2014 Will Be The Year of "Economic Populism" - and Then?

It's becoming increasingly clear that, at least politically, 2014 will be "The Year of Economic Populism." Now the question is, who gets to decide what that really means?

A couple of recent policy disagreements offered us glimpses of the debates that could shape tomorrow's new populist initiatives. These are the debates we should be having - and they're debates that progressives can win.

Centering

The first disagreement began when the leaders of a Wall Street-funded organization called Third Way used a Wall Street Journal op-ed to attack popular Sen. Elizabeth Warren, dismissing the idea of "economic populism" in the process.

Jonathan Cowan and Jim Kessler probably didn't know what hit them. After years of being treated like stars in the nation's capital for their corporate-friendly views, it must've seemed as if the whole town had suddenly turned against them.

It had.

Shortly before their op-ed ran, President Obama declared that inequality is "the defining challenge of our time." The Center for American Progress (CAP) announced the creation of the Washington Center for Equitable Growth (WCEG) at roughly the same time, even as founding director John Podesta was being tapped by the White House to serve as a "counselor" to the President for one year.

It was a measure of today's shifting political landscape that a major response to Third Way came from Neera Tanden, CAP's President, who vigorously countered Cowan and Kessler in a piece entitled "Washington 'Centrists' Don't Want Obama to Target Inequality. They're Pushing Bad Politics--And Bad Economics."

We certainly agree with Ms. Tanden on both counts. This new focus on populist themes is a welcome shift from CAP's emphasis one year ago on "Reforming Our Tax System, Reducing Our Deficit," and is a hopeful harbinger of things to come.

Ms. Tanden even placed the word "centrists" in quotation marks, a sound practice that should be emulated elsewhere. (Self-described 'centrists' like Messrs. Cowan and Kessler hold political views that are far to the right of public opinion's true center.)

The conventional wisdom of previous years which Cowan and Kessler represent - one in which disagreements focused on which forms of deficit reduction to emphasize, rather than on questioning the wisdom of making them a foundational financial goal - has been disproved by the facts on the ground. The resulting resurgence of 'economic populism' is good news.

Inequality Happens

But this new "populism" remains undefined, and there will be an ongoing political temptation to employ rhetoric which sounds populist but is vague enough to avoid offending powerful interests.

Although the President's speech was welcome, it didn't offer much in the way of specifics, either in describing the causes of the current crisis or identifying the individuals and forces responsible for it. Anat Shenker-Osorio analyzed it, and especially its use of the passive voice, in an op-ed for the Boston Globe called "And then inequality happened."

"Taxes were slashed," said the President, and "growth has flowed to a fortunate few."

The perception of a policy vacuum can lead to heated debate, as differing schools of thought compete to fill it. That might have been what we saw in the reaction to a piece written by Ezra Klein on his Washington Post "Wonkblog" entitled "Inequality isn't 'the defining challenge of our time.'" Klein argues that unemployment, not inequality, should be the left's overriding issue.

One (Unequal) World

Klein's comments sparked a mini-firestorm in the economic blogosphere. A Who's Who of commentators weighed in, including Paul Krugman, Jared Bernstein and Dean Baker. The intensity of the ensuing debate contrasted sharply with the wobbliness of Klein's central thesis, a weakness which stems from the notion that "a world in which inequality is the top concern" is somehow different from "a world in which growth and unemployment are top concerns."

They are, in fact, the same world. Measures which stimulate growth and reduce unemployment are also likely to increase competition for workers, driving up lower-end wages. And measures which reduce inequality by returning more of our nation's income to the "99 percent" will also increase consumer demand, stimulating growth and reducing unemployment.

In reality, you can't do one without the other. It's a distinction without a difference.

Real-World Implications

But the response to Klein was a measure of the changes now taking place in the political zeitgeist. Krugman devoted first one, and then a second blog post to the topic, strenuously defending the idea that inequality "isn't a diversion. It's the right way to move this discussion." Jared Bernstein offered what he called a "unifying theory" linking both positions. (That comes closest to my own position.)

So far this all falls into the category of theoretical discussion. But this is a debate with very concrete, real-world consequences. If Ezra's school of thought predominates, we could hear more people arguing, as he does, that we should promote stimulus spending and job creation without worrying about higher taxes on the rich.

In fact, Klein never gets around to explaining where the money for that stimulus spending is going to come from. Wouldn't taxes be involved? He mentions the tax rates for the wealthy are apparently the highest they've been since 1979, but doesn't mention how much higher they were just a few short years earlier.

Also unmentioned is the fact that the wealthy and the ultra-wealthy are capturing much more of the national income than they did in the 1990s. That means that 1979-era levels still leave the rich much richer, and public coffers much poorer, than they did back then. And he doesn't mention corporate taxation, which is at or near 60-year lows. That's why we were such a low-tax country in 2011, relatively speaking, and will remain so after the changes which Klein describes.

Ezra did a good thing by starting this debate. What's needed now is greater clarity.

Populism's future

The ultra-wealthy and corporate interests will want to take a leading role in shaping this debate. In a development that is perhaps not coincidental, a World Economic Forum survey of nearly 1,600 elite decision-makers showed that they consider "widening income disparities" the second-most pressing problem the world faces today. (The Forum is the same group which organizes the elite Davos conference; see Lynn Parramore for more on the survey.)

That is not to suggest that the same decision-makers are likely to support highly redistributive economic policies. In fact, that's highly unlikely. There are undoubtedly many among them who would prefer to contain the kind of populist movement which the Elizabeth Warren wing of the Democratic Party represents.

One way to do that is with the strategy Bill Clinton employed so successfully - using the Democratic Party to articulate populist frustrations, while at the same time ensuring that no specific problems or policies are articulated that threaten entrenched interests. There are likely to be substantial differences of opinion between, say, the former president's thoughts on economic populism and those represented by Sen. Warren and like-minded colleagues.

There's a danger that populist and egalitarian ideas might be used to limit the scope of debate, by redefining the leftmost parameters of discussion within bounds that are considered safe for the status quo.

But the benefits of having this conversation are likely to outweigh the risks. It's a good thing when the President of the United States discusses income inequality, or Democratic thought leaders begin to argue among themselves about income inequality and unemployment. And it's excellent news when more resources are being invested in these areas of economic research.

We already know that progressive and "populist" ideas are political winners. These are areas of debate and research where they can win intellectually as well, as long as the playing field is kept level.

There will come a time when the American people demand not just discussion and research, but solutions. What happens in today's debates could determine whether or not voters are able to vote for policies which represent their interests, in 2014 and the election years that follow.