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Capitalize Workers!

April 7th, 2014

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Raising the minimum wage has justifiably captured policy makers’ attention, but if the goal is to materially raise living standards for every American worker, we should also be calling for a minimum pension. Done right, this would not only create real wealth for the middle and working classes, it would use the power of financial markets to reduce wealth disparity instead of widening it.

There is a vast difference in the way the wealthy and the rest of Americans earn their money. In 2010, 60 cents of every dollar earned by those in the top 1 percent came from investments and businesses they owned. For the middle class, it was 6 cents.

For decades, the returns to capital have far outstripped the returns to labor. Before the mid-1980s, worker salaries constituted 65 percent of national income. In 2012, they were 58 percent. Economists rightly fret over how this contributes to wealth inequality. Well, if you can’t beat ’em, join ’em. If all working people, whatever their wage, could get a piece of these gains, it would improve their financial well-being exponentially. This is where the minimum pension comes in.

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Economic Populism Is a Dead End for Democrats

December 3rd, 2013

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If you talk to leading progressives these days, you’ll be sure to hear this message: The Democratic Party should embrace the economic populism of New York Mayor-elect Bill de Blasio and Massachusetts Sen. Elizabeth Warren. Such economic populism, they argue, should be the guiding star for Democrats heading into 2016. Nothing would be more disastrous for Democrats.

While New Yorkers think of their city as the center of the universe, the last time its mayor won a race for governor or senator—let alone president—was 1869. For the past 144 years, what has happened in the Big Apple stayed in the Big Apple. Some liberals believe Sen. Warren would be the Democratic Party’s strongest presidential candidate in 2016. But what works in midnight-blue Massachusetts—a state that has had a Republican senator for a total of 152 weeks since 1979—hasn’t sold on a national level since 1960.

The political problems of liberal populism are bad enough. Worse are the actual policies proposed by left-wing populists. The movement relies on a potent “we can have it all” fantasy that goes something like this: If we force the wealthy to pay higher taxes (there are 300,000 tax filers who earn more than $1 million), close a few corporate tax loopholes, and break up some big banks then—presto!—we can pay for, and even expand, existing entitlements. Meanwhile, we can invest more deeply in K-12 education, infrastructure, health research, clean energy and more.

Social Security is exhibit A of this populist political and economic fantasy. A growing cascade of baby boomers will be retiring in the coming years, and the Social Security formula increases their initial benefits faster than inflation. The problem is that since 2010 Social Security payouts to seniors have exceeded payroll taxes collected from workers. This imbalance widens inexorably until it devours the entire Social Security Trust Fund in 2031, according to the Congressional Budget Office. At that point, benefits would have to be slashed by about 23%.

Undeterred by this undebatable solvency crisis, Sen. Warren wants to increase benefits to all seniors, including billionaires, and to pay for them by increasing taxes on working people and their employers. Her approach requires a $750 billion tax hike over the next 10 years that hits mostly Millennials and Gen Xers, plus another $750 billion tax on the businesses that employ them.

Even more reckless is the populists’ staunch refusal to address the coming Medicare crisis. In 2030, a typical couple reaching the eligibility age of 65 will have paid $180,000 in lifetime Medicare taxes but will get back $664,000 in benefits. Given that this disparity will be completely unaffordable, Sen. Warren and her acolytes are irresponsibly pushing off budget decisions that will guarantee huge benefit cuts and further tax hikes for Gen Xers and Millennials in a few decades.

As for the promise that unrestrained entitlements won’t harm kids and public investments like infrastructure, public schools and college financial aid, haven’t we seen this movie before? In the 1960s, the federal government spent $3 on such investments for every $1 on entitlements.

Today, the ratio is flipped. In 10 years, we will spend $5 on the three major entitlement programs (Social Security, Medicare and Medicaid) for every $1 on public investments. And that is without the new expansion of entitlement benefits that the Warren wing of the Democratic Party is proposing. Liberal populists do not even attempt to address this collision course between the Great Society safety net and the New Frontier investments.

On the same day that Bill de Blasio won in New York City, a referendum to raise taxes on high-income Coloradans to fund public education and universal pre-K failed in a landslide. This is the type of state that Democrats captured in 2008 to realign the national electoral map, and they did so through offering a vision of pragmatic progressive government, not fantasy-based blue-state populism. Before Democrats follow Sen. Warren and Mayor-elect de Blasio over the populist cliff, they should consider Colorado as the true 2013 Election Day harbinger of American liberalism.

This piece was originally published via The Wall Street Journal. 

