By James Kwak

Today is the day of the New Hampshire primary, and, perhaps more importantly, lots of people in California are getting their ballots around now. Before you cast your vote in the Democratic presidential primary, I wish you would read Take Back Our Party, either online (for free) or in print. But I know most of you won’t, so this is what I want to say.

As a preamble, if you are a moderate Democrat—if you think welfare reform and financial deregulation were good ideas; if you think, along with Barack Obama, that more oil production is a good thing; if you think that America’s health care problems can be solved by private health insurance companies—what I am going to say is not for you. Go ahead and vote for Joe Biden, or Pete Buttigieg, or Amy Klobuchar.

Continue reading “About that Democratic Primary …” →

By James Kwak

Chapter 2 of Take Back Our Party made the case that the market-centric policies of the Democratic establishment have failed to do anything about—and in many cases have exacerbated—the rise of inequality. Chapter 3 continues the indictment, arguing that the “growth and opportunity” doctrine of Clinton and Obama has also failed as politics.

The New Democrats chose to identify themselves as the party of jobs and growth because they did not want to be seen as the party of redistribution and welfare. But in copying the Republican message of market-driven growth, they also lost the ability to differentiate themselves from those same Republicans. While conservatives promised that slashing regulations and cutting taxes would unleash the ingenuity of the private sector, the Democratic message was roundabout and equivocal: yes, markets are the source of prosperity, but sometimes they suffer from market failures, so cleverly designed government policies are required to make them work properly, etc. We may be right about the economics, but as politics it fails to establish a compelling choice.

But the bigger problem is that by not doing anything about inequality for so many years, the Democratic leadership frittered away the brand equity that the party had built up since the days of Franklin Roosevelt and the New Deal. Once upon a time, lower-income voters assumed that, at least on economic issues, the Democratic Party stood for them. As Bill Clinton and then Barack Obama did little that was recognizably, specifically for workers, they stopped believing that the party cared about them. Which brought us to 2016, when Donald Trump vastly outperformed Mitt Romney among low-income voters.

For more, the entire chapter is up at The American Prospect, as usual.

By James Kwak

Today’s installment of my new book, Take Back Our Party, evaluates the quarter-century reign of the Clinton-Obama axis over Democratic economic policy. (Chapter 1, if you missed it, is a historical account of the rise of the New Democrats and what they did once in power.)

The picture is not a pretty one, no matter how you look at it. This chart, for example, shows the distribution of economic growth across different groups in the income distribution:

Continue reading “Take Back Our Party, Chapter 2: Bad Policy” →

By James Kwak

Chapter 1 of my new book is now available at The American Prospect. (If you missed the introduction, you can find all the chapters here as they are released).

This chapter, “Their Democratic Party,” is a brief history of the takeover of the party by the New Democrats in the 1980s and 1990s. It describes how, in the aftermath of the crushing electoral defeats of 1980 and 1984, a new generation of party leaders—including Bruce Babbitt, Chuck Robb, Lloyd Bentsen, and of course Bill Clinton and Al Gore—chose to run away from the historical Democratic legacy as the party of workers and the poor. Instead, they trailed in the rightward footsteps of the Republicans, associating the party with business, the private sector, finance, and economic growth.

Their economic platform was that markets are the sole source of prosperity and that government should limit itself to nurturing the private sector and ensuring that all people can participate in the benefits of growth. That’s why the principal Democratic domestic policy achievements of the past three decades have been welfare reform, financial deregulation, and a health care reform plan based on private competition and initially conceived by the Heritage Foundation.

This is still the dominant ideology of the Democratic establishment:

“Leaving aside the recent progressive insurrection … it is a party devoid of any compelling idea of how to address the fundamental economic challenges our country faces today: wage stagnation, the rising cost of health care and urban housing, the precariousness of most jobs, and extreme inequality. After defining themselves in opposition to old-fashioned government spending programs that smacked suspiciously of redistribution, after embracing the doctrine of market-based solutions, and after insisting for decades that economic growth would solve all problems, establishment Democrats today have nothing left to offer.”

