Mapping the High Road: Towards a 21st Century Progressive & Democratic Economic Narrative
The American Dream, v2.0

In one word, expansion defines progressive democratic economics. For too long, we have put on hold the great American and Californian project of expanding security, expanding opportunity, expanding possibilites, expanding justice and expanding hope. This vision has always been at the core of the human experience, and it is time to reignite the American people's innate thirst for this vision. In two words, this project is the high road.

This has been debunked and rebunked and redebunked sixteen gazillion different ways by now. It is your basic free lunch proposal: you can cut taxes and still magically get more revenue! Sometimes it works, sometimes it doesn't. Whether you think it's a steaming plate of tripe or one of the Fundamental Revealed Truths of the Most Holy Market doesn't matter. What does matter is that it's been enormously successful as a part of the narrative the right has built around economics. Like practically all politically involved Americans, we are all familiar with conservative economics because we've had a terrible time condensing and promoting a Democratic alternative.

There was a forty year boom across all economic strata after WWII and wages have been flat from 1970 to 2000 as conservative economics took hold - unless you consider growth of a nickel per hour during that time acceptable. The people in my generation who have recently become politically engaged do not find this acceptable: We are tired of being trickled down on. It is time for a new curve, a new visual way of thinking about the relationship between investment in civil society and growth. The age of Diminished Expectations is over. Call this new curve Growth vs. Public Investment...

In both graphs, T0 and T100 are tax rates of zero and 100%, respectively. T* is the theoretical optimum tax rate for growth according to the Laffer curve. Correctly or not, the right constantly argues that we're at point R - taxes are too high, they should be cut for growth. Democrats could be, but aren't, holding that we're actually at point L, where taxes are so low that they're endangering educational and other infrastructure and limiting our capacity for growth. We should be moving towards point I* - here's the heresy, I'll say it right now: we should be raising taxes - for an optimal level of long-term growth.

These two curves illuminate just how Orwellian the Club for Growth's name is. They're not really for anything but the most rapacious, soul-sucking and short-term kind of growth. Long term, healthy and sustainable growth requires public investment. A big, complicated society and a big, complicated economy inevitably require at least a somewhat of a big, somewhat complicated government to continue to function and prosper. They claim to want to starve the beast, but they're really starving is our entire civilization. Acknowledging the reality of the G-PI curve is part of developing a positive alternative narrative.

Where trickle down has brought us

Based on a chart on p. 37 of Perfectly Legal...

(click for a bigger version)

The top 1/100th of 1% was around 13,400 taxpayers in 2000. We are in another gilded age. There are vast, useless and stagnating pools of money in the top of our economy, choking off great engines of growth: consumer demand, investments in people and the future and government solvency. Part III are some of the rationales and narratives used to defend this state of affairs, and why they are bunk.

A recent, semi-quantitative study of "economic freedom" indicators done by the arch-conservative Pacific Research Institute (and published in Forbes) came up with the great state of Kansas as the number one place to start a business. Since there hasn't exactly been an entrepreneurial stampede across the plains, they really need to start asking some hard questions about their methodology. These are the criteria they looked at...

"tax rates, state spending, occupational licensing, environmental regulations, income redistribution, right-to-work and prevailing-wage laws, tort laws and the number of government agencies"

By these criteria, the two states with the biggest concentrations of technology companies, California and New York, come 49th and 50th. You'd think that'd be a red flag for the PRI folks, but they plow along blithely all the same; the economies that everyone was and are still trying to copy do so poorly in their study because they're looking at the wrong criteria. They need to toss this thing in the trash and start over - it doesn't even pass the "duh" test. California is number one because it is truly the state of opportunity. California is the state that defines the essence of the American Dream, not Kansas.

Riffing on Richard Florida, California and New York are the hotbeds of new industries because they lead the nation in the kind of economic freedom that matters in a post-industrial society: the kind that lets you take risks and get educated (whether in school or from an interesting social network hardly matters) and be creative and come up with new stuff. This kind of freedom is glaringly missing from Pacific Research's study. The kind of freedom we need now is freedom from needs, it's freedom from worrying about the basics. Before you can start being creative and taking risks, you've got somewhere to live and have enough to eat, if you get sick you're going to be taken care of, and you have to have enough education (not necessarily from school) to know what your interests are and some measure of discipline to act on them, and you have to have time to pursue them.

Which isn't to say that these needs have to be abundantly fulfilled. Plenty of great art has come from starving artists and other phenoms. But most of us don't start to think creatively until we've got the basics covered and have some free time on our hands. And in this economy, where growth and creativity are so tightly intertwined, we can't juts rely on the phenomenally talented any more. It has to be broader and more diverse than that.

