In spite of the polarized country and U.S. Congress, we have seen impressive coalitions forming to advance the needed reforms at the national level. The U.S. Chamber of Commerce, industry trade associations, and leading high-technology companies joined together with advocacy groups, churches, and unions in support of comprehensive immigration reform, large-scale and long-term investment to renew America’s infrastructure, and the adoption of universal pre-K education.
The Catholic Church, too, is challenging the priorities of those who resist reform, denying them any religious standing for their economic values. Pope Francis shook up the agenda when his apostolic exhortation found the “free market” sinful: “Just as the commandment ‘Thou shalt not kill’ sets a clear limit in order to safeguard the value of human life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality. Such an economy kills.” That is a powerful call to action in all areas, but also to politicians.28
Democrats will have to make the case for government activism at the national level.
The reader will soon appreciate that America’s economic and cultural ascent was made possible by government, though it is hard to unpack that amid the dysfunction and gridlock, brinksmanship, stop-and-go politics, contradictory policies, and lack of long-term thinking. But our shambolic politics has managed to further America’s promising economic transformations. It ranged from the Defense Department’s financing of new technology to direct government support for universities, science programs, and research and development to pluralistic policy approaches to energy and immigration that basically said “all of the above.” Mayors and governors stepped in where the federal government was stymied.
Pluralistic political control set the stage for the revolution taking place in energy. It could not have happened without Congress passing tax credits for investment and exploration for unconventional sources of natural gas, together with the light hand of regulation in pro-oil states. But the energy industry was revolutionized when the federal government negotiated and legislated successive and dramatic increases in the required fuel-efficiency standards for American cars and trucks. The federal government created tax credits and investment funds for alternative energy, and half the states now require a growing proportion of state power generation to come from these new energy sources. It is this uniquely American and seemingly contradictory combination of government actions that proved transformative.
The same is true of immigration. A Great Society–era law reopened America’s gates to immigrants, and nearly all of them came from Spanish-speaking and Asian countries. Legal immigration was more than matched by the growing generations of the undocumented, including foreign students and visitors that stayed. Republican president Ronald Reagan signed the law granting amnesty to millions, though a reluctant Congress demanded tougher enforcement at the Mexican border. The increased risk of being sent home led growing millions of undocumented immigrants, ironically, to remain in the United States and to move out of the border areas of the Southwest and settle permanently in cities all across the country. That roughly 40 percent of the megacities and almost 30 percent of California residents are foreign-born are very much products of these contradictory government policies.29
America’s leadership in new industries and innovative technologies is rooted in a half century of steady investment in R & D, Defense Department spending on basic research and weapons technology, and federal support for great research institutes and universities. The recent gridlock has slowed spending on research and education, but Congress continues to prioritize Defense Department funding, and each year at the midnight deadline, it inevitably extends the R & D tax credits for companies that conduct research in the United States.
So America has managed to advance these transformations through the political pluralism and chaos. But that is surely at its limit.
For the country to take full advantage of these revolutions and the ascendant economic trends, government must do a lot better. It must educate dramatically better and use resources more equitably. It must educate kids at the earliest ages and support parenting. It must help black and white working-class men get off the margins and give support and greater equality for working women and working mothers. It must support unions as they find new ways to speak out on behalf of working people. And for America to address the big contradictions at the heart of its economic progress, including the growing inequality and failure to produce economic gains for most people in the country, government itself needs to become transformative.
Our sense of the possible should be shaped by remembering the economic policies enacted and pursued by President Bill Clinton, when government policy raised wages, moderated inequality, and gave relief to the poor. At the outset of his first term, President Clinton passed an economic plan that reduced America’s deficits mainly by cutting defense spending and raising taxes in nearly equal measure. His plan raised the top tax rate from 31 to 36 percent for individuals with income above $150,000 and established a new tax rate of 39.6 percent for incomes over $250,000, and critically, it taxed income from capital gains and work equally. It subjected all income above $135,000 to the Medicare tax of 3.8 percent. It raised the tax rate for corporations from 34 to 35 percent. At the same time, Clinton’s plan expanded the earned income tax credit for low-wage workers and indexed it for inflation, and later he expanded health care coverage for poor children. He would embrace the child tax credit that was part of the conservative policy wheelhouse. That combined with full-employment policies and welfare reform in his second term.
