Rising-Tide Economics: A Q and A With Gene Sperling

Gene Sperling, the author of "Rising-Tide Economics" in Issue 6, answers questions about his piece.

By The Editors

Gene Sperling, author of “Rising-Tide Economics” in the most recent issue of Democracy, recently spoke to Ken Baer to answer questions about his piece. A transcript of Gene’s remarks is below. You can listen to a podcast of this Q and A here; and of course, remember to read Gene’s article.

Kenneth Baer: Hi, this Ken Baer with Democracy: A Journal of Ideas, and we are here with Gene Sperling, the author of “Rising-Tide Economics” in our fall issue. Thanks for joining us, Gene.

Gene Sperling: Thank you, Ken.

KB: Let me give you our first question from Jonathan Cora, a Democracy reader. He asks, “One of the things that interests me about your article is the way that you seem to distance yourself from Clintonomics. How do you think Rising-Tide Economics is different than Clintonomics?”

GS: I actually think that Clintonomics, in terms of President Clinton’s policies, was an embrace of Rising-Tide Economics. I think President Clinton very much captured this sense of promoting growth, innovation –a bridge to the future– but doing so with a progressive focus that I think helped contribute to the final six years of his presidency being the best six years over the last several decades, [in that] all five quintiles from the top 20 % to the bottom 20% saw significant income growth. What the piece does, however, is try to show how Clintonomics has to evolve with the new facts and realities we’re dealing with. So what the piece talks about is how you have this new decade, this new productivity decade, and then in the first half of it, which really was the last five, six years of President Clinton’s administration, the growth was widespread. While globalization and technology were causing some dislocation, all of the evidence was that they were raising the tide and lifting all boats. And so what it really is saying is that to keep the kind of Clintonomics as Rising-Tide Economics, you have to be willing, as you always have to do in public policy, to take into account changing circumstances. And when you see that the pressure from a more globalized labor force may at least for a period of time be contributing to corporate profits–putting downward pressure on wages and more stress on American families–it doesn’t mean that you close up shop and stop embracing globalization. But it does mean that you might seek to have a bit tougher standards for when you go forward on new trade and globalization openings and that you need a stronger social compact to deal with those issues.
So I again really felt that President Clinton very much embraced the Rising-Tide Economics perspective. This piece was less to kind of distance from that, but actually to show how I think it has to grow and how I think President Clinton himself would have taken the same principles: [he would have] still been for openness, still been for innovation, but [would] try to add those policy dimensions that were necessary to ensure that you’re still raising all boats in an economy over these last five, six years where you have seen a greater divide between growth and corporate profits and how the typical American family is doing.

KB: So taking the Bush administration policies out of it, has something fundamentally changed in the global economy since the Clinton administrative left office?

GS: I think that there has been a change in the following way. I think that the initial spread of information technology and increased globalization was virtually overwhelmingly positive across the board for most American families and income groups. There was of course, as there always is, some harsh dislocations in particular industries in different communities, but it did seem that we as a county we were spreading information technology more broadly, keeping it cheaper.  More of our small businesses were using it, and more of our larger businesses were using information technology for greater inventory control, for greater efficiencies. Productivity was going up. And this is the key, ninety percent of those productivity gains were being shared by typical workers.  So that was I think the picture in what I call the first half of the new decade.
In terms of what’s changed is, I think you started to see more of another dimension. As the information technology could spread more globally, it allowed companies to basically scan the globe for where they could get the most efficient supply chain, which is [a way] of saying where they could get workers who could do the functions they needed at the cheapest amount of wages. And that can have good effects in terms of efficiency and productivity. It can, in the right circumstances, have good effects in those developing countries, if it’s allowing more people to get jobs and have a standard of living. But we have to recognize that the dimension that we’re seeing has also had some negative impacts on more people in the United States, in terms of spreading anxiety much more to your typical service, white-collar workers than has ever more been felt before–I think even more than in the 90s and 80s–and putting greater pressure downward on wages.
I think when you look at the answer then, it is not to pretend that you can stop globalization, or that you should put up new protectionist trade barriers, but it does mean taking these problems seriously. And I think some of the things I talk about in the article are, for example, starting to look at where you can create better conditions for companies to want to locate jobs in the United States. How can we, who care about job location and rising-tide, lifting-all-boats in the United States make sure companies have more incentive to do high-wage, permanent job creation here?  So things like bringing down the coast of health care, taking some of the burden off the backs of employers, having our tax code take away incentives to move jobs overseas, having the kind of research that creates more clusters of innovation in different states and localities and universities. All of those things are things that I think were good policy in the 90s. I think that they have gone from being good polices to essential, policies you have to have if you want this rising-tide to continue to lift all boats in the United States.

KB: Taking off from that, the biggest divide in the progressive is over global economics and trade. So what do you think we should do? Should we take a pause in ratifying new trade agreements or push forward with it?

