It’s a busy time of year. Perhaps you didn’t hear President Obama’s December 6th speech in Osawatomie, Kansas. It’s worth a closer look—both for its specific language and general themes. The speech was a billed as a thematic statement of Obama’s vision for the economy and if that’s the case, we can expect to hear more in the coming campaign about inequality, mobility, opportunity, and even fairness. Given the state of the economy, we should expect these issues to attract attention, but still the speech sounded like a departure for a president who has often shied away from taking a populist stance.
I’ll be honest and say that Osawatomie had not previously been on my radar. But the choice of using this heartland town as the site for a major economic address was not accidental. In 1910, Teddy Roosevelt delivered what’s been called his “New Nationalism” speech, a milestone for the progressive era, where he called upon government to regulate capitalism and elevate the public interests above those of money and property. The press reports piqued my interest and I tracked down TR’s address. Reading it, I was surprised by how contemporary it felt.
TR used his address to rail against the rising power of corporations and moneyed interests that “too often control and corrupt the men and methods of government for their own profit. We must drive the special interests out of politics.” The very triumph of America was at stake, which at that time held the hopes of anyone believing in the desirability of democratic and popular government. Property was to be respected and protected but not given undue influence – and certainly not “the right of suffrage.” (We should send this speech to the current Roberts Court.) TR believed that the unleveled playing field was tipping the scales of justice and the promise of America could only be realized with “practical equality of opportunity for all citizens.”
“…when we achieve it, will have two great results. First, every man will have a fair chance to make of himself all that in him lies; to reach the highest point to which his capacities, unassisted by special privilege of his own and unhampered by the special privilege of others, can carry him, and to get for himself and his family substantially what he has earned. Second, equality of opportunity means that the commonwealth will get from every citizen the highest service of which he is capable. No man who carries the burden of the special privileges of another can give to the commonwealth that service to which it is fairly entitled.
I stand for the square deal. But when I say that I am for the square deal, I mean not merely that I stand for fair play under the present rules of the games, but that I stand for having those rules changed so as to work for a more substantial equality of opportunity and of reward for equally good service.”
Pardon the dated gender language and my bolding of the passage, but for me all it would take to make this passage ring true today is a few new pronouns. Now, let’s see how President Obama picks up on these ideas in his speech delivered over a hundred years later.
Like TR, BO offers us a basic description to define the American Dream, which ultimately is based on a bargain where effort is rewarded. Reaching back into our history and the prosperity that marked the post-war period, President Obama describes a place where:
“hard work paid off, and responsibility was rewarded, and anyone could make it if they tried -- no matter who you were, no matter where you came from, no matter how you started out.”
But the bargain has eroded and the pathways to prosperity have diverged. Evoking the robber baron days, once again we see that those at the top have seen their fortunes consolidate, while the majority experience rising insecurity and wealth loss. These are not separate phenomenon but are connected. The balance of rights and responsibilities has become askew. Irresponsible actors have tipped the balance and rigged the game. Here’s how Obama framed it:
Fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success. Those at the very top grew wealthier from their incomes and their investments -- wealthier than ever before. But everybody else struggled with costs that were growing and paychecks that weren’t -- and too many families found themselves racking up more and more debt just to keep up.
Now, for many years, credit cards and home equity loans papered over this harsh reality. But in 2008, the house of cards collapsed. We all know the story by now: Mortgages sold to people who couldn’t afford them, or even sometimes understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets -- and huge bonuses -- made with other people’s money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn’t have the authority to look at all.
It was wrong. It combined the breathtaking greed of a few with irresponsibility all across the system. And it plunged our economy and the world into a crisis from which we’re still fighting to recover. It claimed the jobs and the homes and the basic security of millions of people -- innocent, hardworking Americans who had met their responsibilities but were still left holding the bag.
That’s the diagnosis. Much of the action was played out in the marketplace for financial services. The financial sector created products that piled up risk on unsuspecting households. Lessening regulation and oversight in both the capital and consumer markets allowed unsound practices to proliferate. The public sector failed to step in and offer protections to individual families and the entire financial system was threatened.
