The Great Debate

A year ago Thursday in Osawatomie, Kansas, President Barack Obama delivered a fiery defense of the middle class. It marked a turning point in the president’s economic argument — and helped him win reelection, despite historic economic headwinds.

“This is a make-or-break moment for the middle class,” Obama told the crowd, hundreds of whom had lined up overnight in frigid conditions.

The middle class faces another make-or-break moment in the intensifying fiscal showdown. If congressional Republicans deny tax relief for 98 percent of Americans to preserve a tax windfall for the top 2 percent, then the failed dogma of trickle-down economics has won again — despite being pummeled in the election last month.

Obama in that Kansas speech identified the middle class — not the moneyed “job creators”— as the real engine of economic growth. “When middle-class families can no longer afford to buy the goods and services that businesses are selling,” Obama said, “it drags down the entire economy, from top to bottom.”

From the seeds of that speech came Obama’s “middle-out economics,” an alternative to the supply-side thinking peddled by GOP nominee Mitt Romney. But the president’s campaign pledge of “an economy that grows from the middle out” wasn’t just good politics. It’s also good economics and good policy.

The Gang of Eight: (Top Row, L to R) Senator Mark Warner (D-Va.), Senator Saxby Chambliss (R-Ga.), Senator Tom Coburn (R-Okla.) Senator Kent Conrad (D-N.D.) (Second Row, L to R)) Senator Mike Johanns (R-Neb.), Senator Mike Crapo (R-Idaho), Senator Dick Durbin (D-Ill.), Senator Michael Bennet (D-Colo.)  REUTERS/File

There is growing momentum in Washington and around the country in the fight to restore fiscal sanity. So get ready for the counter-attack by the special interests and ideologues.

A growing number of Republicans have now stood up to Grover Norquist’s organization, Americans for Tax Reform, and disavowed the pledge they signed to not raise taxes. We should all commend legislators like Senator Saxby Chambliss (R-Ga.), Senator Lindsay Graham (R-S.C.) and Representative Peter King (R-N.Y.), who have recently joined in refusing to put ATR’s pledge ahead of the nation’s interests.

Washington negotiations to avert the “fiscal cliff” now include the role that tax increases could play in addressing the federal budget deficit. Serious cracks are appearing in the Republican lawmakers’ anti-tax firewall, as fewer new GOP legislators are signing Grover Norquist’s pledge and some high-profile signatories are questioning it.

Norquist is urging policymakers to look to the states for inspiration in crafting federal budget reform. But his claim that states want to eliminate key sources of revenue is out of step with reality — and with the broader history of tax reform at the state level.

Throughout American history, in fact, popular support for higher revenues to fund key public services has been more common than today’s anti-tax advocates realize. State legislators and governors have long relied on new revenue to fund crucial public services.

The focus in Washington has now shifted to the fiscal cliff, with the White House and Congress, particularly the House Republicans, staking out negotiating positions on the expiring Bush tax cuts and the looming budget sequester.

The White House’s firm opening salvo—and House Speaker John Boehner’s grudging admission that he is “open” to a budget deal that contains new revenue—have been much discussed. With six in 10 Americans expressing support for higher taxes in exit polls on Nov. 6, President Barack Obama’s position is a strong one.

It’s important to remember, however, that the public came out on Election Day in support of more than Obama’s tax stance. Exit polls and public-opinion surveys show that the president’s mandate goes far beyond taxes and the fiscal cliff.

The election left us with a status quo political lineup, one that failed to make any meaningful fiscal progress over the past two years. So is it realistic to expect that we can avoid the fiscal cliff and achieve some sort of “grand bargain”? Yes, it is possible, and here is how to do it:

First, President Barack Obama should form a “unity Cabinet” to demonstrate to the public and Congress that he wants to bring the nation together and accelerate progress on key challenges. It should include Democrats, Republicans and independents. All should be respected in both parties, have meaningful private-sector experience and credibility within and outside the Washington Beltway.

These criteria are especially critical when it comes to the president’s top economic team. Obama will almost certainly change the leadership at the Treasury Department, since Treasury Secretary Timothy Geithner has talked about leaving after the first term, and the Office of Management and Budget. Smart appointments could help reboot Obama’s relationships with Congress and increase the chance of success.

