Jan. 10 (Bloomberg) -- President Barack Obama has taken control of the economic debate.
After spending much of the past three years parrying Republican deficit-reduction demands, Obama now has leading members of the opposition party reacting to his policy thrusts.
A 52 percent decline in the federal budget deficit since 2009 has quieted austerity talk and left the traditional Democratic theme of income inequality atop the political agenda. The latest sign: yesterday’s dueling anti-poverty speeches by the president and Representative Paul Ryan, a Wisconsin Republican and chairman of the House Budget Committee.
The new Republican focus on ways to promote upward mobility comes after three decades of placing low taxes at the heart of all economic debates, a philosophy Democrats deride as “trickle-down theory.” This week, an economic discussion that Mitt Romney, the Republican 2012 presidential nominee, once said should be confined to “quiet rooms” spilled into public view.
“What’s changed is Republicans now think there’s a problem,” said economist Douglas Holtz-Eakin, an adviser to the 2008 presidential campaign of Arizona Republican Senator John McCain. “Populist outrage and anger on the ground is palpable.”
Underscoring that concern, respondents in a Bloomberg National Poll last month said by a margin of 64 percent to 33 percent that the U.S. no longer offers everyone an equal chance to get ahead.
Though the president and some leading Republicans agree that the American Dream is in trouble, they offer rival diagnoses and remedies.
In a December speech, Obama linked rising income inequality and a lack of upward mobility as two sides of the same coin. Most Republicans are untroubled by the growing share of national income being captured by the rich, focusing instead on the chains that hold millions of Americans in poverty.
The richest 10 percent of Americans earned a larger share of income last year than at any time since 1917, according to Emmanuel Saez, an economist at the University of California at Berkeley. That affluent tenth earned at least $146,000 in 2012, almost 12 times what those in the bottom tenth made, Census Bureau data show.
Republicans such as Senator Marco Rubio of Florida say the problem is that too many of the impoverished are trapped, not that the rich are doing too well.
“Republicans will take the issue of income inequality and try and reframe it as an issue of social mobility,” said Peter Wehner, a former adviser to President George W. Bush.
Countries such as Denmark, Norway and Finland offer their citizens a better shot at getting ahead than does the U.S., which long has billed itself as the land of opportunity. The link between a parent’s economic status and their children’s adult earnings is more than twice as great in the U.S., according to a 2013 research paper by Miles Corak, an economics professor at the University of Ottawa.
American children born into poverty are five times more likely to be poor as young adults than children who are not poor, according to the Urban Institute.
“The uncomfortable truth is that there are now a number of other countries with as much or more opportunity than ours,” Rubio, a potential Republican presidential candidate in 2016, said in a Jan. 8 speech in Washington.
The president says the government needs to do more to “deliver equal opportunity.” Instead of the new spending on education, higher minimum wage and stronger unions that Obama supports, however, many Republicans emphasize the social causes of poverty, including a rise in the number of single-parent households.
After years of reiterating an economic message derived from the Reagan administration, some of the party’s leading figures - - including Ryan, Rubio and Senator Mike Lee of Utah -- have called for new approaches. These include consolidating overlapping federal programs and turning funds over to state governments for experimental anti-poverty efforts, modifying the tax code and easing occupational licensing requirements.
In October, Lee told a Heritage Foundation audience that too many Republicans were “still advocating policies from a bygone age.” The Tea Party favorite argued for a new “upward mobility agenda,” centered on larger tax credits for parents.
Economist Michael Strain of the American Enterprise Institute has drawn attention for proposals to aid the more than 4 million people who have been out of work for more than six months. In an article in National Affairs, he proposed using relocation aid for the jobless, work-sharing and wage subsidies for new hires to boost employment.
What Republicans aren’t willing to do is embrace a classic big-government approach. The re-examination that’s under way on the right is about how to employ traditional conservative tools in innovative ways.
“The idea that they’d spend a lot of new money is just a nonstarter,” said Ron Haskins, a former Republican congressional aide who was instrumental in the 1996 overhaul of the federal welfare program. “Doing something on poverty will take a distant second to holding the line on the budget.”
Obama yesterday unveiled details of his year-old proposal for “promise zones” in five areas hard hit by the recession: San Antonio; Philadelphia; Los Angeles; Southeastern Kentucky; and the Choctaw Nation of Oklahoma. They’ll be the first of 20 communities over the next three years to get government help, joining with business and local leaders to “make investments that reward hard work and expand opportunity.”
A child’s chance for success should depend “not on the zip code she’s born in, but by the strength of her work ethic and the scope of her dreams,” Obama said at the White House.
Republicans, looking ahead to the congressional elections in November and a 2016 presidential campaign, are seeking to move beyond an image of indifference to the poor. Romney’s campaign was damaged by his comment that “47 percent” of Americans see themselves as “victims” and depend on the government.
“It’s a hangover from Romney and the empathy gap,” says Chris Krueger, senior policy analyst with Guggenheim Securities in Washington, who adds that Republicans want to combat a sense among some voters that they are “the Richie Rich party.”
There’s more to the Republican debate than just politics, according to Wehner. For Rubio, the son of Cuban immigrants, the notion of upward mobility is central to his own experience. And Ryan is a disciple of former Republican Representative Jack Kemp, an advocate of more aggressive party efforts to address the needs of low-income and minority voters.
Ryan, the losing vice presidential candidate in 2012 who has recently visited impoverished neighborhoods around the country, spoke last night at the Newseum in Washington.
He said he’d give the “war on poverty” declared by President Lyndon Johnson 50 years ago a failing grade, leaving 15 percent of the nation poor, often isolated in dangerous neighborhoods with failing schools. Federal programs are structured in a way that beneficiaries offered a job can net a monetary loss by taking it, he said.
“We need to make sure it always pays to work,” said Ryan, who favors housing and school vouchers that are portable. “We’ve got to stop quarantining the poor,” he said.
Since the end of the recession in June 2009, affluent Americans have been far more upbeat about the economy than those making less. Those with annual incomes above $100,000 scored an average -1.6 on the Bloomberg Consumer Comfort index compared with a -67.9 for those making less than $15,000.
Even with the bipartisan attention to issues of inequality and mobility, there’s little prospect this year of legislative action. The two parties remain deeply suspicious of each other’s motives, and the public -- for all its insecurity -- is divided on the need for government action. In the Bloomberg poll, 45 percent said new policies were needed while 46 percent preferred an unfettered market.
Republicans see the president’s highlighting of income inequality -- an issue he has raised since a December 2011 speech in Osawatomie, Kansas -- as politically motivated before the midterm elections. It is expected to be featured in his Jan. 28 State of the Union address.
Democrats, noting that Republicans have blocked an extension of emergency unemployment insurance and oppose raising the federal minimum wage, are equally skeptical. Jared Bernstein, a former member of Obama’s economic team, says anti-poverty proposals by Rubio and Ryan are inconsistent with the shrunken government budgets they support.
“The problem with even good ideas from the Republican side that involve government activity is you can’t match it up with their budgets,” Bernstein said.
The rich-poor gap typically widens during an economic expansion, as rising asset prices benefit those at the top more than those of more modest means. With economic growth expected to accelerate to an annual rate of 3 percent by the fourth quarter, and politicians focused more on talk than action, inequality will probably get worse before it gets better.
Holtz-Eakin, the president of the American Action Forum, a research group, said the erosion of American opportunity was a longstanding problem.
“You can’t blame it on the Bush tax cuts or the Obama stimulus,” he said. “It’s a deep, pervasive economic phenomenon and should be treated as such.”
To contact the reporter on this story: David J. Lynch in Washington at email@example.com