Enjoy!

By James Kwak

After Simon’s book with Jon Gruber earlier this year, it’s my turn to release a book. Take Back Our Party: Restoring the Democratic Legacy is now available starting today at The American Prospect. Actually, today the introduction is available. The remaining chapters will be released between now and Wednesday next week. As David Dayen (executive editor of the Prospect) said, now that we’re in the Second Gilded Age, we’re adopting one of the publishing models of the First Gilded Age: serialization in a magazine.

The book is a political sequel to Economism. The basic argument is that the Democratic Party has been taken over by market-oriented centrists who think that effective management of private sector markets is the best way to help ordinary people (think of welfare reform, financial deregulation, Obamacare, etc.); that they have failed, both as policy and as politics; and that the party should adopt an economic platform dedicated to ensuring that all people have the basic necessities of life in the twenty-first century, including healthcare, pre-K through college education, affordable housing, and adequate retirement income.

Enjoy!

Can the United States grow faster, create more good jobs, and genuinely spread opportunity?

Yes: by investing more in science and technology, by placing those investments strategically around the country, and by creating an Innovation Dividend – paying cash to all Americans every year, based on the success of public investments in the tech sector.

What technologies should receive support?  Which cities have the potential to become the next generation tech hubs?  How do we ensure that benefits from the next tech boom are shared more broadly?

Join Jon Gruber and Simon Johnson in discussing their new book, Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream, in a series of events and media appearances around the country.

The first public event is on Tuesday, April 9, organized by Harvard Book Store and held at the Brattle Theater in Cambridge, MA: http://www.harvard.com/event/jonathan_gruber_and_simon_johnson/

All are welcome!

By James Kwak

My friend and co-founder Marcus Ryu wrote an op-ed in the Times today. Here’s how it begins:

The tax cut framework recently put forward by President Trump relies on a central claim: that reducing taxes on corporations and wealthy individuals will open the wellsprings of entrepreneurship and investment, turbocharging job growth and the American economy. Were this premise true, reasonable people might countenance giving a vast majority of benefits to the very rich, as Mr. Trump’s plan does, in exchange for greater prosperity for all. But it’s not.

I don’t have a lot to add, since Marcus makes the case very well. I’ll just expand on two of his points. One is that lower tax rates do not actually encourage people to start companies. When we started our company in 2001, there were a lot of factors I considered: the risk of leaving a well-paying job in the middle of a recession; my simultaneous move across the country to a place without a lot of technology jobs; the difficulty of raising money from venture capital firms; the relatively large pool of talented developers looking for interesting jobs; the poor competition in the field we had chosen; the difficulty of saying “no” to Marcus; and so on. Tax rates weren’t on the list. As I like to say, I didn’t even know what the tax rate on capital gains (the one that matters for startup founders) was, so it’s hard to see how it could have had any effect on me.

The second point, which is only a bit more complicated, has to do with the impact of corporate tax rates on company behavior. One of the common arguments for a corporate tax cut is that it will encourage capital investment, which will create jobs. This happens, in theory, because a lower tax rate increases the after-tax value of corporate profits (technically speaking, expected future dividends) to shareholders. This means investors will pay more for the stock of what is otherwise the same corporation. For the most part, that just results in a one-time increase in the stock price in the secondary market, which has no direct impact on the company itself. The company only benefits if it issues new stock in a secondary offering, because it can raise a bit more cash for the same number of shares. As Marcus points out, however, a corporate tax cut can only increase investment if companies are actually having trouble raising capital, which has emphatically not been the case for the past several years. In other words, if we actually want to increase capital investment by U.S. corporations, lower tax rates are just about the last place where we should look. (Raising workers’ wages, to increase demand for the stuff those corporations sell, is probably a better place to start.)

I haven’t been writing about the Trump tax cut because (a) a bunch of personal reasons, (b) intellectually speaking, it’s like shooting fish in a barrel, and (c) lots of other people with much bigger audiences are doing it anyway. So please read what Marcus has to say.