldn't get in the way of their tax cuts, these Democrats say a drop of red ink is a small price to pay for new education spending. The drive for a balanced budget, they argue, has been misguided. "We've really been off on a fiscal policy fetish," says Galbraith. "There isn't a school district in Texas that doesn't issue debt. Why the federal government shouldn't is beyond me."
Most Democrats agree that government should spend more on education, roads, and bridges. Even President Clinton argues that balancing the budget by cutting such programs would slow growth. So he has proposed billions of dollars in new money for them.
But taking the next step and busting the budget--even for education--troubles many Democrats. They remember that Reagan kicked growth up to 3% a year, but at the cost of deficits that exceeded 5% of gross domestic product. Lawmakers such as Representative Charles W. Stenholm (D-Tex.) have built their careers as Democratic deficit hawks and don't want to see the party abandon its hard-won fiscal credibility, even as the federal budget heads toward a short-term surplus.
And while mainstream Democratic economists favor increased education spending, they reject efforts to paint a booming economy as a panacea. Says Brookings Institution economist Isabel V. Sawhill: "It is quite irresponsible to say that growth is going to solve our economic problems."
NO CRISIS. Maybe not all of them, but the New Growth gurus think it will fix one of the biggest. While Clinton and many Democrats are joining the debate over how to restructure Social Security, these Democrats insist that such a step is a fool's errand. There is no crisis, they argue; a small hike in the rate of economic output will be more than enough to finance baby boomers' retirement. Says Bluestone: "If you get maybe a 0.5% increase in productivity and more labor supply growth, the Social Security crisis turns out to be nonexistent."
Indeed, Gephardt and Bluestone claim that if the economy grows by 3% annually over the next decade, rather than the 2.3% predicted by the Administration, the nation would generate an additional $3.1 trillion. And that, Gephardt said in December, would be "enough to keep Social Security solvent; enough to invest all we need in our children's schools and our people's skills."
It is an enticing message. No longer would Democrats need higher taxes to finance their priorities. And while the GOP is tangled in an ugly debate over social issues, Democrats might even hijack economic optimism. "Morning again in America" has a pretty nice ring to it.