Remembering Congress’s 46-year-old hearings on basic income and child allowance

In the spring of 1970, Congress had dueling basic income proposals to consider: a basic income for needy families from President Richard Nixon, and a basic income for children from Senator George McGovern.  The congressional debate over these plans provides an intriguing historical evaluation as we once again explore ways to provide income security to more Americans in the twenty-first century.

During March of 1970, the Senate Select Committee on Nutrition and Human Needs held hearings ostensibly on “Hunger and the Income Gap.”  Instead, the hearings quickly veered into the merits of the basic income proposals on the policy table.  The committee, which was chaired by McGovern and included Republican senators Bob Dole and Jacob Javits, elicited testimony from prominent witnesses like Rev. Jesse Jackson and New York mayor John Lindsay.

As McGovern eyed a run against Nixon two years later, he was eager to elicit testimony contrasting his child allowance plan from Nixon’s basic income proposal.  Several participants found Nixon’s $1,600 basic income for needy families to be unduly stingy.  Others took issue with the failure of Nixon’s plan, which included a work requirement, to specify exactly what kind of work beneficiaries would be required to perform.

But much of the testimony centered on how to fund McGovern’s child allowance plan.  There was near-unanimous agreement that the policy could be paid for by repealing the dependent tax exemption.  During his testimony, Jackson asked, “Don’t the rich people have a $600 allowance tax write-off for their children?”  McGovern answered, “[T]here is, as a matter of fact, a children’s allowance in the United States today written into our income tax laws, as $600 exemption. [. . .]  [I]t is really a children’s allowance for the rich.”

A child allowance was seen as an equitable way of expanding the tax system’s child subsidy to all.  In Lindsay’s record testimony, he said, “Of course, an essential step in creating a children’s allowance system would be to eliminate the $600 per dependent exemption . . . .  Only those who earn enough to pay taxes now benefit from this form of a children’s allowance.  Those who are poor receive no benefits at all.”

McGovern himself fleshed out the distributional impact of his child allowance, which he thought should be taxable for higher earners.  “[I]f you repealed the existing income tax exemption and made the children’s allowance taxable, 79-80 percent of the benefits . . . would go to families of $10,000 income or less,” he explained.  “Under the present system, the income tax exemption is just the reverse.  Most of the benefits of the income tax allowance go to families above $10,000.”

(McGovern’s explanation was a response to Senator Javits, the Republican senator from New York.  Javits proclaimed himself “very favorable to children’s allowances.  In my last campaign I advocated it.”  Lindsay was also still a Republican until switching parties in 1971 and challenging McGovern for the Democratic presidential nomination.  The child allowance was thus a bipartisan idea at the time.)

The senators and witnesses were right.  We do have a child allowance in the United States—it’s just baked into the tax system.  But tax exemptions inherently favor the wealthy.  These reductions exempt a certain amount of income from taxation.  Because the wealthy are in a higher tax bracket, they receive disproportionate benefits from the exemption.

Today, the dependent tax exemption remains a regressive tax-based child allowance.  Families can exclude up to $4,000 per child in taxable income.  This tax benefit costs the government more than $38 billion annually, but only 1.5 percent of the benefits accrue to the poorest 20 percent of households, while 57.1 percent accrues to the top 40 percent.

Since 1997, the United States has also had a Child Tax Credit, another $1,000 per child tax credit child allowance.  The CTC lifts millions out of poverty, and is structured to be a somewhat fairer and less regressive child subsidy because a portion of it is refundable for low-income families who owe no federal income taxes.

Still, because it is not fully refundable, the CTC too tends to favor better-off families.  The CTC costs the government some $60 billion per year, with the largest subsidies flowing to middle- and upper-middle class families rather than to the poor.

Each of these child tax subsidies are tilted toward the middle- and upper-ends of the income spectrum.  Not only is this inequitable, but it means that public benefits aren’t being efficiently directed toward those who need them the most.

One solution is to convert all tax reductions into refundable tax credits.  This would equalize the value of the subsidy across all classes of taxpayers.

But a better option is to disgorge child subsidies from the tax code entirely and use the funds spent on the CTC, the dependent exemption, and other smaller child tax credit subsidies to create a true child allowance, deposited into families’ bank accounts every month.

Researchers at The Century Foundation have calculated that the direct spending of a child allowance is a more cost effective way of slashing poverty than the CTC’s submerged tax spending.  For instance, a $2,500 child allowance would cost an additional $109 billion per year and would cut child poverty by 5.1 percent. On the other hand, a $4,000 Child Tax Credit would cost an additional $101 billion per year while cutting child poverty by only 1.2 percent. This is because a child allowance would reach all families, including those with little or no income, and would thus rescue more children from deep poverty.

So the insights of McGovern, Lindsay, and Jackson remain true today.  The most direct and equitable way to subsidize children is to scrap our tax reductions and create a simple child allowance.

What’s perhaps most foreign about the Senate hearings is how cavalier and casual the participants were about trashing the dependent tax exemption.  Today, such a suggestion would be a virtual death knell—a nonstarter quickly blasted as a tax hike, even if the net effect of a child allowance would expand relief to many more families.  In 1970, though, the right hadn’t yet succumbed to taxphobia, and no anti-tax pledge had yet gained hegemony over Republicans in Congress.  There was more political space to imagine different and more efficient ways of doing things.

Instead, in looking back at these hearings forty-six years later, it’s striking to see senators and witnesses alike honestly searching for the best solution.  We might face different resistances today, but we’d be wise to relearn what we knew then.  A child allowance is needed just as urgently today as it was in 1970.

When basic income was almost an American reality

Note: This post has been cross-posted at Medium.

Lately I’ve been writing about the relative virtues of basic income and child allowance proposals  to counteract poverty and inequality.  These seem like novel ideas on the American scene today.  But in fact, there was a time when both of these ideas were seriously proposed on Capitol Hill.  After forty-five years of lost faith in government, we are simply rediscovering the ambitions we once held.

In August 1969, President Richard Nixon unveiled a basic income scheme for needy families with children called the “Family Assistance Plan.” (FAP)  Under Nixon’s FAP, a family of four would receive $1,600 annually from the federal government, or about $10,500 in 2016 dollars.  For families deriving income from work, the FAP would gradually phase out above a certain level.  Indeed, FAP included a work requirement for most “employable” individuals.

Nixon’s FAP drew on proposals for a negative income tax from economists like Milton Friedman.  It also drew on work done by the Office of Economic Opportunity in President Lyndon Johnson’s administration.  A Johnson administration commission produced a report recommending a basic income, but Johnson rejected it out of hand in favor of an anti-poverty approach focused on skills training and education.

Nixon announced the FAP in a nationally televised address.  He saw FAP as an opportunity to upend the web of New Deal-era welfare state programs and to leave a conservative mark on  anti-poverty policy.

