As Democrats tank, Is Stephen J. Rose rebounding? Will Obama?

As the Democrats stare at disaster, is Stephen J. Rose finally getting some traction?

An economist former Clinton Administration official, Rose has been crying in the wilderness that Democrats overestimate middle class distress and pitch their programs and rhetoric too much at the disadvantaged, ignoring the broad, relatively prosperous middle of American society. Democrats do not cotton to his rebuttals to assertions that the middle class is  "disappearing" or"drowning in debt" or his critiques of work by Elizabeth Warren and Jacob Hacker propounding those ideas.

Rose's book Rebound: Why America Will Emerge Stronger from the Financial Crisis got a plug from David Brooks just prior to publication this past April, but my impression is that it's been largely ignored otherwise. My customer review on Amazon, posted on May 10 (here on xpostfactoid), remains the only one, and the book's Amazon sales rank is 305,456.  By contrast, Richard Florida's the The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity, published two weeks after Rebound and listed by Amazon as a Rebound comparable, has 15 customer reviews and a sales rank of 10,950.

Perhaps it's coincidence, but Rose's theses popped up on my screen twice yesterday. The first is a shadow appearance. Joshua Green gave a platform to Chuck Schumer, who here expounds pure Rose:

Schumer ran the Democratic Senatorial Campaign Committee from 2004 until 2009, when the number of Democratic senators grew from 44 to 60. He attributes his success to an insight about the nature of the American middle class -- namely, that it is wealthier, and wants different things from government than most of his colleagues realized.

Democrats have always claimed to be the party of ordinary working families, but Schumer thought they were deluding themselves. Most Democratic policies, such as the earned income tax credit or increasing the minimum wage, were geared not toward the middle class but the poor. When middle-class Americans heard Democrats describe their problems, it did not resonate because they were actually the problems of the working poor. Schumer believed that the true middle class comprises people in the prime working years of 25 to 60, whose median household income is around $68,000. He urged his candidates to tout aspirational policies that would appeal to them.

One of Rose's s signature arguments is that to get an accurate sense of median income it's important to focus on adults in their 'prime-age' years, since adults under 26 and over 60 need and generate less income. Rose also argues that median household income can be misleading, because a) household size has shrunk over the decades and b) lower income households have fewer people than higher-income households; more than half of Americans live in the top two household income quintiles. He asserts in Rebound, ""Median income rises to $66,000 when combining the effects of person-weighting rather than household-weighting, focusing on prime-age years, and adjusting for family size" (p. 111).

Schumer claims to have been attuned to Rose's insights for some time. It's probably not an accident that his critique of Democratic policy and rhetoric is being aired now. It should be noted, though, that Green's explanation for current Democratic political woes, which is mainly Schumer's, does not really fit the claim that Democrats are pitching their policies too far down the income chain:

What went wrong?

One explanation is that none of the administration's three major accomplishments has helped middle-class families in a way that is obvious to them. The stimulus mitigated the effects of the recession, but unemployment remains brutally high. The health-care law most visibly affects the millions without insurance, but that group doesn't include most median-income workers. The rescue and reform of the financial system may have halted the damage to their 401(k)s, but the major beneficiaries appear to them to be Wall Street banks. Indeed, the poll showed that most Americans think that the principal beneficiaries of the government's efforts to restore the economy have been the very same institutions that caused the crisis. Small wonder that Velma Hart struck a chord.

Of the three major policy initiatives in this post-mortem, only healthcare reform is presumably pitched at lower-income people.  And even that claim is misleading, I think.  Most Americans are aware that they can lose their health insurance at any time, or that they'll be at risk if they quit their jobs for whatever reason, or that their employer may drop or degrade coverage. The real complaint here is that none of these three legislative actions yielded obvious and/or immediate benefits.

The second Rose cite is direct.  Gregg Easterbrook deploys Rose to argue that the Democrats are overstating middle class angst and current economic distress in the U.S.:

Elizabeth Warren, just appointed a special advisor to President Barack Obama for consumer protection, says we are witnessing the “death of the middle class.” Slate’s Timothy Noah, a terrific writer and thinker, believes the rich are running away with the country. This new Census Bureau report, showing a nearly 5 percent decline in middle-class household income, received banner-headline treatment, with news stories suggesting typical people are being clobbered.

Middle-class life is the soul of the American experiment. Are things really so bad?

No, Easterbrook argues, because, according to Rose in Rebound, while middle class Americans' pretax income dropped in the past decade,  their taxes were cut and their benefits were boosted.Obama has extended both trends, via his tax proposals and the healthcare reform law.

Stagnant, of course, isn't good enough, and a reduction in taxes that disproportionately favors the rich is no palliative for a halt in middle class income growth. In my view, while Rose does offer a useful corrective to the "middle class is dying" symphony, his analysis has some limitations: 1) it emphasizes gains over the last 30 years at the expense of stagnation over the last ten).  2) It emphasizes education gains over 30-40 years without really grappling with the fact that those gains have stalled -- not entirely, but the U.S. now lags many other wealthy countries in providing educational opportunity.  3) Though Rose claims credit for discovering rising income inequality in the US in the eighties, he really doesn't grapple with the extent to which it's metastasized over the past 10-20 years.  

Rebound does provide detailed information about the way income growth has been distributed according to income strata and educational attainment. But Rose does not have much to say about the causes or effects of gains being intensely concentrated in the top 1% and 1/10 of 1%. Nor does Easterbrook. Notwithstanding his early swipe at Timothy Noah, he ignores Noah's back-of-the-envelope estimate of the relative weights of the causes of inequality (offered as coda to his multi-part series examining alleged causes).  Chief among them (according to Noah): educational failures - 30%, runaway Wall Street and corporate pay - 30% (but what caused those?); decline of labor, 20% (ditto -- and what to do? See Richard Florida). 

On the inequality front, the most important of the Obama administration's initiatives may be the one with effects that will take the longest to assess and to impact the economy: educational reform.  I am wary of tying individual teacher pay directly to student test performance; I suspect that like pay-for-performance in many if not most fields, such a direct tie will skew incentives. But I also think that this is a time of progress and ferment in learning what makes teachers effective and how to find and foster effective teachers. That is the key to education reform, and the Obama administration is succeeding in providing states and districts with incentives to improve teacher quality.

In fact, at this beleaguered moment I believe that Obama is inevitably being judged on the wrong time scale. The economy is not growing fast enough, and that's killing him.  But as to the larger, slower battleships he's trying to turn: the record (sticking for now to the domestic front) is mixed but impressive. He has laid foundations for universal healthcare and healthcare cost control (i.e., meaningful entitlement reform); educational improvement; and a reversal or at least slowing of the 30-year rise in income inequality (via healthcare reform, student loan reform, middle class tax cuts and tax hikes for the wealthy, the latter a work in progress). The stimulus also seeded a host of investments in infrastructure and alternative energy (as well as educatioin) that will also take a long time to assess. With a little bit of economic luck, he will be the transformative president that he aims to be.