It’s significant that this is the terrain where the President wants the debate to unfold over the next year. He wants to define the political battles in terms of whether or not we will be a country where “working people can earn enough to raise a family, build a modest savings, own a home, secure their retirement.”
The question is how to restore growth and prosperity. And this is where Obama leans back into an early time when TR was faced with an economy where corporate power was strengthening, wealth was consolidating, and working conditions were worsening. He argues that the playing field must be kept level so competition remains “fair, open, and honest.” This does not happen on its own. In fact, if there is nobody there to referee the game, the fix is in. The interests with the greatest power will prevail regardless of their merit or capacity.
For this reason, the President believes it’s unfair to leave individuals and families alone in managing the risks that accompany our dynamic economic. There’s danger in YoYo (you’re on your own) economics. It’s not a good idea to increase tax cuts for the wealthiest, reduce public investment in education, research, and infrastructure, and generally weaken regulation and oversight of industry.
Furthermore, excessive inequality is dangerous for a democracy. It concentrates power at the very top and undermines the opportunity of the majority to realize their potential. This is a new argument for Obama and one that has been elevated by the Occupy Wall Street protesters. It’s a departure from the rising tide to lift all boats pro-growth metaphor. Prosperity can’t be shared when income and wealth resources are concentrated at the very top. Monopoly power cuts off competition and short-circuits innovation. There’s a connection between falling wages (they are no longer stagnating as median wages have fallen over the last ten year) and skyrocketing CEO pay. “The typical CEO who use to earn about 30 times more than his or her workers now earns 110 times more. And yet, over the last decade the incomes of most Americans have actually fallen by about 6 percent.” For the first time, President Obama argued that “this kind of inequality -- a level that we haven’t seen since the Great Depression -- hurts us all.”
It’s not only bad for our economic growth potential, it pierces our self-image as a society where people can reach their fullest potential and their outcomes are not bound by their birth, class, race, or gender. This was the essence of Teddy Roosevelt’s “New Nationalism” speech. You can make it if you try sounds like an American jingle.
President Obama went even further and began to zero in on the importance of mobility in America today.
“And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. You know, a few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance had fallen to around 40 percent. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a one-in-three chance of making it to the middle class -- 33 percent.”
The inclusion of mobility data in the speech is fairly remarkable and certainly welcome. Along with rising inequality, the changing mobility dynamics have received increased attention in the think tank world. For the last several years, I have been collaborating with Pew Foundation’s Economic Mobility Project to generate a body of knowledge that can inform public debates. As part of this work, we identified some of the factors that influence the mobility. They can be divided into categories of human capital, social capital, and financial capital. We know someone’s education makes a difference, along with their family environment. But we also know that the ability to save and build up some pools of assets can help someone make the upward mobility climb.
For instance, we have data that shows how children of low-income, high-saving parents are significantly more likely to experience upward income mobility. Also, higher personal savings promotes greater upward mobility of individuals within their own lifetimes. Among adults who were in the bottom income quartile from 1984-1989, 34 percent left the bottom by 2003-2005 if their initial savings were low, compared with 55 percent who left the bottom if their initial savings were high. Perhaps these facts on mobility will it into another speech (by a presidential aspirant of any party).
It is interesting to me that President Obama’s only mention of poverty in the speech was in the context of mobility. For a number of reasons, I like to see a stronger defense of social safety net policies. Not only have poverty levels risen dramatically since the recession but it’s both immoral and counter-productive to allow people to fall below the initial rungs of the opportunity ladder. It’s true that today many (but not all) issues related to the poor has relevance well up the income scale these today and are subsumed within the language of those striving for the middle class. Still, policymakers should address poverty head on and then connect the policy response to the equality of opportunity described by TR and ladder of opportunity described by BO.
But Obama’s Osawatomie speech was designed for mass appeal. Fairness is set up as a series of applause lines.
“…in America we are greater together -- when everyone engages in fair play and everybody gets a fair shot and everybody does their fair share.”