The FAP passed the House, but was attacked from both the right and left.  Conservatives fretted that the FAP would expand public dependency and expanded the size of government.  Liberals, on the other hand, thought that the basic income was too stingy and the work requirement to be punitive.

As an alternative, Senator (and future Democratic presidential challenger) George McGovern proposed a child allowance, which he called a “Human Security Plan” (HSP), on January 20, 1970 in a speech in New York City.  McGovern’s HSP would have provided at least $50 per month ($310 in 2016) for every child in the nation.  This entitlement would be paid for by eliminating the dependent tax exemptions, which today are worth up to $4,000 per child in reduced taxable income.  McGovern’s plan also included guaranteed employment, including government-provided public service employment of last resort if no private sector jobs were available.

McGovern hoped that a child allowance would “very nearly wipe out poverty among most families with children [and] would also provide a critical boost in the income of middle American families.”

McGovern evidently anticipated that the HSP would be criticized for incentivizing people to have more children at a time when many worried about overpopulation.  Indeed, the child allowance came into prominence in Europe for that precise reason: to serve pro-natalist population restorative purposes.  As Tony Judt explains in his European history Postwar, “[f]amily allowances were a key element in plans to increase the birth rate,” particularly in countries that suffered heavy death tolls in World War I.  Belgium introduced a child allowance in 1930, and was quickly followed by France, Hungary, the Netherlands, and others.

America in the 1960s had the exact opposite concern, fearing that out-of-control population would soon cause mass starvation and suffering.  McGovern tried to allay these fears by pointing out that the United States was then (and now) one of the only advanced countries without a child allowance, and that in most countries, the policy had in fact been implemented without causing birth rates to explode.

McGovern’s HSP went nowhere in Congress, but served as a prelude to his presidential run.  In January 1972, McGovern rolled out his own basic income proposal, which he called a “demogrant.”  More generous than Nixon’s proposal, the demogrant would have provided $1,000 per person as a minimum annual income, or $4,000 for a family of four.  This would replace the personal income tax exemption.

Liberals and conservatives revolted against McGovern’s demogrant plan.  In the Democratic primary, Hubert Humphrey warned that McGovern’s plan would have caused substantial tax increases on the middle class and ballooned government spending.  Others worried that the reach of the proposal would cover a large fraction of the country with new benefits.  In the general election, the Nixon campaign ran an ad blasting McGovern’s demogrant for leaving “47 percent of Americans” dependent on “welfare.”

Under pressure, McGovern ultimately scaled back his plan.  In the summer of 1972, McGovern dismantled his universal basic income proposal by “proposing a new categorical plan and by emphasizing the importance of work,” according to Brian Steensland’s The Failed Welfare Revolution.  McGovern’s new plan was a “system of national income insurance” built upon work and public service jobs.  “The best incentive is a job opening,” McGovern said.  “The best answer to welfare is work.”

McGovern’s scaled back approach had three still fairly ambitious components: more generous Social Security, an employment guarantee for those capable of work, and income assistance for those who could not work, including mothers with children, at $4,000 for a family of four.

It’s not clear why McGovern did not revive his HSP child allowance plan when he retrenched from his universal basic income proposal.  But his compromised version reflected the tendency for liberal welfare state expansions to hew toward categorical means-tested approaches instead of universal citizenship-based entitlements.

McGovern lost in a landslide to Nixon in November, shortly after Nixon’s FAP was unceremoniously killed in the Senate in September 1972.  Nixon ultimately dropped the idea entirely by his 1974 State of the Union address as he battled mounting calls for impeachment.  Congress eventually enacted a narrower version of the negative income tax concept underlying FAP, providing an Earned Income Tax Credit to top off the wages of the working poor.

The late 1960s and early 1970s arguably mark the zenith for American liberal policy imagination.  During the course of the Nixon administration, the United States came tantalizingly close to enacting a universal basic income scheme, a universal government-run childcare system, and universal healthcare.  It came less close to enacting a child allowance, but the idea was at least on the table.

Government was bold and full of ambition on the heels of the civil rights revolution and the War on Poverty.  The public trusted government to act in good faith and competently solve big national problems.  But the foundations were already cracking, and the aftermath of Vietnam and Watergate crippled public trust in government for generations, even still today.

We’re fitfully trying to pick up the pieces and restore a government to meet the needs of the twenty-first century, drawing inspiration from the audacious plans floated forty-five years ago.  But for now, the close of the 1960s seems to be the high-water mark for lofty public policy, too—one more place where, as Hunter S. Thompson once put it, “the wave finally broke and rolled back.”

Why we need a basic income for kids

Note: A version of this post has been cross-posted at Quartz.

A universal basic income is all the rage in policy circles across the globe.  And increasingly, UBI advocates are realizing that the best place to start is by providing a basic income for kids.

It’s a simple idea: to help families mitigate the costs of raising children, the government should send each household with minor kids a monthly check.  Unlike a full UBI, which is just now being piloted in a handful of cities, a basic income for children (often called a “child allowance” or “child benefit”) has already been successfully implemented in many other developed nations.  Countries like Canada, the Netherlands, and the Nordics all have one.  Britain used cash grants to families to help cut its child poverty rate by half in just fifteen years.

There are a lot of good reasons for the United States to import this tried and true policy.  On a basic moral level, a child’s wellbeing should not be dependent on her parents’ ability to earn market income.  But that’s exactly what we have allowed in the United States, and some 20 percent of all children suffer in poverty because of it.  Poor children are poor through no fault of their own, having simply had the misfortune of being born into low-income households.  We shouldn’t accept this fate.

Indeed, rampant child poverty makes equality of opportunity a fiction for poor children.  Poverty is a massive handicap for kids, impairing their ability to learn in school and literally scrambling their brain compositions from the permanent effects of stress.  The weight of poverty tragically holds kids back.

Conversely, children that get income boosts do better in school and grow up to earn more money.  Making sure that children are raised on at least a basic income gives them a fair shot to seize opportunity and achieve in school and their future careers.

A children’s basic income is also fair for parents.  Having a child is a huge financial burden, costing parents over a quarter million dollars on average.  Yet parents typically have children relatively early in their working careers, when their incomes are at their lowest.  This makes having and raising children a significant risk of poverty.  With more mouths to feed, family income just doesn’t stretch as far.

Our public policy typically tries to support and encourage childrearing, not implicitly penalize parents with the prospect of financial ruin.  Yet many millennials are finding themselves unable to afford to have children, a trend with bad long-term impacts for the size of the workforce, the prospects for the economy, and the stability of programs like Social Security.  A children’s basic income would provide the support parents need to securely raise children.

In fact, a children’s basic income would finally treat raising children like real valued work.  In 2012, when a Democratic surrogate bone-headedly bashed Ann Romney for foregoing private employment to stay home with her children, the Romney campaign rightly fought back by insisting that raising children is real work.  Most of us would undoubtedly agree, and paying parents to raise children would put our money where our mouths are.