In the neo-conservative economic world view, the entrepreneurial equation is simple:

As appealing as this is, it is deeply and profoundly misleading. They don't necessarily believe this is all there is to it, but they do legislate as if it were so. But In reality, things are way, way more complicated. At every venture capital conference I've ever been to, someone invariably says money is the least of your worries. At the last one I was at, a guy from CalPERS mentioned the $7-8 billion "overhang" of extra cash they'd like to invest but has nowhere to go. Finding talent and good ideas are still the biggest problems, and it's going to remain that way for a long time.

And the thing is, low-road growth like this just doesn't work. There's no correlation...

Here's why. Consider everything that really goes in to the entrepreneurial equation, in all its complexity. Here's what you really need:

basic needs (housing, retirement, health care, food) met
+ lots of time
+ a willingness to take risks
+ knowing lots of other smart, experienced people also willing to take risks
+ a good idea
+ a big, juicy market for your idea
+ technology & scientific research and infrastructure
+ luck
+ chutzpah!
+ good timing
+ initiative
+ discipline
+ capital
= sustainable, entrepreneurial growth

This reality based world view has important ramifications. Take, for example, the role of luck in all this. This is Rawls' Veil of Ignorance at work: getting ahead takes a lot more than just your Horatio Alger-inspired day to day grind. It takes luck and connections and a million other variables. President Bush's life story is a fine example. In the simplified moral universe of the Republicans, progressive taxation is unfair because everyone makes it on their own. Yet in reality, hard work is one factor among very many. Progressive taxation is an embodiment of the principle that those that benefit the most from our society and our economy and are capable of contributing more back to it have a moral responsibility to do so. Or as my Mom (and JFK) put it, to whom much is given, much is expected. Is it somehow wrong or unfair to encode that moral principle in law? Of course not.

A lot of things on the long list of inputs into the entrepreneurial equation are optional. Plenty of businesses start out with only the most minimal amounts of capital. Social infrastructure, some of which is provided for very efficiently and altogether adequately by government, absolutely has a dramatic and positive effect on many of these. For the past few decades, it's been politically useful for the American right wing to fix the idea that "government can't solve anything" in our minds. But this isn't true: government can and does create a context of civilization where people's basic needs are satisfied. The true essence of freedom is the capability to develop your own talents as fully as possible. Government can and does deliver this - and fabulously well, at least some of the time.

But why the federal government? Wouldn't a distributed system be better? For many functions, this is true: there shouldn't be a national department of fixing potholes. There are many reasons. One is temptation: the allure of the low road is always there. Individual localities are always tempted to cut taxes to attract businesses, but these kinds of incentives add no real value to the economy. Another reason is economy of scale. Some things, like the National Science Foundation, just plain work better if they're bigger. Ditto for Social Security - burdens shared over the cost of our entire, gigantic economy are more easily shouldered. A third reason is that basic justice requires it, perhaps best illustrated by the civil rights struggle. Too often, the banner of "local control" (which sounds like a good thing to everyone) is flown over the most regressive and anti-social policies. [May need to get into Nonzero here. Nonzero-sum effectes are the basic dynamic behind this, the basic dynamic behind ever larger structures of cooperation - the core rationale behind the UN and the need for world government.]

In other words, big government works. More than that, even: big government is completely fundamental to the functioning of our big, complicated post-modern economy. Market fundamentalism, packaged and sold via market populism, are power grabs for the rich and for big corporations and are severely limiting the kind of growth we need the most.

We find ourselves at a juncture. The Republicans have argued and will continue to argue that the United States has a "hostile business climate." How anyone can make this argument about the United States with a straight face is beyond me, but those are Frank Luntz's words. They will argue that our labor, environmental, legal and democratic protections against corporate malfeasance are why outsourcing is happening, and that to keep jobs here and grow the economy we need to roll over and continue to give large corporations whatever they want. This is the low road.

» provide for and secure basic freedoms
The right has successfully, if somewhat ridiculously, defined "freedom" as "freedom from regulation." But in the post-modern economy, this is hardly the kind of freedom that matters the most. Education, health care, housing and retirement security should be considered basic, fundamental human rights and should be enshrined in law as such. Health care, in particular is a critical issue right now. Why the business community hasn't risen up and demanded that the government get health care off their plates is a study in the incredible self-centered short-sightedness of a small number of overly influential business interests. In an increasingly mobile society, forcing businesses to shoulder this burden for their workers makes no sense at all.

