New Plan Highlights Proven Path To Broad-based Growth

  • 09/21/2012
  • Terelle Jerricks

By Paul Rosenberg, Senior Editor

“Instead of the austerity agenda that we have now, focused on debt, this growth agenda is focused, really, on restoring broad-based economic growth and our democracy,” said Yale political scientist Jacob Hacker in a late-August teleconference.

Hacker was explaining the rationale behind a new economic approach laid out in “Prosperity Economics: Building an Economy for All,” a report he co-authored with Yale Law School student Nate Loewentheil.

Aimed at changing the political debate this election season and beyond, the report has already gained significant support from labor, civil rights and community organizations, including the AFL-CIO, SEIU, the Center for Community Change, the Economic Policy Institute, the Leadership Conference on Civil and Human Rights and the National Council of La Raza.

“The current debate is focused on how severely to cut not whether to cut,” Hacker said. “That’s diametrically at odds with dealing with the two great challenges we face today, which are not the deficit, but rather the jobs crises, and the long-term stagnation and decline of the middle class.”

With the debate framed this way, Hacker warned, “there is a real risk that even if President Obama wins, we could end up with a kinder, gentler version of austerity economics — tax cuts that are slightly less skewed, cuts in public investment, cuts in economic security that are only slightly less draconian than those in the leading budget blueprints on the right.”

The problem is that a clear alternative exists, based on plenty of empirical evidence, old and new, but that it hasn’t been clearly and forcefully articulated as part of the debate. Hence the need for their report, Hacker explained.

“Our goal was really to lay out an alternative that’s both realistic, in the sense of capable of producing ends we want—that is, immediate job growth and broad-based shared prosperity over the long term—and is supported by evidence, by economic research and theory, by the experience of our past and the best examples we find in other countries.”

In the report the authors explain:

“Prosperity doesn’t just “trickle down” from the top. It depends on the common investments and sources of security we agree on as members of a democracy, on institutions—especially unions—that ensure that gains are broadly shared, and on a healthy democracy that can sustain sound economic policies and prevent today’s economic winners from undermining the openness and dynamism of the economy.”

There is nothing new or radical in this. This is how the multi-generational prosperity of Europe and America were built in the first place, with the first large-scale middle classes in human history.  More specifically, Hacker and Lowentheil point to the work of economist Daron Acemoglu and political scientist James Robinson in their book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty. As Hacker summarized in an article published by Politico, they found that, “Where government is responsive to the broad citizenry, countries are far better at doing the things that create long-term growth, like investing in education and infrastructure, and ensuring that economic gains translate into a better quality of life for all citizens.”

They listed the United States “as one of the most successful of these inclusive democracies,” Hacker wrote.  But in a more recent paper, this past November, “Is This Time Different? Capture and Anti-Capture of US Politics” they point to ways “we are losing our edge,” as Hacker put it: “We increasingly display elements found in less successful societies, including runaway inequality, influence-buying, corporate and financial lobbies that tilt government and the market in their favor,” along with “under-investment in our human capital, infrastructure and basic research and development.”

In that paper, Acemoglu and Robinson wrote,  “The US case in fact illustrates a more general principle. Countries which have created egalitarian, economically dynamic societies have done so because they have forged inclusive political institutions which then led to inclusive economic institutions. This is precisely what happened after the 1688 Glorious Revolution in England and what resulted from the French Revolution in large parts of Western Europe. In contradistinction to this, societies with extractive institutions have remained poor and inegalitarian.”

“Once created there is a natural tendency for inclusive institutions to persist – a virtuous circle. Unfortunately in the same way… extractive institutions generate their own vicious circle….. [T]hough such positive feedbacks existed in the US, the system faced continual challenges, most obviously from the Southern states.”

Regarding the South, they wrote, “The slave economy in the US South epitomizes the nature of extractive economic institutions. Instead of opening economic institutions to everyone or allowing social mobility, extractive institutions restrict opportunities to a powerful few and block social mobility. The children of slaves were also slaves, slaves could not own property, had no opportunity for social mobility.”

Thus, it’s no accident that the Southern-dominated GOP and its Tea Party wing is once again pushing an exclusionary agenda focused on debt, which doesn’t even attempt to address the short-term employment crisis or the long-term need for growth.

In contrast to the historical successes of Europe and North America, the austerity economics that’s been dominating the debate so far has already been tried, and has repeatedly failed—most recently in Great Britain, which is now in the throes of a second recession, and is doing worse now that it was at a comparable period during the Great Recession.

A one-page conceptual summary, at the Prosperity For