Obama's progressive economy

Things just seem to be going in directions that Obama's been calling for for months. First, we now do have a timetable for pulling out of Iraq something Bush/McCain said would be disrespectful to the troops and an invite to AQ.

And now, the Fed Reserve chief seems to be agreeing with Obama that if American taxpayers are on the hook for bailing out failing banks, then they ought to have some assurance that there is federal oversight of these institutions.

Most of the speech was focused on a series of proposals for an expanded and more stringent regulatory structure for the financial system. Mr. Bernanke suggested that the current design — a patchwork of various agencies, each with a specific area of coverage — should be broadened to encompass the global financial landscape.

He called for the Fed to take a leading role in regulating capital and risk levels at a range of banks and financial institutions. While the Fed has been the primary regulator for commercial banks, it has stepped up its supervision of investment banks since they gained access to the Fed’s liquidity spigots after the near-meltdown of the investment bank Bear Stearns.

Here's this, from David Leonhardt's analysis of Obama's plans for the economy that will appear in this Sunday's NY Times Magazine:

The closest thing to an Obama doctrine on market regulation was a speech he gave in March at Cooper Union in New York, called “Renewing the American Economy.” It included his usual praise of market forces, and his prescriptions for regulating the financial system were mostly mainstream Democratic fare, like tougher penalties for loan fraud, tighter rules and closer oversight for Wall Street. These steps might or might not prevent the next crisis, but they would certainly place a bigger emphasis on trying to do so. And the speech, if anything, probably placed Obama on the more aggressively liberal side of the Democratic platform. Afterward, Robert Kuttner, an unabashedly left-leaning Democrat, praised Obama for going “well beyond the current Democratic Party consensus.”

Shortly before Obama’s speech, the Federal Reserve made emergency loans to investment banks that hadn’t officially been under its supervision. Obama argued that, going forward, the Fed had to be given permanent oversight of any such institutions, because their executives would henceforth assume that the government would come to their rescue. If taxpayers were going to be on the hook for those banks when they failed, he suggested, the government should have the chance to minimize the risk of failure. (Since March, Fed officials themselves have inched toward a similar position.)

I urge you to read the whole thing. It underscores Obama's lack of ideological thinking on the economy in favor of an emphasis on experts (there's an interesting bit about his fascination with behavioral economics -- basically the study of why people make irrational decisions).

According to Leonhardt, Obama was greatly influenced by the free market advocates at the University of Chicago, where he taught Constitutional Law, and Leonhardt believes Obama is far more comfortable with free market thinking than most Liberal Democrats. And yet, Obama believes the laissez faire age of Reagan, tempered but advanced by Clinton, and "driven over a cliff by Bush," is now coming to an end, and he'll focus on regulating financial markets and addressing the chasm between the wealthiest Americans and most everybody else.

But above all, it paints Obama has perhaps the most truly Progressive Democrat to come along in some time.

If there is a theme to the Obama tax philosophy, it’s that the tax code is not quite as progressive as you think it is. Most of the public discussion about taxes tends to focus on the income tax, which taxes the affluent at a considerably higher rate than anyone else. But the income tax doesn’t take the biggest bite out of most families’ annual tax bill. The payroll tax does. And even as the federal government has been reducing income taxes over the last few decades, it has allowed the payroll tax, which finances Social Security and Medicare, to creep up. That’s a big reason that overall tax rates for the bottom 80 percent of earners have not fallen as much as rates for the affluent.

Obama’s second-most-expensive proposal, after his health-care plan, is the equivalent of a $500 cut in the payroll tax for most workers. (It is actually a credit that is applied toward income taxes based on payroll taxes paid.) In a speech this month in Florida, he proposed that the cut take effect immediately, in the form of a rebate, to stimulate the economy. For most workers, it would be the first significant cut in the payroll tax in decades, if not ever.

The other way that he would cut taxes involves a series of technicalities. But since the campaign began, Goolsbee has been arguing that those technicalities offer one of the best glimpses of how Obama thinks about the tax code. Right now, several big tax breaks that sound broad-based — like those for child care and mortgage interest — don’t always benefit middle-income and lower-income families. Another example is the Hope Credit for college tuition, a creation of the Clinton administration. Obama wants to more than double the credit, to $4,000. More to the point, he would make it “fully refundable.” As a result, a family with an income-tax bill of $3,000 wouldn’t merely have that bill eliminated; it would also receive a $1,000 check. Increasingly, the income-tax system becomes a way to transfer money to poor families.

All told, Obama would not only cut taxes for most people more than McCain would. He would cut them more than Bill Clinton did and more than Hillary Clinton proposed doing. These tax cuts are really the essence of his market-oriented redistributionist philosophy (though he made it clear that he doesn’t like the word “redistributionist”). They are an attempt to address the middle-class squeeze by giving people a chunk of money to spend as they see fit.

He would then pay for the cuts, at least in part, by raising taxes on the affluent to a point where they would eventually be slightly higher than they were under Clinton. For these upper-income families, the Tax Policy Center’s comparisons with McCain are even starker. McCain, by continuing the basic thrust of Bush’s tax policies and adding a few new wrinkles, would cut taxes for the top 0.1 percent of earners — those making an average of $9.1 million — by another $190,000 a year, on top of the Bush reductions. Obama would raise taxes on this top 0.1 percent by an average of $800,000 a year.

It’s hard not to look at that figure and be a little stunned. It would represent a huge tax increase on the wealthy families. But it’s also worth putting the number in some context. The bulk of Obama’s tax increases on the wealthy — about $500,000 of that $800,000 — would simply take away Bush’s tax cuts. The remaining $300,000 wouldn’t nearly reverse their pretax income gains in recent years. Since the mid-1990s, their inflation-adjusted pretax income has roughly doubled.

To put it another way, the wealthy have done so well over the past few decades, with their incomes soaring and tax rates plummeting, that Obama’s plan would not come close to erasing their gains. The same would be true of households making a few hundred thousand dollars a year (who have gotten smaller raises than the very rich but would also face smaller tax increases). As ambitious as Obama’s proposals might be, they would still leave the gap between the rich and everyone else far wider than it was 15 or 30 years ago. It just wouldn’t be quite as wide as it is now.

There's more, lots more. I especially was impressed when Leonhardt describes Obama (that damned elitist) telling a group of his advisors that for many laid-off factory workers, retraining to become healthcare providers or working in the service industry (what McCain told a Michigan audience to do during the primaries) just wasn't possible. These workers made things -- it was part of their identity. To that end, he wants to tackle the long-ignored infrastructure of our roads, bridges, communications to restore competitiveness and put people to work building things. It's a valuable insight. Basically, he's calling for the biggest public works effort since the Johnson Administration to cure two diseases -- a crumbling nation and a crumbling middle class).

Progressive means progress.

The challenge, Leonhardt comes to the obvious conclusion, is formulating a way for Obama to talk about this stuff without coming across in a way that's sleep-inducing wonkiness. That's why you could sense the real elation in his voice when he talks about McCain’s Cindy’s four seven eight I’ve lost count homes.