Don’t Waste This Free Trade Opportunity

December 2nd, 2013

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Within the next 20 years, the Asia Pacific region will need 12,820 new airplanes, valued at $1.9 trillion. Who will build them?

With half of the world’s air traffic growth revolving around the Asia-Pacific region, there are massive opportunities for American manufacturing and middle-class jobs in this one sector alone. But opportunity is not destiny. In the last decade, America’s share of exports to key Asia-Pacific markets fell by 43 percent. Our performance was last among our major trade competitors in the region.

We do not have to idle on the runway, however, as other foreign countries fly by. If we can regain our historical share of these export markets – which are set to approach $10 trillion by the end of this decade – it would add $600 billion to our economy and 3 million jobs by 2020 alone. The first step to seizing this growth opportunity rests with Congress and passage of a tool called Trade Promotion Authority.

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The Middle Class Gets Wise

October 21st, 2013

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Perhaps we underestimate ourselves. Five years after the Lehman collapse triggered the deepest recession in eight decades, the middle class may be solving the vexing problems of income inequality and stalled wages on its own.

Faced with unemployment and dim job prospects, Americans made one significant change that should alter their fortunes and those of the middle class for decades: they went back to school. During the recession, there has been a sharp surge in the number of Americans who are getting a college degree. Read the rest of this entry »

Third Way Accepts North American Think Tank of the Year Award

July 8th, 2013

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Only 8 1/2 years after opening our doors, Third Way was honored by  Prospect Magazine—Britain’s leading monthly current affairs magazine—as the 2013 North American Think Tank of the Year for our, “original, influential, and rigorous work on the most pressing challenges facing people, governments, and businesses.” Below you will find Third Way President Jon Cowan’s acceptance speech. You can also view photos of the ceremony or read Mike Allen’s write up in POLITICO.

On behalf of everyone at Third Way, I want to thank you for this incredible honor.

As an American, it’s always humbling to speak in London.  After all, the Royal Society has been an organization longer than we’ve been a country. But this is the perfect setting for these awards.  The Royal Society has always had subversion at its heart.  This is the native home of rebels, misfits, and revolutionaries.

As you know well, it is from this Society’s lectern that Ben Franklin first told the world about his kite.  That Watson and Crick told the world about DNA.  That houses, a few floors from here, a piece of the tree from which Sir Isaac Newton’s apple fell. These are people who were willing to challenge the established order of everything.  Who had the daring to see beyond conventional wisdom—to imagine, to question, and to create—all in the name of moving the human race forward.

The only part of science where this impulse has been rare is political science—especially as it is practiced today.  It makes all of us susceptible to heroes from the past. For me, the names I can’t get out of my head are not American, but British:  Harold Macmillan…Anthony Eden…Duff Cooper…Bob Boothby…”Bobbety” Cranbourne…Ronald Cartland…Harold Nicolson…and Leo Amery.

In the best history book I have read in a decade, author Lynne Olson calls them what Macmillan called them: Troublesome Young Men. For years, I was led to believe that Winston Churchill was a lone voice crying out against appeasement in the late 1930s. Instead, it was this group of young Tories—all members of the old boys society—who came together to oppose men they had gone to school with . . . to push Churchill forward . . . and bring down a prime minister of their own party. They were called traitors—to their friends, their government, their class and their country. The Lord Chancellor said they should be shot and hanged.  But in the end, they were right.  Their subversion helped save Britain—and all the world. Read the rest of this entry »

Response to Jonathan Chait’s critique of the “Four Fiscal Fantasies”

July 3rd, 2013

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In response to Jonathan Chait’s critique of our memo on the Four Fiscal Fantasies, let’s begin with two articles from this week. The first, in The Washington Post, shows that America today is spending less to stop the spread of AIDS in Africa than we did under President Bush. The second is a piece from Elizabeth Rosenthal of The New York Times showing the outrageous prices U.S. hospitals charge to deliver babies—charges far out of line with any other country and symbolic of the epidemic of high costs throughout our health care system.

The main point in our memo is that these problems are related.

  1. We have an entitlement system that provides critical economic security and stability to Americans, but it is rife with bloated health care costs that are slowly devouring everything else that government does.
  2. The main entitlement programs for the elderly—Social Security and Medicare—are on a path to insolvency.
  3. Raising new taxes on the wealthy—though necessary—won’t solve our problems.
  4. Acting now to fix entitlements is better and easier than waiting.

Our memo lays out these cases pretty explicitly, so let’s touch on just a few things.

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