» invest in kids, in education, in research and in the future
We need education and publicly funded research, and lots of it. From early childhood education on through post-docs and basic research, we should be massively stepping up our investments in these areas. And we need diversity not for diversity's sake or because diversity is what America is about, but because diversity leads to more new ideas and more new approaches and more new markets. Private research is dandy but the payoffs from funding public research are much greater - that's where keys to our future competitiveness really come from. Besides the incalculable dividends that it pays, public research keeps smarties off the streets during the lulls in the business cycle that will probably only get more intense as the process of creative destruction becomes more widespread throughout the economy.

This point is really the key to the moral aspects of this narrative. A moral society gives kids the tools to find their passions and unlock their potential, whether those kids grow up in the suburbs or in South Central LA, and whether they're recent immigrants or the daughters of the American Revolution. That may sound like a cheesy Microsoft ad, but it's true, and we simply aren't going to get there if "tax relief" is always and forever our first priority. This focus on broad opportunity and creativity and the education system we need to provide that is quite the opposite of the testing and standardizing and "holding teachers accountable" approach. You don't fatten a calf by weighing it.

» encourage democratization of wealth
It doesn't matter how this happens - progressive taxes, minimum- and living- wage laws, employee stock ownership plans, unions - we should be encouraging all of these and at every economic strata. Keeping too much money high up in the economy, whether it's in rich folks' bank accounts or in investment fund "overhangs," does nothing to move our economy forward. Broad prosperity means more prosperity. There's an interlock with investing in people, here: democratization of wealth gives parents more time with their kids and eases pressures on families. Real family values is probably the wrong frame, but this is the alternative to the hateful and exclusionary crap that radical clerics like James Dobson are trying to peddle. This is another deeply moral aspect of the high road alternative.

» build the green economy
The long-time argument against building the green economy - that it would cost to much - sounds increasingly like total nonsense in the days of $50 and rising barrels of oil. The dangers and costs of not doing anything are far, far greater. Markets are tools for solving problems, not ends unto themselves. We should be designing markets for fixing problems now - this really needs to start happening yesterday. The New Apollo Project (despite it's terribly misleading and confusing and just plain wrong name) is a good start. Environmentalism is dead - long live environmentalism! We need energy security now, and the way to get there is not the low road path of drilling in our national parks and off our beaches - that's the low road. The high road is making the investments in renewable energy sources and the research that will make it work.

» housebreak capitalism
When Enron went down it was bad, but when Arthur Andersen was implicated in the scams of the late 90s it was worse. It wasn't just a few bad apples: the system was, and still is, close to being rotten to the core. Corporate misbehavior is rampant and still is a far, far bigger problem than over regulation has ever been. Corporations that aren't cheating unfortunately do have something to fear, because bad actors drag down the whole system. We need to encourage the Phil Angelides and Eliot Spitzer types and build a narrative and ideological environment that will let them lead the charge. True campaign finance reform via clean money would help a whole lot in this regard. Also in this category: tax simplification (but progressivification, not this "flat" tax crap!) and loophole closure.

» globalize this approach, not just trade
We've been talking about this for decades - it's time to make it happen. In addition to this, we need to boost foreign aid massively, and tie it to the kinds of democratizing reforms that will really encourage opportunity elsewhere. Foreign policy could be a whole separate post, but for the past few decades it has had practically only two main tools at it's disposal: sanctions, and war. We need new thinking on this!

This, then is the foundation of how we approach immigration. We have got to start encouraging Mexico and other states to take the high road as well - this is the only way to relieve immigration pressures at their source. CAFTA should be dropped and NAFTA should be replaced immediately by high road policies that would do this. If we used our incredible power to expand the middle class in Mexico, we could concentrate on creating a secure, open border, rather than wasting resources trying to close it off completely.

Advantages & Disadvantages & Results of each. Need hard data! Use both states and countries. The main datapoint is California itself: the technology industry is happening here and not somewhere else because of the investments that the US has made here combined with what we've invested in ourselves. TBD: Do this state by state.

I believe there's more to this: that what actually needs to be developed is a completely new version of the American Dream. The first American dream simply hasn't scaled particularly well. The American Dream, version 2.0 is based on interdependence, diversity, responsibility and community. It is an urban dream, including but not limited to large cities. It involves less consumption, although it is not about making do with less so much as focusing on what's really important in life: time, family, children, health, community, balance. The incredible demand for cities that work - so great that places like San Francisco are occupied primarily by renters at many times their original designed densities - must be met somehow. The progressive vision has to include a workable and broadly available microeconomics, it has to include an element of urban design. There has to be an alternative to the suburbs.

The Democrats need to start saying this, or something like it. Whatever it is, it needs to fit nicely in 4-6 bullet points, have a clever name, and be summarizeable in less than 30 words. Secure basic freedoms, invest in people, democratize wealth, green the economy, housebreak capitalism, and globalize this.

Perlstein, Rick Before the Storm: Barry Goldwater and the Unmaking of the American Consensus