GS: Well I tried in my Democracy piece to suggest perhaps what you might consider a pragmatic solution between on one hand “business-as-usual” for a lot of people–which is the assumption that any trade agreement, no matter how little protection it has for either workers overseas or at home–is still better than rejecting it. That might be a bit of the business-as-usual as for a lot of free traders. The other side said, “let’s take a pause, let’s officially tell the world we aren’t doing more trade agreements.”
My problem with that is that we are going through a period right now where the United States, thanks to a lot of negative polices by President Bush, is being seen as go-it alone, not interested in working in a multilateral, globally productive framework.
I think for progressives to come out and announce that we’re just going to put on pause expanding, that we’re going to put on pause even trying to work to see if we could ever get a WTO round that was truly pro-development and yet still looked out for workers in countries like the United States, to just automatically say that’s on pause, I think that sends very negative signals, and be very much misconstrued by the rest of the world as one more sign of the United States taking a go-it alone strategy.
So what I tried to suggest was that we take, and these are the words I used in the piece, a staged progress approach. What I meant by that is that instead of just business- as-usual or put-everything-on-pause, with every agreement, say “Are we at least making a step forward in the kind of social compact we need? Are we making a step forward in ensuring that there are enforceable labor standards overseas or that we’re moving towards greater health care and education and income support for dislocated workers in the United States?” And if we’re making progress, if we’re truly moving the ball forward, it seems to me that we as progressives should take some gains when we can, in stages. So again, a staged-progress approach.
So take for example CAFTA versus Peru and Panama. In CAFTA, the administration’s view is basically, “Well, we have some labor protections here, they’re actually not as strong as they were in Jordan or the Cambodia arrangement or other things that were done under Clinton administration, but there are some labor protections here, so why doesn’t everybody just vote it?” And I think Democrats were justified in saying, even Democrats who had traditionally been for trade agreements, saying no–this is a point where we should not be moving backward. If anything, we should be moving beyond Jordan, not moving backward. And they voted no. I think that a lot people voted no on that who normally do vote yes because they thought under President Clinton that at least you were always taking a step forward.
Then, on the other hand, when you had a Democratic majority, and you had chairman Charlie Rangel and the subcommittee chairman Sandy Levin work with the administration, with the secretary of treasury and the USTR and actually get the type of enforceable labor steps that the AFL-CIO had been pushing for, that I think Clinton and many others had been pushing for, well, that was a real step forward. Did it solve all the issues? No, but it was enough of step forward that it was worth saying this is an agreement we can say yes to.
So I think that there really is a principled reason why you have several Democrats, including I think some of the presidential candidates, like Barack Obama and Senator Clinton, who were willing to vote against CAFTA, but were willing to vote for Peru and Panama. They thought we were making progress forward. So I think in the next administration, if you could show you really are making progress, maybe not solving everything, but you’re in that direction, then I think there are some things you could go forward on. So I guess that would be my solution: to take that staged progress approach, which may be a more a fancy way of saying take a case-by-case approach, and look at whether you think we are moving more toward that kind of global social contract that I think many of us aspire to.

KB: I have a question from Mary-Louise Brommer, who is a reader. She wrote in, “Like many Americans, I deeply admired President Kennedy. It is wonderful that you still look back at him for guidance. But one of his major economic accomplishments was lowering taxes. Why doesn’t Rising-Tide Economics focus on tax cuts like Kennedy did? Not Bush tax cuts, smart tax cuts.”

GS: I think Rising-Tide Economics does focus on smart tax cuts, not Bush tax cuts. So I think your reader had the question right. Now when President Kennedy took office, the top marginal rate was 91 percent. And I think when you get those extreme levels, then I think that you do start to discourage some work effort, you do start to discourage people from perhaps locating in the United States. On the other hand, when you look at tax rates that existed in the 1990s, they raised a little for the very top two brackets, for the top two percent or one point two percent, that’s it.  But they were done so in the context of America getting its fiscal house in order.
And when Clinton was president in 1993, he said very explicitly that he believed that if we had a strong fiscal responsibly package, a strong deficit plan that included marginal tax rate increases on just the top two percent, that if the economy strengthened, if there was more confidence in the United States, then those at the very top would benefit the most. And that’s exactly what happened. What was great about the 1990s was that we did have a fiscal discipline package that did ask for somewhat higher taxes rate on the top 1 to 2 percent.
Alan Greenspan has praised that ee93 package for helping to increase confidence and investment and bring the deficit down.
What was so excellent about this period was that income gains went up for the bottom 20 percent, it went up for the middle, and the interesting part was they actually went up enough for the top 1.2 percent to more than compensate for the higher tax rates they faced. So the point here is that, if you’re not overreaching, if you are looking for reasonable rates that allow as a country to have fiscal discipline and to invest in the right things, like a smart universal [health care] plan, like a strong workforce, a strong education, you really can have a win-win situation.
Now if you look right now, at for example, some of Senator Clinton proposals, who I am currently advising, she is supporting moving the tax rate back to where it was under President Clinton for the top 1 or 2 percent, simply going back to where they were during the decade where we had some of the most shared prosperity that we’ve had that entire century.  At the same time, she has just proposed a tax cut for savings, to make 401(k)’s essentially for everyone. She calls them an American Retirement Account, an account which I call in this article a universal 401(k).  That is a smart tax cut that encourages savings, wealth creation, and retirement security for the bulk of middle-income families, but she’s going to partly pay for that by not completely repealing the estate tax cut, as President Bush would like. So there’s a small tax increase, a tax increase versus repeal for perhaps 10,000 of the most wealthy estates per year in the United States, that’s going to allow a smart tax cut that’s pro-savings, pro-wealth creation and will allow more families to have a chance to have an estate themselves–for perhaps 50-70 million Americans. That’s a tax cut for savings and wealth creation that will help 7,000 Americans for every one estate that see higher taxes.

KB: Some good things to think about for our readers as they go back and read your piece, and hopefully start discussing it among themselves. Thank you for talking to us today.

Democracy: A Journal of Ideas

The Editors of Democracy: A Journal of Ideas are Michael Tomasky (Editor), Jack Meserve (Managing Editor), and Delphine d'Amora (Associate Editor).

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