Such a program would also be great for the economy.  Because parents have more expenses, they are more likely to spend new money they receive.  More spending generates more growth, boosting the economy as a whole.  That’s why, when the economy began to sputter in 2008, President Bush and Democrats in Congress responded with an initial stimulus plan that in part gave an extra $300 per child to parents as a sort of one-off child allowance.  Parents could be counted on to spend the money.  And when money is earmarked for children, parents do indeed tend to spend it on their children rather than on vices like alcohol or tobacco.

A children’s basic income is also a wise long-term investment in the future of the economy.  By one estimate, child poverty costs the economy a whopping  $672 billion each year.  By ensuring that all children can capitalize on their potential, we’ll have more productive workers in the future and ensure that talent does not go squandered by the bad luck of being born poor.

On the campaign trail, Donald Trump has proposed a new child care tax deduction that would, predictably, only help rich parents.  Hillary Clinton’s plan is better, but would only help parents who put their kids in commercial childcare, and not those who raise children at home.  In Congress, Rep. Rosa DeLauro has proposed a new refundable young child tax credit that would go far to help the youngest children who are most ill affected by poverty.

It’s a good sign these issues are finally being debated, but ultimately, something bolder is needed.  A basic income for children would alleviate child poverty and give parents the support and flexibility they need.  So aspirants for a universal basic income should start where it’s needed most: America’s children.

The real problem with Obamacare

What happens to a universal healthcare system dependent on private insurers when those insurers don’t show up?  The good people in Pinal County, Arizona, may be about to find out.

On Monday, Aetna announced that it was withdrawing from two-thirds of the states where it had previously been selling Obamacare plans on state marketplaces.  This threatens to leave many communities with much slimmer insurance options, and Pinal County without a single insurance offering available on its health exchange in 2017.

Amazingly, Obamacare never anticipated this circumstance.  Its drafters assumed that at least some insurers would sign up to sell insurance everywhere in the country.  And they didn’t create any kind of fail-safe or backstop in the event that private insurers bailed en masse.  The only mechanism the federal government has to enlist insurers into Pinal County (or any market, for that matter) is to plead and cajole.

Sure, Pinal County is just one unfortunate insurance black hole for now.  But Aetna has reported the same struggles that a number of other insurers (but by no means all) have had in the marketplaces: sicker than expected enrollees, and insufficient risk compensation.  As more and more insurers head toward the Obamacare exit, more states and counties will be left with one or no insurance choices.  So Pinal County may just be the tip of the iceberg.

There are a number of ways we could shore up the health exchanges to avoid this dilemma.  The fundamental problem Aetna and other insurers have encountered is that Obamacare enrollees have been disproportionately sicker and expensive to insure.  To stabilize the marketplaces and make insuring these enrollees a viable business, one (or both) of two things needs to happen: the exchanges need to enroll more healthy people, or else insurers need to be compensated for taking on the risk of insuring a sicker population.

To enroll Obamacare’s relatively healthy opt-outs, policymakers could take two different tracks.  For one thing, they could make the penalty for going without insurance stiffer.  Raising the cost of disregarding the individual mandate will, naturally, persuade more people to comply and buy insurance.

For another, policymakers could make the insurance offerings on the exchanges more appealing.  Many people fall between a rock and a hard place under Obamacare.  Bronze plans provide cheap but flimsy coverage, with low premiums and high out-of-pocket costs.  Silver plans, on the other hand, provide better coverage but are more expensive.  At the same time, the government kicks in cost-sharing subsidies for silver plans but not bronze.  This is meant to encourage more people to spring for better coverage, but also creates a gulf between the silver and bronze plans that many people seem to be falling into.

So some of the uninsured are logging on to their state’s exchange and seeing a silver plan they can’t afford and a bronze plan with outrageous deductibles.  Faced with this unpleasant choice, some consumers are just throwing their hands up and walking away.  And those most likely to say “thanks but no thanks” are the young and healthy, who feel the safest to gamble by going uninsured.  These are the exact consumers insurers need to draw in to stabilize their marketplace business.

There are clear ways to close this gulf and make Obamacare’s plans more attractive to more people.  We could make the law’s tax credit subsidies more generous to make silver plans more affordable.  Or we could extend cost-sharing subsidies to bronze plans to help cushion the cost of deductibles and co-pays.

The problem is that either of these things requires legislative action to constructively improve the law—something that Congress has shown no appetite for.  Instead, it has gone the other direction entirely, voting over and over and over to repeal the law in total.

While repeal efforts have failed, congressional Republicans have succeeded in weakening the law in ways that have made it harder for insurers to operate.  For instance, the law originally provided several mechanisms to compensate insurers if the marketplaces’ first few cohorts of enrollees proved to require more care (and therefore more costs) than anticipated.  Republicans slammed these mechanisms as an insurer bailout.

Eager to rack up some anti-Obamacare bonafides during his failed presidential campaign, Senator Marco Rubio succeeded in gutting one of these risk adjustment provisions.  This crippled a number of the law’s insurers, and particularly the non-profit co-op start-up companies authorized by the law as a replacement for the abandoned public option idea.  Now, even Aetna attributes part of its decision to exit on the law’s “current inadequate risk adjustment mechanism.”

So the health exchanges could be shored up by making insurance more desirable for more people, and by boosting (rather than kneecapping) the law’s compensation for insurers that take on added risk.  But perhaps a deeper structural fix is needed.  Even these reforms still leave universal coverage dependent on the voluntary participation of private insurers.  By letting the private sector provide a fundamental right, the government leaves itself vulnerable to demands and rent-seeking from for-profit corporations (which some speculate is already happening).

Michael Hiltzik argues that insurers shouldn’t be able to cherry-pick only the lucrative public health programs.  “If you want to reap the profits from participating in public health programs,” he writes, “you’ll have to participate in the Affordable Care Act too.”

That’s one option.  But there’s another option that has a history of bipartisan support, and that’s providing a public health insurance option in markets without enough (or any) private offerings.  It’s an idea that was supported during the law’s drafting by both Republican Sen. Olympia Snow and Obama’s then-Chief of Staff Rahm Emanuel.  Obama himself recently seemed to revive something like this as a way to contend with lagging competition across the exchanges.

This would reconceive the public option as a backstop—as an insurer of last resort in communities that aren’t adequately served by the private market.  It would inject competition and keep prices low.  And unlike private insurers, the public plan could be regulated from monopoly pricing if it’s the only insurer in town.  So if all else fails, consumers would at least be able to buy affordable coverage from a publicly-run insurer.

And indeed, Obamacare should have this kind of backstop.  Universal healthcare shouldn’t be left at the mercy and whims of private insurers, and shouldn’t be subject to the veto of countless decisionmakers.  That’s why Obamacare created the fallback option of federally-run exchanges if states refused to create state marketplaces (as 37 ultimately did).  Consumers in those states shouldn’t lose out on affordable health insurance just because their elected officials decided not to participate in Obamacare.

