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Christopher Mahoney
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I spent eight years at Bank of America in New York (1978-86) covering Wall Street, then moved to Moody's Investors Service where I worked for 22 years, covering banks, sovereigns and corporates. I chaired the Credit Policy Committee for four years. I retired in 2007 as vice chairman.
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  • A Preliminary Review Of President Obama's "Better Bargain For The Middle Class" 0 comments
    Jul 31, 2013 1:46 PM

    The president has announced that, for the remainder of his presidency, he will focus on the economy in general, and the middle class in particular. He has announced his new economic plan, "A Better Bargain For The Middle Class", in a speech last week. His plan has been outlined in his recent speeches, and most recently in his Weekly Radio Address. His plan is the banner story on the White House website.

    I would like to analyze the president's plan. I'd like to boil it down to a series of explicit policy proposals that we can discuss from the perspective of economics.

    So what is the plan? From what I could find on the WH's Better Bargain website (www.whitehouse.gov/a-better-bargain), there is no document aside from the transcripts of his recent speeches. Everything on the Better Bargain website is a video, with the exception of the speech transcripts. There is no policy document that you can click on and download.

    It would appear that the president is devoting a considerable portion of his energy to pushing a plan which has not been written down, even as a one-page term-sheet. The only mention of the Better Bargain on the House Minority Leader's website is a blurb endorsing it, with no details or legislation mentioned. There is no mention of it at all on the website of the House Democratic Caucus. They evidently haven't gotten the memo about the president's plans for the rest of his presidency.

    So, it appears that the content of the president's economic plan is available only from the text of his speeches, which I have now dutifully read and which is not an enjoyable way to spend a morning. An informed citizen of a free republic shouldn't have to do this. I shouldn't have had to spend an entire morning making notes on the transcripts of the president's speeches in order to find out what his showcased economic plan consists of.

    The president can devote the rest of his term to the advancement of his plan, but he can't spend a couple of days writing it down on a piece of paper so citizens (and legislators) might discuss it. His "communications strategy" does not seem to include communication. It isn't as if economic growth and unemployment are minor issues in a country where 14% of the labor force is unemployed or underemployed. A little seriousness is required on this subject.

    As an aside, I would observe that the White House website is remarkably content-free, and is more like the website for a consumer products company: lots of pictures, videos, and slogans, but no text. Take a look for yourself: http://www.whitehouse.gov.

    Is it just that the White House's communications strategy is content-free, or is it that the White House policy operation is content-free?

    So now to the "plan". The president begins by describing the problem that his plan is intended to solve:

    "Trends that have been eroding middle-class security for decades - technology that makes some jobs obsolete, global competition that makes others moveable, growing inequality and the policies that perpetuate it - all these things still exist, and in some ways, the recession made them worse. Reversing these trends must be Washington's highest priority."

    The president's plan to reverse these secular trends consists of ten points (as best as I could tell):

    1. Jobs.

    2. Education

    3. Homeownership

    4. Health care

    5. Retirement.

    6. Urban renewal

    7. Minimum wage

    8. Fiscal policy

    9. Tax reform

    10. Immigration

    Is this the correct list? Have I left anything out? If I have, maybe the White House policy staff will publish a correct list.

    Below are the plan's details, as outlined by the president in Galesburg and on the radio:

    1. Jobs

    "We're going to create strategies to make sure that good jobs in wind and solar and natural gas that are lowering costs and, at the same time, reducing dangerous carbon pollution happen right here in the United States."

    "I'm going to push new initiatives to help more manufacturers bring more jobs back to the United States."

    "We're going to continue to focus on strategies to make sure our tax code rewards companies that are not shipping jobs overseas, but creating jobs right here in the United States of America.

    "I'm going to be pushing to open more manufacturing innovation institutes that turn regions left behind by global competition into global centers of cutting-edge jobs.

    2. Education

    I'm going to keep pushing to make high-quality preschool available for every 4-year-old in America.