I buy none of the post-election, prime-time hokum that what decided the presidential race was the Latino vote, women’s issues, the next Supreme Court justices, the view from the fiscal cliff or how drones are winning the War on Terror. This presidential election was, as always, a contest between gold standardists and inflationists.

The victors were the forces of cheap money. William Jennings Bryan would be proud ‑ as would bimetalists and Weimar Republicans.

Inflation won because it is the panacea for all that ails the body politic: a short-term cure-all that promises economic growth, the possibility of paying off runaway national and international debts, new-found prosperity for the middle classes and liquidity for the impoverished, who otherwise would be voting in the streets with rocks and burning tires.

The conventional wisdom has arrived: 2012 was a status quo election.  President Barack Obama was reelected.  Democrats continue to have a majority in the Senate.  Republicans still control the House.  Only two states changed their presidential votes from 2008 to 2012 (North Carolina and Indiana).  Six billion dollars were spent and almost nothing changed!

The conventional wisdom is wrong.  Things have indeed changed.  Voters came out to defend the revolution of 2008.  They rejected a return to the old order.

The status quo candidate in this election was Republican presidential nominee Mitt Romney.  Romney represented the old order that’s been in power since 1980: the Reagan regime with its power base of older white men.  Bill Clinton, the only Democrat to win the White House during that regime, tried to make accommodations with it.  They impeached him.

After the sound and the fury, the public disdain for government — particularly for Congress — the high stakes and looming fiscal disaster and $6 billion, we end up where we began — with Barack Obama in the White House, Democrats with a modest majority in the Senate, and Republicans retaining control of the House.

It appears we are back to the same ingredients that produced the least productive and most destructive Congress in memory, whose public approval plummeted to historic lows. That reality is reinforced by House Speaker John Boehner’s claim of a mandate for House Republicans even as Obama won a sweeping electoral victory for a second term.

But appearances can be deceiving. In this case, they are.

The Republican approach for Obama’s first term was simple — use every available tool of obstruction to hamper and delegitimize his presidency. They opposed anything and everything he proposed, even policies they had recently embraced. The GOP used the filibuster to defeat, obstruct or discredit his every initiative. They took the debt ceiling hostage after their 2010 election victory, which lowered America’s credit rating and slowed the economic recovery, and gave us the “fiscal cliff.” They killed every serious effort in Congress to strengthen the economy, increase jobs and pass a balanced package of deficit reduction and debt stabilization.

It won’t be easy for President Obama to do big things in his second term, with Congress still divided. Yet one legacy-caliber goal is easily within reach: Obama can restore fiscal balance without deep spending cuts by doing, well, nothing. By simply letting the Bush tax cuts expire at the end of this year, for everyone, and vetoing all future tax cuts, the president would leave office in four years with America’s fiscal house largely in order while ensuring a strong federal government for years to come.

Economists predict that allowing the U.S. to go over the “fiscal cliff” would produce a mild recession, and they are probably right. But with signs pointing to a slow yet steady recovery, that downturn would likely be short-lived and worth the longer term gain of achieving fiscal stability without taking a meat clever to key government programs.

Obama promised on the campaign trail that he wouldn’t raise taxes on the middle class and implied that repealing the Bush tax cuts for the wealthy would yield enough revenue. In fact, more than three-quarters of all revenue lost by the U.S. Treasury because of the Bush tax cuts is due to cuts that benefit households making under $250,000, according to the Congressional Budget Office. Simple math suggests that as long as the vast majority of earners are paying the lowest tax rates in half a century, it will be hard to tame the deficit without deep spending cuts.

“I am looking forward to reaching out,” President Barack Obama said Tuesday night after he had won reelection, “and working with leaders of both parties to meet the challenges we can only solve together.”

The progressive community must understand this and put aside its rigidity to help him meet this goal. As Obama also said early Wednesday morning, “We’ve got more work to do.”

Yet a network of liberal groups, on Thursday, plan to demand a national day of action against a balanced, grand bargain that could pull the nation back from the fiscal cliff it faces. The beef of this progressive coalition is that a real budget deal would almost certainly cut Medicare spending and may possibly include a proposal to make Social Security solvent through the century.