The same is true within the exchanges.  Private companies shouldn’t get the final say on whether universal healthcare gets to be actualized.  That was never in the intent or spirit of the law, but it’s what you get when you graft a universal health insurance program on to a predominantly privately-run system with no general public fallback.  Now that insurer non-participation is becoming a live reality, Congress must step up and create the fallback option that should have been there in the first place.

Like all major new social insurance systems, Obamacare, in its extraordinary complexity, needed tweaking after enactment.  But Congress has adamantly refused to do this, continuing to attack the law’s very existence.

Aetna held the door open for one day returning to the Obamacare business, saying that it “may expand [its] footprint in the future should there be meaningful exchange-related policy improvements.” We know what those improvements are, but we just aren’t doing them.  There are flaws in Obamacare’s design, but those aren’t what are truly getting in the way.  The real problem with Obamacare is our broken political system.

Trump, Clinton, and the fate of the economy

As Hillary Clinton and Donald Trump duke it out on the campaign trail, the economy hangs in the balance.  Contrary to Trump’s doom and gloom non-reset speech yesterday, the economy continues to gain steam and add jobs.  But the fate of the recovery may rest on the outcome of the November election.

A team of respected economists at Moody’s Analytics attempted to forecast the economic implications of each presidential candidate’s policy agenda, and the difference couldn’t be more stark.  Put simply, a Clinton presidency would strengthen our economy’s steady growth, while a Trump presidency would be an all-out economic calamity.

Clinton’s policy platform is carefully crafted to build up the economy.  The Moody’s team looked at the suite of Clinton’s major policy proposals, including increased spending on education and infrastructure, higher taxes on the rich, guaranteed paid family leave, and a higher minimum wage.

Moody’s found that if Clinton’s agenda were fully enacted, it would boost economic growth and create 3.2 million new jobs by the end of her first term.  The biggest benefits would flow to low- and middle-income families, and the average household’s after-tax income would rise by some $2,000.

Unemployment would fall as low as 3.7 percent—a level of full employment not seen since 2000.  With a new paid leave program and subsidies for child care, more parents would join the labor force.

These staggering employment figures are all the more remarkable because Moody’s expects Clinton’s new $12 minimum wage to eliminate 650,000 jobs.  This is somewhat controversial, and economists are largely split on how the minimum wage affects employment.  Some think a higher minimum wage makes workers more expensive and costs jobs; others think it gives workers more spending money and grows the economy to generate new jobs.  Regardless, Moody’s still sees a higher minimum wage as a net win for the economy, because the pay raise for low-wage workers substantially outweighs the lost income for those who might lose their jobs.

Importantly, Clinton’s tax plans wouldn’t drag down the economy either, even though she intends to impose new taxes on the rich.  This is because the economy can stomach these kinds of taxes, and so can the wealthy.  “[A]ffluent taxpayers,” the analysts explain, “are much less likely to change their spending behavior due to a tax increase than lower- and middle-income consumers.”  Because individual spending isn’t harmed, taxing the rich doesn’t inhibit economic activity.

All told, Clinton’s economy would build off of the steady growth and 70 months (and counting) of job creation of the Obama economy—the longest streak in American history.

And what of President Trump?  Batten down the hatches and stock up on canned goods.  According to Moody’s, the only thing “great” that Trump will make for America is another Great Recession.

Moody’s found that Trump’s major campaign promises—mass deportations and curtailed immigration; tearing up and rewriting trade deals; and slashing taxes on the rich—would cause economic catastrophe.  “By the end of his presidency, there are close to 3.5 million fewer jobs and the unemployment rate rises to as high as 7%,” Moody’s calculated.  The economy would plunge into recession for two years starting in 2018 and would shrink by 2.4 percent.

It gets worse.  Trump’s agenda would produce no income gains for the typical American family.  Stock prices would plummet, and the federal budget deficit would balloon by an additional $1 trillion.  As Trump rounds up and exiles undocumented immigrants, the economy would struggle from the loss of workers.  Not to mention, Trump’s overt hostility (in both rhetoric and policy) to Mexico and China would spark a retaliatory trade war, costing the United States $85 billion in exports.

A Trump administration would be an abject economic disaster, quickly collapsing the fragile momentum the economy has painstakingly gained since digging out of the last recession.  As Moody’s puts it, under Trump, “the U.S. economy will be more isolated and diminished.”

Now it’s true that this analysis fancifully assumes that either candidate will be able to swiftly enact their entire agenda upon taking office.  This is exceedingly unlikely, as Clinton may find herself stymied by a Republican Congress, and Trump could get bogged down in the courts.

Be that as it may, the White House under President Hillary Clinton would be an active aid to the economy.  Under President Trump, it would be a constant drag and an unprecedented risk.

The economy is perpetually the foremost issue on Americans’ minds.  As they go to the polls in November, voters face an unparalleled choice—a choice between growth or recession, between 3 million new jobs or 3 million lost.  The candidates’ agendas present a vast chasm in economic fortunes for the next four years.  Voters must decide which side they want to be on.


Hillary Clinton’s bold defense of government

Government is in deep disrepute in the United States.  Dismayed by gridlock and scandal, and prodded by endless right-wing anti-Washington invective, public faith in government reaches perpetual new lows.  Which is why it’s so remarkable and refreshing to see Hillary Clinton sticking up for the old-fashioned notion that acting through government, we can achieve great things by working together.

Clinton’s defense of government is in part a reaction to Donald Trump.  Political scientists Norm Ornstein and Thomas Mann have argued that Trump’s rise is the logical conclusion of the Republican Party’s three-decade war on government.  “[T]he dysfunction of the Republican Party, [. . .] its obstructionism, anti-intellectualism, and attacks on American institutions were making responsible governance impossible,” Ornstein and Mann write.  “The rise of Trump completes the script[.]”

In resisting the mean-spirited nihilism of the Trump campaign, Clinton has emphasized the benefits of unity over the pitfalls of Trumpian divisiveness.  And by arguing that we are greater than the sum of our parts, Clinton has implicitly pushed back against thirty years of GOP anti-institutionalism and made a positive case for robust government.

Clinton’s acceptance speech at the Democratic National Convention was laden with tributes to the virtues of collective action.  Arguing that when we must “work together so we all can rise together[,]” Clinton reminded us that “[o]ur country’s motto is e pluribus unum: out of many, we are one.”  The message of her 1996 book “It Takes a Village,” Clinton explained, was that “[n]one of us can raise a family, build a business, heal a community or lift a country totally alone.”

It’s a message Democrats have been honing for years.  In 2012, video of then-Senate candidate Elizabeth Warren’s living room meet-and-greet went viral, where she argued that we all rise together.  “There is nobody in this country who got rich on his own,” Warren argued.  Success is built on the back of communal goods like public roads, protections of property, and publicly educated workers.

That same summer, President Obama tried to echo Warren.  “If you were successful, somebody along the line gave you some help,” Obama argued.  “If you’ve got a business — you didn’t build that. Somebody else made that happen.”  Republicans treated Obama’s somewhat clumsy case for communal success as an epic gaffe, spending an entire day of their 2012 convention insisting that “We Built It.”

But Clinton hasn’t shied away from making the case for an interconnected American destiny.  Faced with Trump’s “I alone” strongman act, Clinton has lifted “stronger together” beyond a mere slogan, proclaiming it to be “a guiding principle for the country we’ve always been and the future we’re going to build.”

Her policy priorities back this up.  Clinton aims to create an “economy that works for everyone, not just those at the top.”  To Clinton, public infrastructure investment has the awesome capability to “not only create jobs today, but lay the foundation for the jobs of the future.”  By pursuing debt-free college, a livable minimum wage, a full-employment economy, and tax hikes on millionaires, Clinton expresses a profound faith in the ability of government to shape economic life.

And rightfully so.  The mixed economy is the key to American prosperity, with government and the private sector working in tandem to create broad-based and sustained growth.  Government produces public goods like health, roads, infrastructure, education, and research, laying the groundwork for dynamic markets to monetize and innovate off of public investment.

And contrary to conservative revisionism, an active government has always been part and parcel of American history.  From Hamilton’s national bank and absolution of state debts, to Jefferson’s advocacy for government land grants to all citizens, to FDR’s New Deal adoption of modern social insurance, government has been a force in structuring the economy throughout our history.  Government has also been an ever more diligent steward of freedom, liberating minorities from discrimination and protecting workers from the tyranny of excess employer power.  Government has thus created a richer and more meaningful American freedom.

In the United States, we too often fall into the false belief that a free and productive economy is a natural occurrence.  This takes for granted the role of government in setting the ground rules for the economy: the antitrust regulations that preserve competition, the property rights that promote innovation, and the government investments that produce a healthy, knowledgeable labor force, among many others.

Clinton and the Democrats are reminding us of this.  Contemporary problems like rising inequality aren’t hopeless laws of nature, but can be tamed by smart, determined government action.

The specter of Trumpism has made Democrats bolder.  If Trump is the end result of the conservative campaign against government, Democrats have responded by doubling down on the virtues of community and the common good.  When confronted with a candidate manifestly unfit to serve, Democrats have increasingly embraced their role as proud, effective managers of government to meet the needs of the twenty-first century.


A tale of two think tanks

Hillary Clinton declared her long-known intention to run for president in April 2015.  In the months before and after her announcement, the think tanks in the orbit of Democratic policy jockeyed for position to influence the agendas of the party and its presumed nominee going into the 2016 election.

In January 2015, the Center for American Progress released a comprehensive white-paper authored chiefly by former Obama economic adviser Larry Summers.  The white-paper prescribed a broad series of policy proposals to promote “Inclusive Prosperity” in the United States.  Since its founding, CAP has served as the Democrats’ primary bank for policy ideas, and has strong ties to the Clinton campaign.  (CAP is run by Neera Tanden, a former Clinton aide.)  The white paper ticked off the gamut of mainstream center-left policy goals: paid family leave, infrastructure investment, universal pre-K, and the works.

Many rightly expected that the CAP report would be strongly indicative of Clinton’s eventual platform.  For instance, Matthew Yglesias at Vox wrote that it was “the best guide to what Hillarynomics is likely to look like.”  And indeed, when Clinton launched her campaign from Roosevelt Island in New York, the policy ideas she endorsed closely tracked CAP’s report, even mimicking its theme of inclusive prosperity by arguing for “fair growth,” as John Cassidy of the New Yorker noted at the time.

Meanwhile, a month after Clinton announced her candidacy, the left-leaning Roosevelt Institute released a comprehensive white-paper of its own.  Authored by one-time Bill Clinton economics adviser Joseph Stiglitz (a rival of Summers’s in the Clinton White House), the Roosevelt report aimed to “rewrite the rules” of the American economy, proposing to fundamentally restructure the laws, regulations, and institutions comprising economic life to even out the balance of power and rewards between employers and workers.

The Roosevelt paper was widely seen as trying to provide a modicum of leftward pressure as a counterweight to the more conventional center-left CAP agenda.  And as the New York Times Magazine reported this week, Roosevelt has been in frequent communication with Clinton officials, and has achieved a striking deal of success in pitching its policy ideas to the campaign and the national Democratic Party.

In a primary campaign that saw token left-wing opposition from Bernie Sanders bloom into a bona fide movement, it’s interesting to see how these two dueling think tank reports wielded their influence now that the dust has settled.  There’s a good deal of overlap between the CAP and Roosevelt reports—both want to strengthen collective bargaining; both want to better regulate the shadow banking system; both want to negotiate fair trade deals that protect labor and the environment, among other points of agreement.  But they diverge in interesting ways—and at times, both wound up getting outflanked by the historically progressive platforms that ultimately came to be embraced by both Clinton and the Democratic Party.

Take the issue of housing.  CAP wanted to promote homeownership and affordable housing by tinkering with existing institutions like the Fair Housing Act and the Federal Housing Finance Agency to make home loans affordable to more buyers.  Roosevelt, on the other hand, took a more interventionist approach: proposing a public option for the mortgage industry.  “Rather than trying to nudge the private mortgage system with federal backstops, subsidies, and implicit bailout guarantees,” Roosevelt wrote, “lawmakers should create an explicitly public mechanism in the housing market.”  (Neither Clinton nor the DNC have taken specific stances on housing policy.)

That’s fairly typical of a side-by-side reading of the two reports: CAP tends to prefer tweaking existing programs and institutions to create a fairer economy, while Roosevelt will often propose a more wholesale overhaul to create new institutions.  Indeed, the Roosevelt report is heavy on public options, endorsing new government-run offerings in healthcare (Medicare for All), banking (financial services offered at the post office), and retirement (a supplemental Social Security program for IRA-style investment).

On tax reform, CAP proposes to make the tax code more equitable by taking homeownership tax deductions—which disproportionately benefit the wealthy—and converting them into tax credits.  Roosevelt, however, would go even further, converting all tax reductions to credits, and capping the number of credits that can be claimed by the wealthy.  Again, neither Clinton or the national party have broached the idea of reforming popular tax deductions.

Similarly, on early childhood, both CAP and Roosevelt support popular programs like universal pre-K, subsidized daycare, and expanded nurse home visiting, all of which have been embraced by Clinton and the Democrats.  But Roosevelt would also kick in a child benefit—“a monthly tax-free stipend paid to families with children under 18 to help offset part of the cost of raising kids.”  This would draw on the success of countries like Britain in slashing child poverty through direct financial investment in kids.  CAP didn’t endorse a similar program in its report—the closest it has come otherwise is proposing a new refundable young child tax credit.

But on some issues, both CAP and Roosevelt underestimated the ambition of Democrats in 2016.  On higher education, both think tanks proposed a relatively modest reform based on Australia’s system for financing college.  Students would have 25 years to repay their student loans, and would make payments based on their income level.  Interest rates would be lower, and under CAP’s plan, students would receive a voucher equal to the cost of public college tuition to cover some of the cost, to be repaid to the government.  But driven by the Sanders campaign, both Clinton and the Democratic Party have gone further.  Both now want to make public college completely tuition free for most low-income and middle-class families.

The Democrats also went beyond both think tanks’ recommendations for raising the minimum wage.  CAP proposed increasing the federal minimum wage to just $10.10.  Roosevelt didn’t endorse a specific federal increase, but did suggest that “States and cities should look at raising the minimum wage to reflect local conditions; many cities and metro areas can easily justify a minimum wage of $15 an hour.”  That the Democratic Party has embraced a national $15 minimum wage is a sign of just how far this debate has come in only a few years.

Both think tanks had other key wins too.  Both Clinton and the DNC have endorsed CAP’s plan to incentivize corporate profit sharing with employees.  And both think tanks’ push to raise the salary threshold for overtime pay was already enacted by the Obama administration.

Moreover, Roosevelt’s proposal to assess a capital surcharge to “too big to fail” financial institutions, while breaking up banks that are too massive to orderly unwind in a potential bankruptcy, has been adopted virtually wholesale by the Clinton campaign.  The Democratic platform picked up Roosevelt’s proposals to prohibit the appointment of any Federal Reserve members with conflicts of interest with regulated banks.  The platform endorsed Roosevelt’s plea to strengthen antitrust rules to promote market competition.  Roosevelt also wants to assess new taxes on carbon, short-term financial trading, and the ultra-wealthy—those are all in the Democrats’ platform, too.  The platform committed itself to a “full-employment economy,” echoing Roosevelt’s call to refocus Federal Reserve policy toward full employment rather than low inflation (a stimulative change that can be instituted without congressional action).  And the Democrats even adopted Roosevelt’s plans for postal banking options and to let more student debtors discharge their loans via bankruptcy.

This is all a testament to the bold ambition of liberals in the twilight of the Obama administration.  And much credit must go to the leftward push from the Bernie Sanders campaign.

But while their policy prescriptions may differ, both CAP and Roosevelt are speaking degrees of the same language.  In Why Nations Fail, economists Daron Acemoglu and James Robinson argue that the most successful economies are those whose political, social, and cultural institutions promote inclusive growth, which creates a virtuous cycle of widely-shared and robust economic activity.  When economies become extractive, benefiting only the elite, growth slows and the virtuous cycle turns vicious.

CAP and Roosevelt are in broad agreement on this basic understanding of economic success and failure.  Roosevelt takes on the notion that inequality is inevitable, arguing that it’s in fact a political choice brought about by deliberate institutional arrangements to shift the bargaining power in our economy.  We don’t need to sacrifice growth and efficiency in order to reduce inequality.  Similarly, CAP embraces middle-out economics that believes that our economy thrives when a thriving middle-class is its central engine.  The platforms espoused by the Democratic Party and the Clinton campaign merge the two dueling policy agendas in the best way possible: rewriting our economic rules to promote broadly shared inclusive prosperity.

Resurrecting the public option

Don’t call it a comeback, but the public health insurance option is having a boomlet of sorts.  After being unceremoniously axed from the Affordable Care Act by the centrist Democrats who provided the clinching Senate votes in 2010, the idea for a widely available government-run health insurance plan spent years in the political wilderness.

But murmurs on the left about resurrecting the public option have been percolating lately.  And the public option’s biggest boost came from President Obama this week.  Writing a reflection on the effects of the Affordable Care Act for the Journal of the American Medical Association, Obama called on Congress to “revisit a public plan to compete alongside private insurers in areas of the country where competition is limited.”

Obama’s re-endorsement of a plan he shelved six years ago is significant.  The public option was a favorite among liberals, who saw it as a compromise on single-payer that gave Americans the freedom to choose insurance from outside the private sector.  And if the public option could price like Medicare, it could have imposed significant cost pressure on its competitor private insurance plans by benefiting from government purchasing power and holding down administrative costs.

Granted, Obama knows a public option has no chance of getting through Congress, so he won’t be converting his JAMA piece into legislative language anytime soon.  And he also seems to envision a much more limited public option than what was originally debated during national health reform.  His refocus on the public option comes principally from a desire to expand consumer choice particularly in those markets that lack a robust marketplace of competing insurers.  As the president notes, some 12 percent of Obamacare enrollees live in counties with only one or two insurance options.  These tend to be lightly populated rural areas that private insurers aren’t eager to do business in.  Obama wants a public option in these specific areas as a means of injecting competition into stagnant marketplaces.

It’s worth remembering that during the health reform negotiations, there was briefly a bipartisan proposal to include a public option “trigger,” where the public option would only go into effect in certain states that fell short of sufficient insurer competition and cost control.  This proposal was endorsed by both Obama’s then-Chief of Staff Rahm Emanuel and Republican Senator Olympia Snowe.  This trigger was modeled off of a feature of the Republican-led 2003 Medicare prescription drug benefit, which included a similar trigger if competition lagged in that market.  Had the Emanuel-Snowe proposal made it into the final bill, Congress would have no occasion to “revisit” the public option today—such an insurance option in non-competitive areas would be automatic.

But Obama isn’t the only one rediscovering the public option.  Hillary Clinton too recently endorsed building on Obamacare to provide a public option.  She also seems to envision the public option existing on a state-by-state basis, and wants to work within the law’s existing infrastructure to do so without involving Congress.  Specifically, she promises to “work with interested governors, using current flexibility under the Affordable Care Act, to empower states to establish a public option choice.”  What Clinton presumably has in mind is working through Obamacare’s innovation waivers to let states build and run their own public options.

This proposal, coupled with her plan to let people above a certain age (but below retirement age) buy into Medicare, was seen as a meaningful effort to appropriate some of Bernie Sanders’s agenda.  And indeed, Sanders, who has called for a Medicare-for-all single payer system, applauded Clinton’s new healthcare plans, saying that it was an “extremely important initiative” and “an important step forward.”

It’s worth remembering, however, that the details of the public option matter immensely, particularly details regarding its reimbursement structure, federalism, and eligibility criteria.  The strongest version of the public option would offer reimbursement rates tied to Medicare’s, benefiting from Medicare’s purchasing power and ability to offer providers low rates.  It would also be a single national plan run by the federal government in all fifty states.  This would maximize purchasing power and minimize administrative overhead.  And the plan would be offered to a broad base of customers, such as all non-elderly adults without access to employer- or government-provided insurance.

