Robert Reich: Is Obamanomics conservative or revolutionary?

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Is Obamanomics conservative or revolutionary?

If you look only at the small print, the president's economic program looks modest. If you look at the big picture, it's radical.

By Robert Reich


March 16, 2009 | There are two ways to see Obamanomics.

The first, much preferred by the White House, is as a set of initiatives so modest as to hardly merit a raised eyebrow. Yes, steps must be taken to deal with the current economic crisis. But assuming the economy recovers next year, Obama's budget projects that government spending by the end of the decade will drop to around 22.5 percent of GDP, which is about where it was under Reagan.

What about those tax hikes on the wealthy? Obama merely restores the top two marginal income tax rates to what they were in the 1990s, the capital gains rate to its lowest level during that same prosperous decade, and the rate on dividends to a level even lower than it was in the 1990s. And even these modest reversions to the 1990s will affect only the wealthiest 3 percent of Americans, and not until 2011. Ninety-seven percent of small businesses won't pay a dime more. True, the very rich won't be able to deduct quite as much as they can now for their mortgage interest and charitable donations, but this is hardly revolutionary, either. In fact, it's another throwback -- to the limits in place under Ronald Reagan. All told, taxes are projected to total 19 percent of GDP by the end of the decade. That's even lower than it was in the late 1990s.

Modest as they are, these taxes will generate enough revenue to pay for half of what's needed for universal healthcare and still reduce the deficit by about $750 billion over 10 years -- to 3.1 percent of the GDP by the end of the decade.

But isn't universal healthcare itself a pretty radical step? Not according to this view. The other half of what's needed to pay for universal healthcare will come from health-care savings that are also necessary to keep the current big healthcare entitlement programs -- Medicare and Medicaid -- affordable. It's just common sense: Allow government to use its bargaining leverage under Medicare and Medicaid to lower drug prices, strengthen Medicare pay-for-performance incentives, and institute better disease management, prevention, and health information technologies.

What about the environment? Isn't cap and trade a huge deal? Not at all. Instead of heavy-handed regulation, it's a market solution to the problem of global warming. Government merely sets an overall cap on the amount of carbon dioxide to be allowed into the atmosphere, which drops annually, and then requires firms to bid for permits to pollute within that overall cap. Firms can buy and sell permits to each other; they can innovate to reduce pollution even further. Such a system will generate enough revenue to give 95 percent of Americans a yearly refundable tax credit of $400 and also finance a modernized electricity grid and research and development in renewable energy.

But isn't the Obamanomics approach to educational reform expensive and intrusive? No. By this view, it's very mainstream and incremental -- and it doesn't impose on the prerogatives of states and locales. It expands the tax credit for college tuition to $2,500 a year and increases Pell Grants to $5,500 yearly -- almost negligible increases, given how fast tuitions are rising. It cuts subsidies to banks participating in the student-loan program, which is exactly what Bill Clinton did, and it provides some funds for early childhood education.

So there we have it: Obamanomics as pragmatic, incremental, centrist, even conservative.

But there's another way to view Obamanomics -- as an economic philosophy exactly the opposite of the one that's dominated America for more than a quarter century.

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http://www.salon.com/opinion/feature/2009/03/16/reich/