Democrats Must Make Some Hard Policy Choices

Originally published in the Financial Times

In romping to electoral victory last November, US congressional Democrats brandished a catchy slogan – “Six for 2006” – and a mélange of legislative proposals including a fistful for their first 100 hours in power. On Tuesday, that clock starts. America and the world will be watching closely to see how well the Democrats do.

In stark contrast to the Bush administration’s rosy “stay the course” view, the Democratic alternative is comprised of mostly sensible nostrums, broadly reassuring to Democrats such as myself who feared a lurch to the left.

But however constructive the ideas, no one should confuse an effective campaign platform with the bold measures needed to achieve genuine economic progress. Ducking tough medicine is understandable in a hard-fought campaign but, by the 2008 election, voters will be judging Democrats at least partly on how well they legislate.

Two significant economic issues urgently need attention: the collateral damage from globalisation and the looming fiscal chasm. The Democratic agenda, however attractive, represents just a small downpayment on addressing the first and only vague reassurances towards the second.

Take, for example, the Democrats’ proposal to increase the minimum wage – long overdue and foolishly resisted by the Bush administration. But workers at the bottom are just a fraction of the majority who are still seeing only minimal gains in real wages (even as the sliver at the top enjoys record prosperity). Bolder, more creative solutions are needed. Addressing the problems of globalised workers will require a two-pronged approach. To prepare Americans for the jobs of the future, much more education and training is required. To this end, the Democratic election agenda includes a constructive first step: making college tuition tax deductible.

For displaced workers, Democrats could turn, for example, to excellent proposals from Jacob Hacker of Yale University for universal insurance to provide temporary and partial relief from severe economic shocks, as well as to interesting ideas from other quarters for a fundamental restructuring of unemployment insurance programmes.

As in previous transitional eras, today’s overarching worry – addressing the negative effects of the broadly beneficial process of globalisation – has unique attributes. So, while no one can be sure what will work, if more thoughtful Democrats do not push for the passage of initiatives aimed specifically at these anxieties, the adoption of more populist measures (think protectionism) is the likely outcome.

In putting forth solutions, Americans cannot duck responsibility for paying for them. The Democratic agenda, constructively, seeks to reinstate the budget controls that Republicans abandoned – but without explaining how to reconcile that with the flurry of new initiatives, some of them costly.

Conspicuously absent is any talk of addressing the continuing budget deficit and, more importantly, the huge pile of due bills that the federal government has amassed, largely to China and Japan, which have been buying US debt, and to Social Security and Medicare beneficiaries, who are relying on non-existent trust funds.

Whatever President George W. Bush would have us think, we cannot address these issues without a mix of raising revenues (yes, including tax increases for the wealthy) and reining in runaway government spending, a disturbing trend led by the Republicans and indulged by the Democrats.

The Democrats should come out of the closet on these crucial issues. The Democratic notion of reworking the new prescription drug benefit represents only a start towards fixing a Medicare programme that has a multithousand billion dollar funding gap. Nor does sloganeering against “privatising” Social Security address that programme’s deficit. For its part, the Bush administration has signalled a less absolutist approach and has designated Hank Paulson, Treasury secretary, as its point person.

Democrats should embrace this opportunity as a way to use their new majority to provide real leadership in addressing the unconscionably large fiscal gap. Pushing forward on ideas such as Mr Hacker’s for countering the effects of globalisation on American workers would be equally valuable.

Perhaps it is silly to think meaningful progress can be made on these issues ahead of the 2008 elections, but the consequences for both the US and Democratic causes are too great not to try.