Eroding these characteristics leads to a weaker public option.  Based on her description, Clinton’s plan sounds like it will be run by individual states, meaning it likely won’t be tied to Medicare reimbursement rates.  Tying it to Medicare rates would almost certainly require an act of Congress, and it’s hard to see how Clinton or individual states could do so on their own.  And any move to tie the public option to Medicare rates would draw cries of unfairness from insurers afraid they couldn’t compete, and howls of socialism from conservatives fearing creeping single-payer.  Clinton’s plan therefore appears to be a relatively weak version of the public option.  (It’s not clear what eligibility requirements she would attach to it.)

But Clinton does seem to see the state-based public option as only an intermediate stopgap to something stronger.  According to her campaign website: “As she did in her 2008 campaign health plan, and consistently since then, Hillary supports a ‘public option’ to reduce costs and broaden the choices of insurance coverage for every American. To make immediate progress toward that goal, Hillary will work with interested governors, using current flexibility under the Affordable Care Act, to empower states to establish a public option choice.”  For Clinton, then, a weak public option may be the best she can do through existing executive authority, but the long-term end-game may be a more robust government plan.

Indeed, as healthcare experts Helen Halpin and Peter Harbage note, the genesis for the public option started as a state-based idea in California in the early 2000s.  Only later did politicians like John Edwards and policy experts like Jacob Hacker build on the state-based idea to propose a stronger national public option.  Perhaps we need to return to the idea’s state-level roots to truly resurrect the public option from health reform’s scrap heap.

The meaning of freedom

In the debate over national health reform in 2009-2010, the law’s conservative Tea Party opponents regularly claimed the mantle of freedom.  Where reform supporters relied on moral and technocratic arguments to make the case that health care must be affordable for all, the Don’t-Tread-On-Me backlash to reform was largely allowed to monopolize the powerful American virtue of freedom.

It was a curious sort of freedom that conservatives endorsed.  At its extreme, opposition to the Affordable Care Act stood for the freedom to succumb to the consequences of un-insurance.  This conception of freedom defended the “choice” to go without health insurance as a calculated, rational personal decision that ought to be respected.  Compelling individuals to carry insurance amounted to a tyrannical invasion on this autonomous decision.

Falling shortly after the maligned bank bailout during the 2008 financial crisis, the fury over moral hazard spilled into the health reform debate.  The economic term “moral hazard” holds that individuals and firms must be allowed to feel the consequences of their choices, or else shielding them from risk will perpetuate irresponsible behavior.  Just as bailing out the banks was thought to reward reckless financial conduct, bailing out those who opted to go without insurance let reckless decision-making off the hook, too.  Call it a “You Reap What You Sow” brand of freedom.

Though muted, pro-reform policymakers could stake a claim to enhancing freedom as well.  The entire point of health reform was to expand freedom from risk.  It would insure people who had the misfortune of falling ill so that they could access health services without bankrupting their future.  And it moved us closer to the day when health insurance is wholly separate from our jobs, freeing us from dependency on our employers for our healthcare.  This is an important kind of freedom, too.

In his 1941 State of the Union address, President Franklin Roosevelt four fundamental freedoms thought to be inherent to all people.  Among these was “freedom from want.”  To Roosevelt, basic protections from scarcity, risk, and poverty were necessary to truly effectuate individual freedom.  Without basic necessities, freedom was wholly illusory.  As he put it three years later, “We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence.  Necessitous men are not free men.”

Roosevelt helped solidify the modern liberal conception of freedom—a freedom to economic security.  This freedom puts affirmative obligations on government to provide a degree of protection from the risks and hazards of markets and modern life.

On the other side, the conservative (or perhaps more aptly, libertarian) conception of freedom emphasizes freedom from government.  This kind of freedom aims to protect the unbounded autonomy of the individual from government interference.  Markets are thought to be sacrosanct aggregations of autonomous individual choices, preferences, and desires.  Government intercedes on this laissez-faire freedom only by imposing its will and disrupting individual choice.

Because of the American origin story—casting off the yoke of tyrannical British authority—many seem to assume that the conservative brand of freedom has a stronger claim to our history.  The liberal alternative, it’s thought, is just a socialistic perversion concocted by pro-centralization New Dealers.  But that’s just not the case.

In his magnificent book The Story of American Freedom, historian Eric Foner chronicles the different ways that the American ideal of freedom has been deployed in political rhetoric throughout our history.  As political and social contexts have shifted, so too has the rhetoric around freedom, liberty, and independence.  As Foner shows, the dueling claims of what it means to be truly free have been with us for centuries.

The earliest seeds of the modern debate begin to appear during the Jacksonian era.  Whig leaders like John Quincy Adams and Henry Clay argued that government action could enhance freedom.  They argued that the capacity to wield one’s freedom depended on one’s power, and that freedom was dependent on prosperity.

Jacksonian Democrats, on the other hand, began railing against the faraway federal government as the preeminent threat to American liberty.  “Building upon laissez-faire economics,” Foner explains, “Democrats identified government-granted privilege as the root cause of social injustice.”

In the antebellum period, freedom was often employed in relation to its looming antithesis: slavery.  Latching on to the abolitionist cause, populists and reformers condemned the industrial economy for crafting a system of wage slavery that restricted individual freedom at the hands of business.  The idea underlying wage slavery was that the market posed a threat to freedom.  But this idea fell out of mainstream circulation for a time, as abolitionists resisted the characterization and sought free labor as the goal of the antislavery movement.

During the post-war period, the Gilded Age ushered in a period of laissez faire freedom dominance in the end of the nineteenth century into the early twentieth.  Freedom was defined as the liberty of contract—that the ability of individuals to freely enter into economic and financial arrangements ought to be unimpeded.  It was a period that grounded a sense of freedom in meritocracy and Social Darwinism.

But some resisted.  The American Economic Association was established in 1885 to combat “laissez-faire orthodoxy,” declaring, “We regard the state . . . as an educational and ethical agency  whose positive assistance is one of the indispensable conditions of human progress.”  Similarly, the sociologist Lester Ward determined that “individual freedom can only come through social regulation.”

Ultimately, the association of “freedom” and Gilded Age Social Darwinism temporarily made freedom a dirty word in American politics.  The Progressive movement situated its policy goals in the language of democracy rather than freedom.

Still, the central concern of progressivism, according to New Republic editor Herbert Croly, was how Americans could be free in a modern industrial economy.  Croly explained that “Hamiltonian means” of government intervention into the economy were necessary to achieve the “Jeffersonian ends” of democratic self-determination and individual freedom.  The Progressives thought that robust, energetic government was necessary to create the social conditions for meaningful freedom.

In 1912, former president Theodore Roosevelt campaigned for president under the Progressive Party mantle.  The party’s platform, Foner writes, “laid out a blueprint for a modern, democratic welfare state,” replete with plans for health and labor regulation, an eight-hour work day, a living wage, union protections, and a national system of social insurance for unemployment, healthcare, and old age.  Roosevelt’s freedom meant liberty from corporations effectuated through government power and regulation.