The address articulates a larger platform that envisions a growing economy where prosperity is shared. This depends on continuing to strengthen our educational system, making the tax code more equitable, and reining in our financial sector. I particularly liked this idea for shrinking our financial sector so it is no longer plays a disproportional role in the economy.
“…if we don’t have an economy that’s built on bubbles and financial speculation, our best and brightest won’t all gravitate towards careers in banking and finance. Because if we want an economy that’s built to last, we need more of those young people in science and engineering. This country should not be known for bad debt and phony profits.”
The point is that not only have great fortunes been made during the stock market and housing bubbles, but they were made nefariously. This is not just a call for redistribution as its own end (and certainly not for class warfare) but it is a call for justice. There is social justice to create widespread opportunity and then there is criminal justice to hold people and corporations account for breaking the law. It sounds good in a speech and critics should ask if there’s more criminal justice in the works.
Here’s his case for stabilizing the financial sector and then passing a new law (Dodd-Frank) to increase regulation and oversight:
“As infuriating as it was for all of us, we rescued our major banks from collapse, not only because a full-blown financial meltdown would have sent us into a second Depression, but because we need a strong, healthy financial sector in this country.
But part of the deal was that we wouldn’t go back to business as usual. And that’s why last year we put in place new rules of the road that refocus the financial sector on what should be their core purpose: getting capital to the entrepreneurs with the best ideas, and financing millions of families who want to buy a home or send their kids to college…
Now, unless you’re a financial institution whose business model is built on breaking the law, cheating consumers and making risky bets that could damage the entire economy, you should have nothing to fear from these new rules.”
The president then defends the creation and mandate of the Consumer Financial Protection Bureau and calls Republicans for blocking the confirmation of his nominee, Richard Corday to lead the agency. “And the fact is that financial institutions have plenty of lobbyists looking out for their interests. Consumers deserve to have someone whose job it is to look out for them.”
And really, some of the financial institutions ought to be ashamed of themselves. They required public money to stabilize their balance sheets and avoid insolvency. Then, they turned around and used those resources to lobby against additional oversight. Obama’s message was loudly delivered. This is still a time for government to be constructively expanding its role to help level the field for all players. It is a time to strengthening oversight and accountability. These firms have played a large role in eroding the trust that is the foundation of a market system and they should be taking steps to repair the damage:
“major banks that were rescued by the taxpayers have an obligation to go the extra mile in helping to close that deficit of trust. At minimum, they should be remedying past mortgage abuses that led to the financial crisis. They should be working to keep responsible homeowners in their home. …
The big banks should increase access to refinancing opportunities to borrowers who haven’t yet benefited from historically low interest rates. And the big banks should recognize that precisely because these steps are in the interest of middle-class families and the broader economy, it will also be in the banks’ own long-term financial interest. What will be good for consumers over the long term will be good for the banks.”
In closing, President Obama returns to the notion of America as a commonwealth, where our prosperity should be shared:
“Our success has never just been about survival of the fittest. It’s about building a nation where we’re all better off. We pull together. We pitch in. We do our part. We believe that hard work will pay off, that responsibility will be rewarded, and that our children will inherit a nation where those values live on…
We still have a stake in each other’s success. We still believe that this should be a place where you can make it if you try. And we still believe, in the words of the man who called for a New Nationalism all those years ago, “The fundamental rule of our national life,” he said, “the rule which underlies all others -- is that, on the whole, and in the long run, we shall go up or down together.” And I believe America is on the way up.”
I wish it were so. To me, it seems like making progress on the inequality, mobility, and fairness fronts is still much in doubt. Our political system will be needed to meet the challenge but I am not sure our politics will let it. As next year’s presidential campaign takes shape, I hope for a constructive debate where policymakers and candidates present both their diagnoses of how the economy has performed and what can be done to make it perform better. Obama was well served by reaching back into Teddy Roosevelt’s archives and making the trip to Kansas, setting his sights on building a ladder of opportunity for the great majority and particularly accessible by those with low incomes and few resources. How will his political adversaries respond?