The nation article, page 2

The Political Moment

From all indications, President-elect Obama gets this. In his November 24 press conference announcing his economic team, he pledged to "do what's required to jolt this economy back into shape." In his December 6 radio address, he committed to a bold recovery plan founded on strategic public investment to "help save or create" 2.5 million jobs "while rebuilding our infrastructure, improving our schools, reducing our dependence on oil and saving billions of dollars." Elements of the plan include a "massive effort" to make federal buildings energy-efficient, a project that would save taxpayers billions each year; the "largest new investment in national infrastructure since the creation of the federal highway system in the 1950s"; a "sweeping" program to upgrade and repair the nation's schools; and a new push to extend broadband to every corner of the country. Aides have floated numbers as high as $800 billion over two years.

There will be pitched battles in Congress over the size and composition of the recovery plan, but it will move rapidly into law. Some conservatives have already begun to discover their suppressed Keynesian ids. Emil Henry Jr., an assistant treasury secretary under Bush, writes that "investment in key infrastructure is consistent with Reagan principles" and that investment in "renewable energy will be key in our future." Neocon William Kristol suggests that "small-government Republicans" are an endangered species and urges Republicans to support a "huge public works stimulus package," directing the dollars to the "underfunded defense procurement rather than to fanciful green technologies." (Apparently, spending about as much as the rest of the world combined on our military isn't enough.) The rabidly antigovernment business lobbies--like the Chamber of Commerce and the National Association of Manufacturers--are climbing aboard the infrastructure bandwagon, their corporate patrons desperate for contracts.

Democratic majorities in the new Congress will make House Republicans irrelevant to the debate, which is a good thing, since minority leader John Boehner argues that tax cuts alone, particularly capital-gains tax cuts, will fix what ails us. Senate Republicans will have greater sway, but given the state of the economy it is hard to imagine even minority leader Mitch McConnell--the Senate's Dr. No, who recently blocked aid to the struggling automakers--standing in the way of a massive recovery plan. Democratic Congressional leaders hope to have a plan ready for Obama to sign soon after he is inaugurated.

At the heart of this effort will be an expanded public sector making the necessary and strategic investments. An early emphasis will be on repairing existing roads and bridges, with immediate efficiency gains. Investment in a smart grid will accelerate the move to decentralized renewable energy. Retrofitting schools and public buildings will save energy and money. Computerizing medical records promises significant savings. Increasing Pell Grants will keep more students in college. As studies from the Minneapolis Federal Reserve show, investing in pre-K on the front side of life saves big time on the back side in lower crime, better health and lower dropout rates.

The New New Deal

Once the economy begins to recover, which may take much longer than people expect, we'll face the real challenge: sustaining the expanded public investment as a centerpiece of the new economy we build out of the collapse of the old.

If the United States wants to retain a broad middle class in a global economy, it has little choice but to finance a public social contract--from healthcare to lifelong learning to pensions above Social Security--that will be vital to providing the security that families need to prosper. Expanded public investment--in research and development, twenty-first-century infrastructure and new energy--will be essential to sustaining a competitive high-wage economy. The new economy will also need several other building blocks: a new global economic strategy (see "Redoing Globalization" on page 30); a sensible industrial policy, beginning with a transition to new energy; an aggressive wage policy (providing living wages, empowering workers to organize, curbing executive plunder and fat bonuses) that helps distribute the benefits of profits and productivity gains fairly; and a reregulation of finance to make banking boring once more.

This broad transformation--a true new New Deal--entails a sea change in values and policy from the conservative era of the past thirty years. It will have to rally a public that yearns for greater security but is sensibly suspicious, after decades of conservative misrule, of the government's capacity to do anything. One of the monumental challenges facing the Obama administration will be to create a government that works. A vastly expanded and revitalized public sector will require a permanent expansion of expenditures that, once the economy revives, can't be funded by deficit spending. Most sensible economists agree that running a small fiscal deficit makes sense. So long as it is below the rate of inflation, the burden of our debt--its relation to the GDP--will continue to decline. But sustained expansion will require new resources that can come from a combination of new priorities and progressive taxes. Bring home the money squandered in follies like Iraq and reduce the flatulent military budget. Collect the $350 billion of taxes owed that the IRS estimates goes uncollected. Pass progressive tax reform, close egregious loopholes and simplify the tax code.

Is Obama ready to lead this broader fight? He'll have to forget about the "postpartisan" era of good feeling that is all the rage. The creation of a new New Deal will be the mother of all battles. In order to transform priorities, he will have to take on entrenched special interests--epitomized by the iron triangle of the military-industrial complex. Gearing up new investments and progressive taxes will require heroic efforts to overcome conservative resistance in both parties and then to avoid squandering the money on local boondoggles. Putting the necessary shackles around the financial sector will challenge the power of Wall Street. A revamped global economic strategy will threaten multinationals like Wal-Mart that prosper from driving down wages across the world.

Obama should have little trouble rallying public support for a bold recovery plan. People voted for change, and they are terrified about the economy. Aid for Main Street rather than Wall Street will be widely applauded. But forging a new New Deal out of the crisis, developing a new social contract and a new global strategy, will be a central struggle of the next few years.

Progressives shouldn't see this fight as a spectator sport. The New Deal we remember from Roosevelt--Social Security, the Wagner Act, the forty-hour week and fair labor standards--didn't take shape in his first 100 days or in his first year in office. It came only as Roosevelt was preparing for re-election and dealing with a broad populist challenge--a growing and militant labor movement, Huey Long, the Townsendites and more. The threat they posed helped spur Roosevelt and persuade legislators to move on what became known as the second New Deal. Progressives should be pushing hard now, girding ourselves for the battle royal that can no longer be avoided.