Theodore Roosevelt’s progressive version of freedom gained wider acceptance and circulation two decades later under FDR.  On the heels of the Great Depression, the nation saw how economic devastation can render theoretical freedoms meaningless.  Accordingly, FDR sought to guarantee freedom from want, establishing welfare state programs to protect Americans from the vicissitudes of modern economic life.

Left-wing pressure in the United States helped contribute to Roosevelt’s bold social democratic platform.  But after World War II, hostility between the Soviet Union and the United States made Americans define freedom in contrast to the Soviet Union, veering once more back toward laissez faire freedom.  Moreover, the economic abundance during this time produced great faith in capitalist institutions.  “Cold War affluence,” Foner writes, “greatly expanded the constituency that identified freedom with free enterprise.”

In the 1960s, President Johnson launched a War on Poverty, but implicitly deviated from the New Deal’s diagnosis of economic struggle.  “In a departure from the New Deal, when poverty had been seen as arising from an imbalance of economic power and flawed economic institutions,” Foner writes, “in the 1960s it was attributed to an absence of skills and opportunity and a lack of proper attitudes and habits.”  Therefore, many of Johnson’s antipoverty initiatives eschewed direct interventions—like a guaranteed minimum income for the non-elderly or government-created jobs—in favor of skills training and education.  Johnson’s programming aimed to enable individual self-liberation from the “enslaving forces of his environment.”

Nonetheless, Foner marks the 1960s as the era when “freedom” began to be co-opted by conservatism and relinquished by the left.  “As the social movements spawned by the sixties adopted first ‘power’ and then ‘rights’ as their favored idiom,” he writes, “they ceded the vocabulary of ‘freedom’ to a resurgent conservatism.”  This left conservatism with free rein to equate freedom with unfettered capitalism, as Milton Friedman (and later, Ronald Reagan) did, or to proclaim resistance to government economic and anti-discrimination regulation under the guise of freedom, as Barry Goldwater did.

This inexorably led to a resurgence of 1900s-style Social Darwinism.  This brand of conservatism, ostensibly grounded in principles of freedom, warned against government intervention into the “natural” workings of the economy; held that the distribution of wealth reflects individual merit; and deemed the plight of the unfortunate, too, a product of their own failings.

Left unchecked, this conception of “freedom” grew to dominate political discourse in the United States.  Liberals argued for their policies in technocratic terms, promising to provide economic help to a struggling middle class.  But conservatives relentlessly assailed any intervention as Big Government stepping on the throat of individual freedom.

Liberals seemingly forgot that they too have a claim to the virtues of freedom—a claim that their intellectual predecessors invoked countless times from the nation’s founding onward.  The free market has no mind for any individual’s particular well-being, autonomy, or bodily security.  In a time of ever expanding economic volatility, “freedom from want” still resonates as an audacious ideal.  So does the social insurance platform that flows out of it.

Foner shows that in the political debates that have raged throughout our history, the side that lays a stake to the rhetoric of freedom tends to seize the upper hand.  Freedom goes to the core of the nation’s identity, self-conception, and perceived purpose of its founding.  Reformers and policy advocates would be wise to listen to Richard Armey, former House Republican leader, who said, “No matter what cause you advocate, you must sell it in the language of freedom.”

The raw end of the free trade deal

Any economic change creates winners and losers.  “Creative destruction” is the economic concept that innovative, efficiency-promoting advancements also tend to displace segments of the preexisting status quo.  Uber generates benefits for consumers, but disrupts the taxi industry.  Automation makes consumer goods cheaper, but imperils jobs for workers.

Globalization has been one of these economic changes.  The rise of globalization promised vast new global wealth from lifting barriers on the movement of goods and people.  And on the whole, American consumers have immensely benefited from cheaper consumer goods and the bounties of global trade.  But globalization also triggered tectonic shifts in American workplaces.  Industries that, in a pre-globalized world, provided a good living to millions of working-class Americans suddenly faced international pressure and increasingly offshored their workforces to faraway countries.  Spurred by globalization, these companies picked up and left countless American communities in the dust.

In a fair political economy, the deal is supposed to be that we take a slice of the gains from broad economic innovation to compensate those on the losing end.  In theory, we could take some of the surplus wealth generated by free trade and direct it to those Americans who have been hit hardest by this creative destruction—those whose jobs have vanished and whose towns have dried up.

But that hasn’t happened.  Despite the diffuse gains of globalization, we haven’t provided much in the way of targeted help to those who have been net losers.  And those who perceive themselves to be net losers have noticed.

The missing compensation from globalization is becoming the defining political issue on both sides of the Atlantic and is scrambling political divisions.  At the New York Times, Nate Cohn writes that the Brexit vote signals “the emerging split between the beneficiaries of multicultural globalism and the working-class ethno-nationalists who feel left behind.”  Pro-Brexit votes flowed in from traditional Labour Party strongholds in working-class neighborhoods, with the dagger for “Remain” coming when 62 percent of Sunderland, a once reliable pro-Labour region, voted to “Leave.”  Similarly, at the Washington Post, Matt O’Brien writes that Brexit marks the beginning of the revolt by globalization’s losers—disproportionately concentrated in the working- and middle-classes of rich-world countries.

And let’s not forget Donald Trump, who has made walling off borders and tearing up trade deals—in effect, reversing globalization—the calling card of his nationalist campaign for president.  And who formed the core of Trump’s base?  A “certain kind of Democrat,” according to Cohn; specifically, less educated white registered Democrats who nonetheless identify as Republicans in the South, Appalachia, and the deindustrialized North.  Just like the “Leave” vote sweeping through working-class Sunderland, Trump’s ethno-populism has resonated with white working-class voters and the economic devastation they face in 2016.

So what to do?  Must globalization either march forward or else reverse itself to stem the political unrest fueling its working-class resisters?  Not necessarily.  There is a third option between globalization and no globalization, and it’s global capitalism paired with robust social insurance regimes.  As Marshall Steinbaum of the Center for Equitable Growth points out, “we once solved the problem of the conflict between capitalism and ethno-nationalist backlash with social democracy.”

We’ve fallen far short of that solution.  Whether a Bernie Sanders-style social democratic overhaul or a more targeted approach to aid those displaced by free trade, we have done little to cushion Americans against economic upheaval.  The rise of globalization has dovetailed with decades of stagnant income growth, mounting inequality, and ever-growing financial strain on American families.  Yet the United States hasn’t adopted the kinds of social insurance protections needed to match the increasing volatility and insecurity of twenty-first century capitalism.  And while we provide a small program to retrain and compensate certain workers who have lost out due to free trade, we do relatively little to otherwise target help to the communities that are hit the hardest.

Which means we’ve failed to live up to our end of the bargain.  Creative destruction is immensely valuable and can do wonders to improve overall well-being.  But it inherently causes destruction, and that destruction doesn’t just dissipate with time.  We’ve reaped the diffuse benefits of globalization, but have done little to level with those bearing the targeted costs.  This failure is a big part of the discontent we’re seeing rock both sides of the Atlantic now.