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Economic Optimists and Pessimists

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Winner-take-all American elections produce stark choices for voters and activists. You can have plenty of disagreements with a candidate on policies and still support them passionately because the alternative is so stunningly bad. The closer the election gets, the more the differences with your favorite candidate tend to get muted, because election choices are not about nuance.

Once the election is over, though, the policy debates within a political party come back to center stage. The debates we are beginning to engage in within the Democratic party right now will be partly around ideology, of course, as populist progressives and more Wall Street-oriented Third Way Democrats duke it out. But the debates will also play out on another level as our party's optimists and pessimists begin engaging each other in earnest. Being optimistic or pessimistic isn't just about people's respective moods, or about making predictions. It has serious policy implications as well.

The optimists are the official party line. The Obama campaign message, Bill Clinton in his famous Democratic convention speech, and party spokespeople have been sending the message that in spite of the tough times we've had, things are going to get steadily better, that the foundation has been set for real prosperity. And I know from my conversations with administration economic policy people that they really believe it. One senior White House NEC official told me in the weeks before the election that his biggest political nightmare was Romney getting elected and then getting credit for the recovery that is soon arriving.

I sure do hope these optimists are right, it would be such a great thing to see. But there is another group of economic policy people that I know who are a lot less sanguine. They believe that the housing bubble that led to the financial collapse of 2008, the enormous and still mostly unchecked power of the biggest banks to distort and manipulate markets, and the complete mismanagement of economic policy in the Bush years have created long term structural damage different and far deeper than in past recessions. They fear that Europe is still a ticking time bomb, and that the problem of housing debt caused by the bubble's collapse is still a major drag on our economy. They believe that we have just gone through the first five years of a lost decade comparable to the Japan lost decade of the '90s (which Japan's economy still hasn't recovered from). And they worry that the austerity economics slowing Europe's economy to a crawl, the same policies the politicians here seem determined to head toward, will only make things worst.

The policy implications of this are huge. If you are an optimist, your tendency is to believe that no big new initiatives are needed, that we are on the right course and mostly need to avoid doing anything to screw things up. That doesn't mean there still aren't some tweaks needed here or there, some modest new policy innovations you want to tinker with, but it makes you far more reluctant to be bold or invest a lot of political capital in big new ideas. On the other hand, if you fear that we are smack in the middle of a lost decade, that the structural damage from the bubble and collapse are too deep for this to be just a little bit deeper recession than usual, you are more likely to push for major new ideas.

I am normally a more optimistic person, but in this case I tend to be more in the pessimists' camp. Partly that's because I view the world through the lens of the working class neighborhood I grew up in, and the lower income folks I cut my teeth organizing for when I was getting started in politics. The working middle class has been through hell the last five years, and outside of my friends in the auto industry, they have yet to see a lot of the benefits of what recovery we have been seeing. I firmly believe in bottom-up economics, that the engine of a strong economy is a growing and prosperous middle class, and I have yet to see that middle class make great gains. A side note here from the exit polls that I think is telling: 37 percent of Americans, overwhelmingly from the middle class, think inflation is the number one economic problem today. This is in spite of the fact that the overall inflation numbers have stayed low the last four years. The reason? Working and middle class folks have had wages that are flat or worse in recent years, while the prices that matter the most for them -- gasoline, groceries, health care, college tuition -- have continued to skyrocket. That's what they call middle class squeeze, and it's why Mitt Romney came close in this election despite having an economic platform and a you're-on-your-own values system that middle class voters thought was awful.

If the middle class engine isn't purring, the economic road to recovery will be bumpy at best. We need to do some big things to rebuild this economy for the long term. Policy makers need to take a look at bigger, bolder ideas like this Shared Prosperity plan. And knowing that the Republican house won't be likely to go along with things like that, the president needs to (a) not agree to job-killing Republican austerity demands, and (b) be prepared to take bigger and bolder executive action. Example include signing executive orders on procurement and purchasing that force employers doing business with the federal government to pay better wages and benefits, and aggressively pushing bankers and Fannie/Freddie on mortgage writedowns.

Here's the other thing the president needs to think about: counting, as he has in the past, on the rosier economic scenario to come true has dangerous political implications. An economic slowdown and low growth rate over the next couple of years, whether because of Europe or anything else, is political danger at it's highest level after a campaign of emphasizing that everything was on the right track and moving forward. If you don't take any big steps and/or agree to the austerity the Republicans are pushing, you are making a very dangerous bet: the 2010 election might look good in comparison.

I sincerely hope my friends in the White House are right about the economy finally being on the right track. It would be a joy to see the country getting moving again. But the president needs to not assume the best, not be complacent in case that scenario turns bad. Revving up our middle class engine is long overdue.

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