President Ronald Reagan and President George W. Bush had a different mix of policies, and their failure is obvious. The rate of income growth in the Clinton economic period was 16.8 percent, double the average for the Republican presidents (8.3 percent). And that is using the calculations of conservative academics that take into account reduced family size, income transfers, food stamps, tax credits, and subsidies for health insurance!30
The top 5 percent in the country saw a 15.1 percent gain in income in the Clinton period—and importantly, they gained just a touch less than the middle class, who had gained 16.8 percent. But the Clinton policy mix brought gains for the poor and those on the bottom fifth of the income ladder as well. The income of this bottom quintile went up 23.2 percent during the Clinton economic period, but only 0.4 percent under Reagan and 2.2 percent under George W. Bush. The great expansion of the earned income tax credit along with increasing wages allowed the bottom 20 percent to make real gains. In fact, only in the Clinton period did one see an improvement in the Gini coefficient, the standard measure of inequality.31
Clearly government policy matters and can make a difference on the issues America must address. We can have fewer people in poverty, can push wages up for the middle class, and can have a more broadly shared prosperity. The challenges in 2016 and beyond are much greater than in 1992, but government policy can still push against the arc of inequality.
Consider the Affordable Care Act, which came into full effect at the outset of 2014. America stood out in the Western world with its 15 percent of the population without health insurance seemingly in perpetuity, a moral outrage that came with such a high human cost in illness and lost peace of mind as well as a high economic price as cost shifting made the whole system unaccountable. But look at the graph below and what happened to the line tracking the percent uninsured in the months since the new health care law came into effect. Look at the bars and the dramatic drop in the numbers of people who face financial stress from dealing with health care costs.32
The new health care law is surely imperfect, and it almost fell victim to the ferocious Republican opposition determined to repeal it and limit where it can be fully implemented. The dramatic drop in that graph line and bars tells you why. It says government has the power to effect transformative social and economic changes.
To tackle the huge issues America will require a new politics, and that, too, is possible, as we hope to
prove in this book.
The stage is set for contemporary Democratic leaders to play such a role in the face of today’s greatest problems, if they take up the challenge.
In 2008, the citizenry elected Barack Obama, who attacked “hyperpartisanship” and promised to “change the culture of Washington.” But the country knows this is a different moment. The president’s determination to reach a compromise exposed the recalcitrance of the conservatives and why Democrats have no other option than to win the argument and champion bold reforms to mitigate the inequality and social costs that hold America back. While America has a long way to go and conservative resistance is strong, President Obama will have achieved near-universal health care coverage, substantially lowered carbon emissions, and legalized the “DREAMers,” those who came to the United States as minors under age sixteen, so America will be enriched even more by its immigrant diversity.
Jenna Levy, “In U.S., Uninsured Rate Sinks to 13.4% in Second Quarter,” Gallup, July 10, 2014.
Elisabeth Rosenthal, “How the High Cost of Medical Care Is Affecting Americans,” New York Times, December 18, 2014.
President Obama himself made a personal turn in his 2015 State of the Union address as the country began to see robust macroeconomic growth. He continued to describe the “state of the union” as very strong and overstate how many lives have been touched by the recovery. Nonetheless, he stopped to signify this time of building imbalances and injustices. At “every moment of economic change throughout our history, this country has taken bold action to adapt to new circumstances,” enacting bold reforms. At this moment, he called for the country to turn to “middle-class economics”—the abiding idea “that this country does best when everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules.”33
He set the stage for the next Democratic president. We do not know whether he or she will act gradually and pragmatically, like the early Teddy Roosevelt, or will take up the full banner of reform, like Teddy Roosevelt under the New Nationalist banner, or will govern as a partisan to vanquish the conservatives and finally enact what the country has longed to see, like Woodrow Wilson did upon taking office.
The public is very conscious of the economic and social transformations that are changing the country. While they identify with the revolutions that are changing America in exceptional ways, they are acutely aware of the contradictions that make life a daily struggle for so many. They are ready to join the struggle to tackle the downside of our progress and join the battle for bold reforms. It is just such an American renewal that will allow America to lead in this twenty-first century.
Part I
AMERICA: THE EXCEPTIONAL NATION
2 AMERICA’S ECONOMIC ASCENDANCY
America’s economy is dynamic and on the rise. And it is being renewed as a model for the aspirant here and for America’s admirers around the world.
The underlying economy is churning, and the global financial crisis revealed our comparative resiliency among the advanced economies, despite the serious economic toll taken by America’s political dysfunction and homegrown austerity policies. Even the smoke over Washington cannot obscure the transformative changes that are under way and already putting America onto a trajectory very different from almost every other country.
America’s ascent is being fueled by revolutions in energy, immigration, innovation, big data, and advanced manufacturing, by revolutions in the metropolitan areas and among Millennials, and perhaps even by a revolution in health care. The use of the term “revolution” is not hyperbole. These are each disruptive, accelerating changes that undermine the pessimistic assumptions about America’s economic future. They produce an America that is growing economically—one that will soon be energy independent but also more sustainable in the face of climate change. It is an America that is best able to take advantage of game-changing innovations, lower energy costs, big data, and advanced manufacturing technologies to create new industries and attract long-term global investment. They also produce an America that is renewed as an ever more culturally diverse, younger, immigrant, and urban country where the big metropolitan centers create a new and productive dynamism.
