But bad news for Bush isn't necessarily good news for Kerry
By Jacob S. Hacker / September 5, 2004
Vice-presidential hopeful John Edwards is right about one thing: There are two Americas. In one, "our economy is growing again and creating jobs and nothing will hold us back." In the other, "wages are falling, health care costs are rising, and our great middle class is shrinking."
These are, of course, the warring economic assessments of President Bush and Senator John F. Kerry. That the two men differ so fundamentally may seem par for the course -- candidates always play up their own achievements and denigrate those of their opponents.
And yet rarely have the diagnoses of presidential aspirants contrasted as sharply as they do today. In 1992, even Bush the elder was forced to grant that Americans were hurting. In 1996 and 2000, both sides agreed that the economy was basically sound. Today, however, it seems that when it comes to the economy it's the Democrats who are from Mars while the Republicans are from Venus.
Each of these worldviews will be extensively broadcast in the coming weeks. Indeed, Friday's employment report has already launched a new war of spin over whether the relatively lackluster figure of 144,000 new jobs, coming on the heels of an extremely weak prior report, proves the economy is on the mend or still on the rocks.
But the back-and-forth shouldn't be allowed to obscure what's becoming the biggest economic story of this campaign: the stark differences between the two candidates not merely over current economic conditions, but over the much more basic issue of how to ensure future financial security for American families in an increasingly uncertain economic world.
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On Thursday night, President Bush presented his own answer to that challenge, and it was not for government to get completely out of the way.
"Many of our most fundamental systems -- the tax code, health coverage, pension plans, worker training -- were created for the world of yesterday, not tomorrow," Bush said. "We will transform these systems so that all citizens are equipped, prepared, and thus truly free to make your own choices and pursue your own dreams."
But the place for government in this transformation, according to the President, is not to provide security directly. Instead, invoking the ideal of an "ownership society," Bush is calling for partial privatization of Social Security and an expanded set of tax-free accounts similar to IRAs for everything from health care to retirement savings. "In an ownership society," he declared, "more people will own their health care plans and have the confidence of owning a piece of their retirement."
More people will also be insecure. "Ownership" has a stirring ring to it, but the president's ideas will mostly help those who already own a lot -- the very same well-heeled Americans who benefited most from the President's tax cuts. Without significant new spending, carving private accounts out of Social Security will mean lower benefits and a program less favorable to lower-income workers. Health savings accounts -- and Bush's other health policy idea, unregulated small-business purchasing pools -- could destabilize conventional group insurance by inducing the healthiest and wealthiest to opt out.
But you can say this for Bush's vision of an ownership society -- it is consistent with the direction in which the American economy has been heading. Since the late 1970s, employers have been shedding health and pension benefits, and shifting toward more individualized (and risky) benefit plans, like 401(k)s. While the number of Americans without health insurance reached 45 million for the first time in 2003, the cost to the Treasury of tax breaks for individualized benefit plans -- which overwhelmingly benefit the well off -- have exploded.
These shifts are just the most prominent signs of a great transformation in the American economy -- a transformation from an all-in-the-same boat world of shared risk toward a go-it-alone world of personal responsibility. And this shift is occurring just as American families are facing new and newly intensified economic risks. Research that I have done using the Panel Study of Income Dynamics shows that families are experiencing much larger swings in income than they did even two decades ago. The dramatic rise of income inequality since the 1970s has gotten much press, and for good reason. But income instability has actually risen even faster.
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Bush is apparently unworried by the signs of growing economic insecurity, and indeed his proposals would make the problem much worse. Kerry, by contrast, is largely betting his election hopes on the lackluster economy. He has relentlessly pointed out that the low unemployment figures trumpeted by the Bush campaign -- the Friday employment report saw the rate fall to 5.4 percent -- hide a dismal jobs situation, in which fewer Americans are working than when the president took office. And he has seized on the idea of a "middle-class squeeze" to drive home his claim that ordinary working Americans are markedly worse off under Bush's economic policies.
By invoking the middle-class squeeze, Kerry has also seized on a real problem: middle-income Americans have seen little growth in their earnings, even as the costs of basic living expenses like housing, tuition, and health care have risen dramatically. Yet Kerry has had trouble articulating this message convincingly, and he's had even more trouble linking concrete policy proposals to it.
One reason is that the middle-class squeeze is hardly Bush's creation alone. In fact, the book widely credited for bringing the issue to the fore -- Elizabeth Warren and Amelia Tyagi's "The Two Income Trap" (2003) -- compared two-earner, middle-class families today with their traditional one-earner counterparts of the 1960s and 1970s. (You can see the Kerry ad now: "Are you better off than you were forty years ago?")
The second difficulty is that many of Kerry's proposals are extremely complex and will certainly strain a federal budget drained by Bush's tax cuts. Kerry's $65-billion-a-year health plan, for example, is a complicated amalgam of favored Democratic ideas: expansion of public coverage for lower-income families, a tax credit for workers in small businesses, an option to buy into the health benefit plan enjoyed by federal employees, and -- perhaps most innovative -- a proposal to pool catastrophic medical costs. It's clever and aims to tackle glaring problems. But it's also fiendishly complicated, and Kerry has yet to present it in a way that has the simple resonance of Bush's health accounts.
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In the end, however, Kerry's reading of the moment is far more consistent with voters' assessments. Only 27 percent of registered voters think Bush's economic policies have made the country as a whole better off, according to the most recent Los Angeles Times poll. And the latest Wall Street Journal poll shows Bush's approval ratings on the economy actually falling, not rising -- from 45 percent approval in June to 43 percent in late August.
That's why, for all the Republican happy talk and the president's calls for an "ownership society," an election fought over the economy is one that Kerry is almost certain to win. Kerry has a stronger hand when it comes to the economy. It remains to be seen how well he can play it.
Jacob S. Hacker is Peter Strauss Family Assistant Professor of Political Science at Yale University and a fellow at the New America Foundation. He is completing a book on economic insecurity, "The Great Risk Shift."
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