Yesterday, President Elect Obama pulled off what I think is one of the hardest political acts to perform; he admitted he was wrong.  From back in the campaign, Obama suggested that part of his stimulus package would be a tax credit to businesses who create jobs.  In 2007, Obama was one of the senators pushing the “Patriot Employer Act”.  That bill would try to designate businesses who hire more US workers and reward them with tax credits.  Last week, that policy started to take the form of a $3,000 tax credit for each job in Obama’s stimulus package.  But the cry against this came from all quarters.  Republicans, economists, business writers and members of his own party brought up their concerns that this plan won’t work.  It’s like eliminating the tax on gasoline when prices are high: lots of politics, no benefit. 

Almost thirty years ago, an automotive CEO appeared before Congress to ask for help.  His company was failing due to poor management decisions, run away gas prices and an overall economic slowdown.  If only he could get enough money to stay in business, his company’s next generation of small, fuel efficient cars would hit the market and lead to the company’s success.  His company employed 40,000 US workers and laying them off would be a disaster at a time when the economy was already struggling.  He’d even work for a dollar a year.  Sound familiar?

Again with the caveat that I haven’t really caught up yet with the transition news of the last week, the confirmations from before surely mean that there’s one man who must not be happy. On the day after Obama’s victory, Dissent‘s Mark Engler celebrated:

Obama rose to the top of a Democratic pool that, as a whole, positioned itself notably to the left of what we had come to expect in the Clinton-Gore years, when top officials scrambled to prove their pro-corporate bona fides and to declare their allegiance to the Democratic Leadership Council. Today’s contenders, while far from perfect from a progressive perspective, campaigned as opponents of an unjust war and of faulty trade agreements such as NAFTA, as advocates of pro-worker labor law reform and of serious national health care.

But he already warned:

To be sure, the .. more contemporary fight to thwart the rightward-pushing forces within the Democratic Party .. is not over. The likes of Robert Rubin and Larry Summers hover over Obama’s victory.

Larry Summers at the World Economic Forum in Davos, 2007

I bet he didn’t realise just how much they’d “hover”. With the appointments of Geithner, Summers and Orszag, I’m guessing Engler must have gotten a lot more worried still. As Ezra Klein noted:

For critics of so-called Rubinomics, [..] watching Rubin’s proteges step into every major economic staffing position in the new administration has been concerning. Watching them do so as Goldman-Sachs, which Rubin once led, and Citigroup, which Rubin recently advised, get buffeted by the subprime collapse is almost perverse.

To be fair, however, the opposition within the Democratic Party between the neoliberal, Rubinite cheerleaders of deregulation and the progressive sceptics of free market solutions no longer has the bitter edge it had in the 90s. And the main reason for that is that experience has taught Summers et al. to be more sceptical themselves.

Consider what The American Prospect’s Robert Kuttner, himself a progressive critic of Rubinomics, wrote about Geithner last September:

In my post, after the third presidential debate, about McCain’s efforts to make “spreading the wealth around” sound like the most ominous thing, I quoted Ezra Klein as saying that “for most folks, spreading the wealth around probably seems like a good idea” right now.

This is correct, Brian Schaffner of the CCPS argued yesterday at his new home on pollster.com. Taking as lead how the ABC/WaPo poll hasn’t shown any movement this month on the question which candidate is trusted more on the question of taxes, he digs up data showing so from a 2003 survey conducted by NPR, the Kaiser Family Foundation and the Kennedy School of Government.

Moreover, in case you’re feeling doubtful about those sponsors, the same thing is largely confirmed by Gallup data, which the polling firm’s in-depth look at the issue on Thursday revealed.

Schaffner argues that the McCain camp’s insistence that Obama’s proposal to raise taxes on the top 5% of income-earners smacks of class struggle and socialism doesn’t drill into much of a popular perception. It isn’t surprising “that McCain hasn’t gotten much traction by criticizing the fact that Obama wants to increase taxes for high income Americans,” Schaffner writes, because the 2003 survey actually showed that most Americans believe “high income people pay less than their fair share”. Over 60% of Independents, over 70% of Democrats and even a plurality of Republicans  agreed. Barely over 10% of independents and some 30% of Republicans, on the other hand, thought that high income people “pay more than their fair share”:

The Gallup polling data doesn’t directly address the question whether wealthy Americans pay enough taxes, but it does show a majority of Americans believing that “the distribution of money and wealth in this country” isn’t “fair”. Throughout intermittent polls in the last twenty-odd years, an ample majority opined that wealth should be “more evenly distributed among a larger percentage of the people,” while just 27-37% believed that the current distribution is fair:

Two details strike me in this graph. The opinion that “spreading the wealth around” seems like a good idea isn’t just something that’s coming up “right now”, in the face of a financial crisis; it’s actually been pretty consistent through the years. But there’s two kinds of variations over time.

This one comes via Kevin Drum at Mother Jones:

Yes – between the beginning of 2002 and the end of 2006, the United States GDP grew by over 15% – while the median wage flatlined, not going up by a single percent. In short, the country got ever richer – but the middle class saw nothing of that wealth. It was pocketed in its entirety by the wealthiest, with an assist from the tax cuts that the Bush administration heavily slanted in their favour.

Are there any recent historic precedents of such a disconnect, in which double-digit national economic growth was not accompanied by any improvement whatsoever for the average American? Was it this bad under Reagan, or Thatcher?

Pondering these numbers, Drum approvingly quotes an article by Joe Klein on Time’s blog Swampland: “We have had 30 years of class warfare, in which the wealthy strip-mined the middle class.” He adds:

For three decades we’ve artificially kept middle class wage increases far below the growth rate of the economy, and this trend has been even more pronounced over the past eight years. This has created an enormous pool of extra money that’s been — yes — strip mined and redirected to the rich, and fixing this is Barack Obama’s biggest and longest-term challenge.

If we restore the normal growth of middle class wages, it provides a sustainable consumer base for the entire economy; it reduces the demand for endless credit card debt; it brings down income inequality naturally; and it goes a long way toward keeping the financial sector under control and reining in Wall Street salaries without putting in place a bunch of artificial (and probably fruitless) regulations. [..] Stop the strip mining and economic vigor will follow. It’s at the core of everything.

UPDATE: Lane Kenworthy, a Professor of Sociology and Political Science at the University of Arizona, had a blog post earlier this month that traces the trend further back, to the Reagan era: Slow Income Growth for Middle America (h/t to A2K user Hawkeye). The pattern is pretty devastating – and he’s got a telling graph too: