It's The Economy, Stupid (Nation: Election Results Weren't Just Driven By Iraq War -huh???)

Everyone wants Virginia's Senator-elect Jim Webb to talk about Iraq, but the man The Weekly Standard recently called a "blood-and-soil conservative" wants to talk about something else: economic inequality.

The day after he accepted George Allen's concession, Webb barely let his NPR interviewer get a word in edgewise before jumping in to correct the misperception that his bid for office was motivated solely by opposition to the war. "I decided to run because of my concern ... with the economic breakdown that's happened in this country along class lines."

Class lines? Mr. Webb is a man who has railed against the "collectivist taming" of American culture by Marxists and has served in the Reagan administration. So why is he talking like Eugene Debs? "There are huge income inequalities ... that we haven't seen since the 1880s," he said on NPR. "And wages and salaries ... are at an all-time low as a percentage of wealth."

As idiosyncratic as he is, Webb is not an anomaly. He's part of a broader trend that has been obscured by the fast-congealing conventional wisdom that the election results were driven chiefly by the ongoing disaster in Iraq.

If you drill down a little into those results, it's clear that Iraq and Republican scandal can't account for all the Democratic victory. Consider the Democrats' success at the state level. The party picked up six governors, nine legislative chambers and more than 300 state legislative seats, none of which can plausibly be ascribed to discontent over Iraq.

As Webb suggests, the hidden story of the election was the appeal of economic populism in a country whose middle class is increasingly feeling the squeeze. Coast to coast, Democrats running for local and national office campaigned on raising the minimum wage, repealing welfare for Big Oil and opposing trade deals lacking protection for workers and the environment, and their message resonated with an electorate anxious about the economy.

Half of all voters rated the economy not good or poor, and a full 69 percent said their family's economic situation had either gotten worse or stayed the same since the last election. Democrats won both these groups by wide margins.

Ironically, in the weeks leading up to the midterm election, the Republican Party stole a page from the Democrats' playbook and attempted to shift the focus toward the economy and away from the manifestly unpopular Iraq war.

The thinking was that the years of relatively strong GDP growth coupled with relatively low unemployment would redound to the ruling party's benefit, perhaps canceling out the anger over Iraq and corruption.

The GOP's strategy both worked and backfired. Voters did focus on the economy, but they didn't reward Republicans. Exit polls showed that 39 percent of voters rated the economy as "extremely important" (roughly the same percentage as those who said the same about Iraq and corruption), but Democrats won those voters by 20 points. This shouldn't be surprising. Despite relatively strong growth, manageable inflation, high corporate profits and a bullish stock market, real wages continue to stagnate, productivity gains continue to be captured by the wealthiest 1 percent, income inequality has continued to get worse and, as Jacob Hacker argues persuasively in "The Great Risk Shift," America's middle class finds itself living with far more risk and income volatility than it did a generation ago.

None of these trends are new, but over the past six years the problems have grown so noticeable that even the neoliberal economists who crafted the much-celebrated Clinton economic agenda have begun to focus on correcting the perversely inequitable distribution of the fruits of economic success.

After years of reading the likes of David Sirota and Thomas Frank urging Democrats to embrace their inner populists, Dems finally started getting the message: Aside from opposition to the war, the Democrats focused on attacking subsidies to Big Oil, blasting the corruption endemic to a system in which corporate special interests call the shots and advocating for "fair trade" over the so-called "free trade" agreements that benefit capital over labor.

Even the Democratic Leadership Council, the most outspoken opponent of economic populism, has begun to come around. In 1995, Roll Call reported that "DLC officials think that, if Clinton calls for a minimum-wage increase in the State of the Union ... it could wreak the same political damage as his 1993 vow to veto any healthcare bill that did not provide universal coverage." By this election, the DLC was firmly behind an increase in the minimum wage.

In fact, the minimum wage just might have been Tuesday night's most underreported story. Not only has the Democratic Congress pledged to raise the minimum wage within the first 100 hours but in the six states that featured ballot initiatives to raise the minimum wage above the national — Ohio, Missouri, Montana, Nevada, Arizona and Colorado — every one passed. In Montana it took 73 percent of the vote, and in Missouri 76 percent.

Consider that the much-publicized stem-cell-research initiative passed in Missouri by only a few percentage points. That means hundreds of thousands pulled the lever for an increased minimum wage and against funding for stem-cell research.

"One of the interesting facts about this campaign is it has been able to bring together people across many political lines," the Rev. Paul Sherry, national organizer for the Let Justice Roll Living Wage Campaign, told me. "I do a lot of speaking around the country, and when I say that a person working at $5.15 an hour full time makes $10,710 a year, you can see people's eyes light up as they begin to think of their own circumstances."

(Not only did the minimum-wage initiatives run a clean sweep but their conservative counterparts fared poorly. Three states — Maine, Nebraska and Oregon — featured ballot referendums modeled on the Grover Norquist-backed Taxpayer Bill of Rights, which severely limits the growth in state government taxing and spending levels. All of them lost.)

At the national level, cable pundits almost immediately focused on a handful of winning Democrats with conservative stances on social issues — Jon Tester's A rating from the NRA, Bob Casey's opposition to choice and, obsessively, former NFL quarterback Heath Shuler, who defeated incumbent Charles Taylor in North Carolina's 11th District while opposing abortion, gay rights and a guest-worker program for immigrants.

But what the pundits didn't mention was the role in Shuler's victory of the district's opposition to "free trade" deals. The area's textile industry has been gutted by NAFTA, so when it came time to vote on CAFTA, Taylor was caught between his district, which wanted him to vote no, and the GOP House leadership, which wanted him to vote yes. So he skipped the vote altogether and CAFTA passed by one vote.

During the campaign, Shuler hammered Taylor for "selling out American families," and he wasn't alone in using trade as a wedge issue. A post-election analysis by Public Citizen found that campaigns cut 25 ads attacking free-trade deals, and that trade played a significant role in more than a dozen House races won by Democrats. In the entire election, Public Citizen noted, "no incumbent fair trader was beaten by a 'free trader.' "

"Democrats have coalesced in favor of trade policy reform over the past decade as President Bill Clinton's NAFTA, WTO and China trade deals not only failed to deliver the promised benefits but caused real damage," said Lori Wallach, director of Public Citizen's Global Trade Watch division.

To get a sense of just how far the consensus on trade in the Democratic Party has come, consider that Shuler was recruited to run for office by none other than Rahm Emanuel, the man charged with ramming NAFTA through a skeptical Democratic Congress in 1993.

Indeed, back when Emanuel was the NAFTA enforcer, he met some of his stiffest resistance from a young freshman Congressman from Ohio named Sherrod Brown, whose 12-point victory over incumbent Senator Mike DeWine was one of election night's highlights.

In a column a few weeks before the election, David Brooks called Brown's Senate contest "the most important political race in the country," because as a "full-bore economic populist" Brown represented the most "vibrant strain" of the Democratic Party.

Brown is an across-the-board progressive: a supporter of gay rights, abortion rights and civil rights who voted against the Iraq war and the Patriot Act (though, disappointingly, for the Military Commissions Act during the campaign). In 2005 National Journal ranked him as more liberal than 86 percent of House members. But he managed to avoid being sliced apart by wedge issues or tarred and feathered as an out-of-touch liberal by focusing with Terminator-like persistence on a simple economic populist message: "fighting for the middle class," as his campaign manager John Ryan put it to me.

Ryan says that even when DeWine attempted to change the topic or attack Brown, the campaign spent 50 percent of its airtime in TV ads responding to the charge "and 50 percent of Sherrod looking onscreen with a working-class message and a middle-class message."

In some ways, Ohio's a special case, having been particularly hard hit by globalization and with 83 percent of voters saying the economy was extremely or very important. The race came down to the have-nots outnumbering the haves: 37 percent of voters rated the economy excellent or good, and DeWine won their vote by 44 points. But 62 percent rated the economy not good or poor, and Brown won those voters by almost 50 points.

I asked Ryan if, given Ohio's particularities, he thought Brown's message would be applicable in other parts of the country.

"Take Columbus," Ryan said. "Columbus is so much like the rest of the country, demographically, that companies from all over the country conduct focus groups there. There's not a lot of factories, and it might be the one part of the state that might have gained some jobs with NAFTA. We went down to Columbus and we tested [Brown's trade message] to see if it would work. The difference was that in Dayton people would say, I lost two jobs because of NAFTA, and in Columbus people said, I know someone who lost a job. It was one half-step away, but people got it — people understood that the government was not on our side."

In addition, Ryan pointed to Brown's success in southern Ohio, which is by far the most conservative part of the state. In three southern counties, Brown's support exceeded the number of registered Democrats by at least 20,000 votes.

Brown's successful populism and that of other Democrats hasn't gone unnoticed. Commentators have raised the specter of the rise of a "Lou Dobbs"-like wing of the party whose economic arguments are inextricably linked to a racialized nationalism, the kind of populism that's equally comfortable bashing corporations that outsource jobs and "illegal aliens" who take away Americans' jobs here at home, and whose opposition to the Iraq war, like Pat Buchanan's, is rooted in an America-first isolationism.

To be sure, economic populism has a dark side. It's a fine line between railing against corporate-written trade deals because they hurt workers the world over, and scapegoating the brown-skinned other who is stealing our jobs.

Democrats haven't always walked this line carefully: There was more than a whiff of demagoguery in John Kerry's nomination acceptance speech about "closing firehouses in America" while opening them in Baghdad. (Why shouldn't Iraqis have firehouses?)

That subtext ran through many Democrats' ads in this past cycle, as they rushed to declare their opposition to "amnesty," a word as racially loaded today as "quotas" was in the 1980s. Heath Shuler's ads attacking his opponent for "selling out our families" also ridiculed him for voting to set up a scholarship for Russian students (the horror!), while pledging that he would "put American families first." Even Sherrod Brown talked in television ads about the need for "tighter borders."

It's the left's perennial dilemma: Populism is a fundamentally majoritarian mode of politics — the have-nots versus the haves, the many versus the few — but a central part of the left's most noble tradition is protecting the rights and interests of minorities.

Yet if there's going to be a center-left majority in this country, its electoral strength is going to rest on a coalition bound by a shared interest in economic justice. The Democrats face several obstacles to making that coalition stick.

First, the infusion of corporate cash that's about to flow into the now-majority party will provide a disincentive to go after corporate power in ways that voters clearly want. In the past, when caught between the interests of their donors and of their constituents, too often Democrats have advocated for the former: Just look at the vote on the bankruptcy bill.

Second, the Democrats' continued growth rests on a burgeoning Latino population, as well as on young people, who are more socially liberal than the population at large. So whose interests are going to get top priority?

Though difficult, it's not an impossible situation to navigate. With the power to control the agenda, Democrats can leverage the electoral strength of economic populism to protect minority interests by making sure that socially conservative members never get the chance to cast a vote in support of things like a marriage amendment or a "partial birth" abortion ban.

But that strategy will work only if the Democrats can enforce real party discipline and prevent socially conservative Dems from defecting on key issues such as stem-cell funding, choice, abstinence education and immigration.

In the short term, Nancy Pelosi's strategy seems to focus on the economic issues with the broadest range of support. Her agenda for the first 100 hours of her term as Speaker of the House is a package of mainstream, popular, progressive bills that would benefit a variety of the Democrats' constituencies: a raise in the minimum wage, which would greatly benefit blacks, Latinos and single women; a cut in interest rates for student loans, which would benefit young voters; and bulk negotiation of Medicare prescription drugs, which would benefit the elderly.

"The Republicans are here to concentrate the wealth of our country in the top 1 percent, and all the power that comes with that is at the expense of the middle class and those striving to be in the middle class — and that's just plain wrong," Pelosi said in a conference call the day after the election. "That's why we need to get a progressive economic agenda out there. As long as I get my caucus organized around that, that's more important to me than having a checklist."

As I told Oblomov, above, I will not have the time untuil this evening to present a serious and careful set of policy options.

To answer it, I will first have to state what I believe to be the facts of the economy are, and where the flaws and injustices lie. I will then propose what I think are the best common-sense solutions to them.

I will remain on the reservation of political reality.
As I said to Oblomov, I didn't PROPOSE a wealth tax, even though I would impose such a tax (and no other) were I KING. A President or Congressman has no such powers, and must work within the realm of the possible and expected.
Expect pragmatism.

Folks in the Midwest are hurting. They're not making it up.

Just went to the BLS website (Bureau of Labor Statistics) and it says unemployment in Indiana, Ohio, and West Virginia is between 5.0 - 5.95 percent.

Pennsylvania is between 4.0 and 4.9 percent.

Now, call me cookoo, but that really is not God-awful as you claim, especially not when compared to the rates the past 35 years.

After reading numerous pre-election and post-election surveys and polls, it is abundantly clear that the three issues which sank the GOP were Iraq, Corruption, and Lack-of-a-secure border policy.

Heck, Wyoming, Utah, Nevada, Arizona and other western states ALL HAD UNEMPLOYMENT BELOW 3-percent, and in some cases 2-percent. And still many incumbant Republicans lost.

It was THREE ISSUES THAT RUINED THE GOP.

Foley the Pervert: three jailbird Republicans, Cunningham, Ney, and Abrahamoff: and total outrage over the GOP's failure to seal the southern border --- these three things were at the heart of the GOP slaughter.

Dont take my word. Go out into the cyber world and check out some reliable publications.

Clearly you have never studied Austrian economics, as I did, or you would understand the fallacy of your positions. The economy has thrived in spite of, not because of, the drag caused by government taxes and regulation.

You are also not a student of history or you'd know that all of your social welfare giveaway programs have indeed been in large part responsible for running this country far away from its ideal of freedom of opportunity for all. You have only to look at France or Germany or even England to see the problems with massive public welfare and government-run health programs and their effect on human behavior. ie, Why should people save for retirement when the nanny state is taking almost 15% off the top of your income for SS and Medicare ? You are forgetting about incentives - and perverse incentives. Tsk, tsk, if you are an economist. Stop running regression analysis and instead read Ludwig von Mises book "Human Action".

Your economic policy prescriptions are populist in nature and are designed to appease the lazy. You don't believe the adage: give a man a fish and feed him for one day, teach him to fish and he'll eat forever. You think like the Romans - have bread and circuses for the masses and let the elites keep the country in one piece while the masses are distracted.

To answer your question, no, capitalism doesn't count you a winner or a loser based solely on the amount of money you amass. After all, the Harrimans of Union Pacific fame made their mega millions on government favors and land grabs aided and abetted by the federal govenment. I wouldn't cll Bill & Hillary Clinton capitalists either, yet they've made millions by being government servents. That doesn't make them capitalists. The definition of a capitalist is someone who invests capital in an enterprise. The function of "regulating" the economy is then achieved mainly through the operation of market forces where prices and profit dictate where and how resources are used and allocated. Government action can only distort market forces.

In point of fact, Republicans with your viewpoint are usually called "Rockefeller Republicans" and there's not much to choose between your type and a moderate Democrat. In fact, why don't you explain that distinction to me. What does make you different from a FDR-type Democrat in areas other than national security ?

I, on the other hand, am a strict adherent to Austrian economic thinking and I know that a large part of the reason Republicans lost this last election (and that wasn't by much) was because they were the party presiding over an explosion in government. Just wait 'til voters get a load of how much the Democrats want to spend. As long as Republicans go back to fiscal sanity they will win.

Of course, the fact that the media is in the bag for Democrats didn't help any Republicans either - didn't Evan Thomas of Newsweek mag in 2004 say that the MSM favorable coverage of Democrats gives them a 15% advantage ?

And BTW, I didn't call you a fool. That must have been someone else. I don't engage in name-calling or emotive-type labels. I believe in providing substance to my arguments that name-calling precludes.

Great post. I would add to your post that the "value" of a person in a capitalist economy is not determined by income or wealth alone. von Mises, for example, rejected the materialism of Marx, as well as that of the institutionalist economists who wanted to measure all aspects of the economy so that we could be "managed" into prosperity.

The idea of liberty is not just to make the most money, since that is a very narrow definition of value. Most highly capable people fall well short of the $5MM+ salary of a CEO or hedge fund manager, not because of a lack of wherewithal, but because they have other priorities and values, the pursuit of which may not result on monetary gain.

I will not have the time untuil this evening to present a serious and careful set of policy options.

I dont need "serious and careful."

How bout just some 'frivolous and bold.'

If one cant just list a simple set of proposals within two minutes that the average person can read and understand, then I submit that ..... well, that you might NOT have really thought this thing through.

What would you do?

Impose heavy tariffs?

Make it illegal to trade with the Chinese?

Mandate all employers pay everyone $30 an hour?

Your thoughts cant be that far out of the realm that you cant write them down within a few moments.

Frivolous and bold?

Fine.
Great.

First, I would amend the Internal Revenue Code.
Businesses can currently deduct overhead wherever they incur it. I would limit the ability to deduct costs to areas that have labor and human rights protection.
So, you can still build your factory in China if you want to, but you cannot deduct the cost of the plant or the cost of salaries from your US income taxes. You get a tax deduction for the cost of physical plant and salaries HERE, but American taxpayers do not subsidize you, at all, to take what could be done HERE and build it and pay people over THERE. There are plenty of exceptions to this, which is why a discussion has to be careful, but quick and dirty, that's number one: No business deductions for foreign capital investments or salaries. Businesses still will have the FREEDOM to go over there if they want to, but Americans will not subsidize it.

Second, I would prepare a list of countries which do not have human rights protections, do not have normal labor and environmental protections, and who allow widespread abuses such as child labor. This means China, and Indonesia, especially. It means parts of Latin America, to an extent. On products manufactured in those countries, I would impose an equalization tarriff which would be designed at imposing the cost on those products of what they WOULD cost if the countries that made them weren't pouring lead into the rivers and enslaving children. Serious and careful requires a discussion of the skein of rules you have to impose in order to prevent the obvious "get arounds" to this sort of policy (such as shipping the goods to Australia, which does have labor protections, and sewing a different label into them).

Those are the two keys to protecting the American industrial base. Eliminate all tax subsidies for its export, and impose an equalization tarriff on the goods manufactured in countries that don't have basic labor, environmental and human rights protections. This eliminates the economic advantage in shipping jobs overseas and preserves the American industrial base.

Simple, frivolous and bold.
To the extent you attack it using detail, we will have to keep restating it more seriously and carefully, because each of the obvious avenues of attack have already been thought out.

Net result: a rise in consumer prices in the US, AND a rise in US job security.

Other things need to be done WITHIN the US to make the US more competitive in general - tort reform is a must; so is extending Medicare to cover everyone. And still other things need to be done to make the tax system more equitable, such as tax capital gains the same as the gains from human capital (i.e. wages), or allowing the deduction of the costs of developing and maintaining human capital, but these too are internal matters not directly related to trade.

There.

You can study all the applied economics you want but withhout anchoring them to a consistent and coherent philosophy you are like a ship without a keel, blown by the wind in whichever direction the capricious and competing forces decree.

Having studied econometrics, I can also tell you that econometric analysis is a poor tool for predicting future events. You have only to look at one example: the consistently incorrect CBO estimates on the budget deficit to know that. Why ? Because you absolutely cannot quantify the effect of something on human values. Ceteris paribus cannot be quantified, because you cannot begin to calculate the unseen workings of human initiative.

Take for example the Bush tax cuts. There was much moaning and screaming from liberals and such RINOs as McCain, Chaffee and the like, who all predicted that the budget deficit would balloon. And, what happened ? While still spending like fools on a binge, the budget deficit was cut faster and deeper than anyone had predicted. So why could that be ? Beyond the typical liberal naysaying, you cannot plug the liberating effect of x amount of dollars retained by an individual into a mathematical equation. You cannot predict in a mathematical equation the use and subsequent effect of extra money on any individual.

Some will splurge on consumer goods, some will quit jobs and go back to school, others will start up or invest in their business and increase productivy, all of which have ripple effects unknowable and unpredictable.

If I were you I'd do a bit more reading in the realm of economic philosophy and rethink your emphasis on application first.

I would limit the ability to deduct costs to areas that have labor and human rights protection.

This is one of those things that sounds great sitting here in cushy America, but falls flat on its face as soon as you try and put it in practice.

In other words, we would in effect have to STOP trading with ALL of Africa, half of Europe, all of Russia, all of Asia, including India, Tibet, Thailand, Indonesia, Taiwan, Mexicoetc.

NOT ONE OF THESE COUNTRIES has full rights for women, and/or labor laws to the extent YOU would like.

In most cases, it is simply THEIR CULTURE, their way of life.

No one is thrilled with THEIR way of life, but how presumptuous and elitist of you to DEMAND changes, or you will take your ball and go home.

I could go on and on, but suffice it to say your prescription would throw the entire world into recession, or worst, and would poison relationships for decades to come.

Tarriff wars have never, ever worked in the whole of human history, and in fact have been the cause of COUNTLESS SHOOTING WARS.

What in the world makes you think it would work now, and that countries would just willingly lay down and be subserviant to OUR intepretation of environmental or 'human rights'.

As for TORT LAW REFORM, I presume you were out there publically supporting President GWB in 2001 and 2002 when tort reform was one of his TOP LEGISLATIVE PRIORITIES.

Naturally, the Dem-libholes fillibustered it to the grave, as did a few lib-Repubs.

Lastly, if these two proposals are what you consider to be "serious and bold" ideas that would create economic utopia, then excuse me while I step away and chuckle a while.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.