SOTU 2014

Let’s Redistribute Power, Not Income

Main St. Agenda by from The Weekly Standard, February 10, 2014

Barack Obama’s latest State of the Union address was a dreary, tiresome affair—which, to be fair, could be said of most such addresses by most modern presidents. The only real surprise was how he soft-pedaled the problem of inequality. Pre-speech hype had promised this would be the centerpiece theme, and it’s certainly one that has been a hobbyhorse of his Democratic party since its founding. But perhaps, on deeper reflection, we should not be so surprised that the word itself was only mentioned once.

President Andrew Jackson’s veto message regarding the Second Bank of the United States is a mishmash of bad economic reasoning and dubious constitutional arguments, but at its most persuasive it rails against the capacity of government to reinforce the divisions between the rich and the poor. A half-century later, the Democrats rediscovered their inner Jacksonian as William Jennings Bryan similarly waged a holy crusade for indebted Western farmers being “crucified” upon “a cross of gold” erected by Eastern creditors.

It is strangely embarrassing to watch today’s Democrats struggle to lift the banner that Jackson and Bryan once raised with ease. After all, today’s party more or less represents the very interests that so enraged their 19th-century forebears. Take a stroll through New York’s Upper East Side, and you will mostly encounter Obama voters. Drive along California’s famed 101 from Los Angeles to San Francisco, and you will not enter a single county that went for Romney. At the corner of Wall and Broad, the movers-and-shakers walking past you will be about as likely to have given to the Donkeys as to the Elephants.

This probably explains why Obama only trotted out an inequality agenda in year six of his presidency, with his power at its nadir, instead of in year one, when it was at its apex. Haranguing the plutocrats is what 21st-century Democrats do only to rebuild their support in flyover country; when that base is secure, the malefactors of great wealth suddenly do not seem so bad.

For instance, a few years ago, Democrats endlessly complained about the ban on reimportation of drugs from Canada. These days, they do not mention it at all, though the ban persists. This was not because of a change of heart, but a change of status. When Obama was on the outside trying to get in, he railed against the pharmaceutical industry; when he finally made it in, he cut a deal with Big Pharma that kept the ban in place in exchange for industry backing of Obamacare.

Putting aside the Democratic party’s situational ethics, what can we say about Obama’s agenda? In his State of the Union, he called for tax reform, more money for infrastructure spending, subsidies for tech companies and scientific research, more job training, universal pre-K education, promoting “equal pay for equal work” for women, and raising the minimum wage. These are fairly stale policy prescriptions, but from a political standpoint there is something to be said for wrapping them up in a call to end inequality. After all, who is opposed to that? How can anybody oppose giving the poorest workers a raise, or guaranteeing universal pre-K, without coming across like Ebenezer Scrooge? More broadly, how can conservatives hope to build a broad-based political coalition against a left making these sorts of populist appeals?

One thing they should certainly do is highlight the deep problems with Obama’s agenda. The first, and most obvious, is that the government has demonstrated a knack for being a perpetrator of the very ailments Obama promises to ameliorate. Just as the economic marketplace creates winners and losers, so also does the political marketplace. In important respects, the political marketplace is worse, for political winners get to embed their privileges into the law itself. It is fair to ask: How can one trust a government to solve the very problem it has helped create?

Indeed, Obama’s address inadvertently referenced the government’s proclivity to play favorites. The minimum wage is a hallowed talking point for wealthy liberals posing as hardscrabble populists, but in fact its original purpose was to serve as a sort of domestic tariff. By 1937 Northern industries had come to terms with organized labor, but the South still resisted. Fearing a flight of capital to Dixie, it was Northern businessmen who made the difference in pushing a minimum wage through Congress.

Liberal Democrats had outsized majorities during this period of the New Deal, but Southerners controlled key choke points within the legislature, notably the House Rules Committee. It was only a broad coalition that included liberals, organized labor, and, crucially, Northern industrialists that brought the Fair Labor Standards Act to a vote on the floor. Unsurprisingly, the wage floor was set so low that only the South was really affected. And even then, it only passed after it was loaded up with exemptions for all sorts of politically privileged groups.