    We've already begun meeting with business leaders and tech entrepreneurs and innovative educators to identify the best ideas for redesigning our high schools so that they teach the skills required for a high-tech economy.

    I've asked Congress to start a Community College to Career initiative, so that workers can earn the skills that high-tech jobs demand without leaving their hometown.

    I'm going to use the power of my office over the next few months to highlight a topic that's straining the budgets of just about every American family -- and that's the soaring cost of higher education. I will lay out an aggressive strategy to shake up the system, tackle rising costs, and improve value for middle-class students and their families.

    3. Home Ownership

    I've asked Congress to pass a really good, bipartisan idea: to give every homeowner the chance to refinance their mortgage while rates are still low.

    4. Health Care

    I'm going to keep focusing on health care because middle-class families and small business owners deserve the security of knowing that neither an accident or an illness is going to threaten the dreams that you've worked a lifetime to build.

    If you're one of the 85 percent of Americans who already have health insurance, you have new benefits and better protections than you did before: free checkups, mammograms, discounted medicines if you're on Medicare; no lifetime limits; insurance companies will have to cover you and charge you the same rates as everybody else, even if you have a preexisting condition.

    5. Retirement

    So as we work to reform our tax code, we should find new ways to make it easier for workers to put away money, and free middle-class families from the fear that they won't be able to retire.

    6. Urban Renewal

    We need a new push to rebuild rundown neighborhoods. We need new partnerships with some of the hardest-hit towns in America to get them back on their feet.

    7. Minimum Wage

    Because no one who works full-time in America should have to live in poverty, I am going to keep making the case that we need to raise the minimum wage.

    8.Fiscal Policy

    Repealing Obamacare and cutting spending is not an economic plan.

    9.Tax Reform

    If you're interested in tax reform that closes corporate loopholes and gives working families a better deal, I'm ready to work.

    10. Immigration Reform

    Economists show that immigration reform makes undocumented workers pay their full share of taxes, and that actually shores up the Social Security system for years. So we should get that done.

    I can't resist asking: did someone at the White House find a file called Postwar Democratic Party Slogans? Good jobs, better education, home ownership, affordable health care, a secure retirement, urban renewal, higher minimum wage, a fairer tax system...Who made up this list? More likely an historian or a focus-group guru than an economist. I can assure you that if Larry Summers or Christina Romer or Austin Goolsbee had been asked to design this plan, it would have been much more credible and actionable, and more consistent with the laws of economics.

    A real economist (as opposed to Gene Sperling) would say that the best way to strengthen the middle class would be a plan to increase real per-capita disposable income, which after four years of recovery, is growing at 0.0%.

    A long term plan to increase household income would be achieved by:

    1. Supply-side reforms such as lower taxes and a lower regulatory burden on employers.

    2. Demand management via stimulative monetary policy, such as nominal targeting.

    3. A plan to force the education unions to ensure that all kids graduate from high school, and that all high school graduates can read, write, balance a checkbook and and complete a tax return.

    4. A plan to reduce the cost of healthcare by allowing the healthcare business to operate as a free market in which doctors and hospitals compete on cost.

    5. A plan to reduce the cost of unskilled labor (e.g., the minimum wage, the employer mandate, the payroll tax) in order to allow the unskilled to be able to compete in the labor market. Right now, the full price of an unskilled worker is significantly higher than his productivity. McDonald's has already begun automating its restaurants.

    6. A plan to reduce the bloated cost structure of the higher education industry and make it possible for a middle-income parent can afford to send her kids to college without going broke.

    7. A tax code that rewards work and thrift, which which does not penalize corporate or individual success, and which does not discourage investment.

    8. A plan to increase credit creation by ending the War On Banks, such that instead of paying billion-dollar fines for crimes real or imagined, banks can rebuild their balance sheets and start to make more loans to households and businesses. Economic growth cannot occur without credit growth.
    Everything that I have proposed above is a non-starter at the House Democratic Caucus, except nominal targeting which they have never heard of. No one on the left is serious about growth or unemployment. And no one on the right understand these issues either.

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