None of this will impress the “declinists” and China watchers because they view the country’s long-term budget deficits and dependence on Asian creditors as America’s core vulnerability. But as America has begun to tame health care costs, the most inefficient and bloated sector of the economy, those deficit projections are falling sharply. They will be revised downward again and again with improved economic performance and the enactment of comprehensive immigration reform, which greatly expands the working and taxpaying population in the United States.
America’s current patterns of economic ascent and growth will produce winners that include many more than the top 1 percent. It includes those in the growing number of professional service careers, in STEM fields, and in new cutting-edge industries. It could include postgraduates and many of those with four-year college degrees, particularly women. Many African Americans, Hispanics, and new immigrant groups have a certain faith that a rising America will mean a better future for them. That will be particularly true in diverse, high-growth cosmopolitan areas such as Portland, Washington, D.C., Denver, San Jose, San Francisco, and Seattle, where many residents identify with their dynamic and distinctive cities.
But, as we shall see in the coming chapters, America must do dramatically better to tackle the country’s greatest challenges, and that requires the ascendant political forces and leaders to champion a whole new political project. That is possible because those people aligned with the ascendant trends will become ascendant politically, too, and those fighting them will lose out. There will be an opportunity for a new reform politics that takes up this great task.
The starting points, however, are the revolutions that are creating an economically ascendant America.
AMERICA’S ENERGY REVOLUTION
“What’s happening with unconventional natural gas,” John Deutch declared from his vantage point as deputy defense secretary, undersecretary of energy, and head of the CIA, “is the biggest energy story that’s happened in the forty-plus years that I’ve been watching energy development in this country.”1
North American gas production from shale jumped 51 percent starting from the breakthrough year of 2007 through 2012. That was so stunning because the whole energy community was poised to address America’s declining reserves of natural gas. The flooding of the market produced an unexpected two-thirds drop in price for natural gas, getting everyone’s attention and requiring wholly new calculations about home heating, electric utilities, and the new cost advantages of locating manufacturing in the United States. By 2013, shale gas production accounted for 40 percent of total natural gas production, surpassing gas well production for the first time to become the largest source of natural gas in the country.2
In addition, U.S. oil reserves rose 80 percent between 2008 and 2014, thanks in part to the oil from shale, sending the country’s proven oil reserves to “one of the highest levels ever reported in records that go back to the nineteenth century,” according to The Financial Times. The per-barrel price of crude oil plummeted from $107 in mid-June to $59.30 in mid-December of 2014; and consumers saw the cost of gas at the pump return to 2010 levels—an average $2.63 a gallon. These developments represent a huge transfer of wealth and gain for the U.S. economy, companies, and consumers.3
And when the Organization of the Petroleum Exporting Countries (OPEC) reacted to the collapse in the oil price with a scramble for market share rather than reduced supply, it brought the geopolitical consequences of America’s energy revolution home to Vladimir Putin, Iran, and the Chavista leaders in Venezuela—countries that are struggling financially and rely on high oil prices.4
During the Great Recession and meager recovery, the United States was increasing oil production by 24 percent and natural gas by 19 percent, leading two economists to
sheepishly entitle their presentation “America’s Emerging Growth Story.” New fuel-efficiency regulations on cars and trucks produced a plummeting demand for oil, and so, too, did the introduction of biofuels and renewables. America is heading toward energy independence and is projected to become a net exporter of natural gas by 2020. At the same time, America’s release of greenhouse gases is plummeting. Who knew?5
The success of hydraulic fracturing and horizontal drilling techniques drove this most dramatic change. It says something about why innovations get adopted in the United States and how America’s swings in partisan control nationally and in the states can sometimes be functional, not destructive.
What drove the search for a breakthrough was the conviction of the pioneering petroleum engineers that oil and gas were trapped in the vast layers of shale across much of the United States and could be captured. Michael Levi describes the geology at the heart of the revolution: “About four hundred million years ago, mud and organic matter settled around bottoms of large water basins covering much of what is today the United States. The thin layers of material from plants and animals, together with silt and mud, added up. Over millions of years, the resulting pressure formed the sedimentary rock known as shale. Trapped in the rock, the organic material turned into chains of carbon and hydrogen atoms—oil and gas—and began to turn the shale black.”6
There were many failed efforts to access these deposits in the early nineteenth century and after World War II. In the mid-twentieth century, Halliburton obtained an exclusive license on the hydraulic fracturing method, which shoots water, chemicals, and other materials deep underground to break apart rock and release gas. During the 1980s a French firm, Elf Aquitaine, working in southwestern France and off the Italian coast, successfully used a new drilling method, drilling down before making a ninety-degree turn to drill horizontally for a mile or more.7
America Ascendant Page 3