This decidedly inegalitarian back story of the minimum wage has mostly been lost to history. One would be hardpressed to find a book about the New Deal in Barnes & Noble that discusses this at any length. This is not a coincidence; advocates of bold, activist government want to forget all the inequalities it creates. So it is with Obama. His signature achievement, the Affordable Care Act, is one of the most grossly unfair pieces of legislation to become law in modern times. Underwritten by a logroll among elite interests as varied as the drug manufacturers and the feminist left, it is an enormous redistribution of wealth from the young to the old, the healthy to the sick, without due regard to socioeconomic status.

The second problem with Obama’s inequality agenda is more subtle, yet more pernicious. A narrow focus on economic inequality overlooks the fact that, over time, everybody’s standard of living tends to improve. Andrew Carnegie, for all his wealth and power, never had access to penicillin, which today the poorest of the poor can get for free. And that’s not all. Today’s poor have access to nutrition, amenities, medical care, and knowledge that were scarce or nonexistent not that long ago. That is the “magic” of Adam Smith’s invisible hand. Looking at things through the historian’s lens, it is clear that almost everyone wins with economic development.

On the other hand, the game of political power is necessarily zero sum. Economic exchanges have the capacity to create wealth, which can accumulate in ways that make everybody better off eventually. Not so with power. Political transactions do not create new wealth, and political power is a commodity whose supply never changes. One side’s gain must always be another’s loss.

The Jacksonian Democrats were acutely aware of this. While Jackson’s rant against the Second Bank was, at its best, a tirade against inequality, the president’s focus was more political than economic. Ditto the populists of the late 19th century. They were not looking to redistribute wealth via farm subsidies; rather, they wanted to redistribute the political power that had accumulated in the East.

By expanding government to deal with economic imbalances, Obama threatens to exacerbate the nation’s already deeply unequal power relations. The Framers of the Constitution were careful to design a governmental structure that balanced institutions against powers, but subsequent generations sloppily altered the original design. Today, Washington, D.C., operates according to a perverted form of Madisonian pluralism: Public policy is deemed legitimate not because it measurably advances the common interest, but because all the active, organized interest groups in town have had a chance to influence it at the margins. This broken system—which Madison himself would find repellent—inevitably favors the organized over the unorganized, the defenders of the status quo over those seeking a change, and private interests over the public good.

The problem is now so bad that the federal government is arguably incapable of taking on any substantial project without treating groups differently, based solely upon their political connections. Obama entered Washington promising to change this process, but his four big achievements—the stimulus, the auto bailout, Obamacare, and the Dodd-Frank financial reform bill—only reinforced it. Why should we doubt that his efforts to deal with income inequality will only make the nation’s political inequality worse? We do not have to read the story to know the plot: Under the guise of distributing wealth more evenly, Obama will favor key interest groups (vital to Democratic political success), and by centralizing more authority within Washington, D.C., he will enshrine those privileges in the law. This may or may not equalize the money in the wallets of the citizens (it probably won’t), but it will assuredly take political power from the people at large and hand it over to friends of Barack Obama.

A true equality agenda, which Obama is incapable of pursuing, would start where Old Hickory began. Acknowledging that inequality is a natural fact of human existence—after all, skills and talents are not equally distributed by God—it would concern itself with the ways in which our government is wont to “add … artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful,” in the words of Jackson.

Those seeking to enact such an equality agenda through the federal government would approach the problem humbly, knowing that Uncle Sam has a way of being profoundly unfair, perhaps especially when passing laws with names like the Fair Labor Standards Act. They would therefore begin by reforming the way Washington itself does business, not only cleaning out the dirty pathways of power but acknowledging the structural limits of government’s ability to act for the common good. They would then focus on empowering individuals directly, rather than via bureaucrats or interest groups. Block grants to state and local governments (where the citizenry can exercise greater control), vouchers, and easily accessible tax credits are all ways to level the economic playing field as well as the political one, for they all can empower individuals to make their own life choices.

Of course, today’s Democratic party will offer nothing of the sort. Founded by Jackson as a coalition deeply suspicious of government, it evolved over a century ago into the party advocating the use of big government to solve problems. Today, it is now merely the party of government—and not just any government, but one whose constitutional framework has been twisted to concentrate wealth and power upon itself and its clients. Jackson’s party has come to represent everything that Jackson himself once opposed.

Copyright 2014 Weekly Standard LLC. Reprinted with permission.

Photo credit: Official White House Photo by Pete Souza