Growing from the middle out: the US economy in Obama’s second term

The US president needs to focus not just on employment per se but on creating good jobs.

The US economy has made a remarkable turnaround since 2008, moving from losing 800,000 jobs per month in the winter of 2009, to adding over 150,000 jobs per month over a two-year period. This shift from massive job losses to steady job gains occurred because of the decisive actions of policymakers who implemented a combination of monetary and fiscal policies in 2008 and 2009.

But while the economy has been in recovery since June 2009, the level of output continues to be significantly below potential, and as a result unemployment, especially long-term unemployment, remains unacceptably high. In his campaign, Obama made the case that the economy "grows from the middle out". Now, as president, he gets to work with Congress anew to realise that vision.

While the economics are fairly clear – and leading economists tend to be in broad agreement about this agenda – the politics are much more complex. The Democrats made significant victories in November’s election, keeping the presidency and increasing their seats in the Senate; however, the election also put Republicans in control of the US House of Representatives for the next two years.

It’s worth noting that while many of the policies implemented in response to the recession had a history of bipartisan support, Washington’s highly polarised political environment has meant that support for these efforts is now almost exclusively among Democrats. If he wants to see stronger improvements in the labour market, Obama will have to spend the next two years mitigating this gridlock and finding common ground.

Looking beyond the immediate problem of the fiscal cliff, Republican leaders in the House are unlikely to have any appetite for expansionary fiscal policy. Yet the president made the argument during the campaign that we ‘grow from the middle out’ – he now has to make this concept real, and lay out the specific policies that will accomplish this goal. He needs to focus not just on employment per se but on creating good jobs, with decent pay and benefits, and on the economic wellbeing of families, ensuring that every job is a good, pro-family job, and that families have the support they need.

Nearly half of all US workers do not have the right to take a sick day when they or a family member is ill, which creates enormous stress and anxiety for families. The typical US family paying for childcare spends about 13 per cent of their total family income on that care; families that need to pay for elderly care find that can be very expensive as well. Increasing funding for childcare and home health aids and other supports so that ageing Americans can live independently would not only help to support employment but would, in effect, boost the incomes of families who struggle to afford care. Similarly, focusing on policies that allow workers to balance work and family would show that the Obama administration truly understands what it means for families now that women are more typically than not also a family breadwinner.

While these issues are not currently at the top of the agenda, the president could begin to use the power of the bully pulpit to focus on increasing the net income of families, alongside policies to boost job creation and reduce unemployment, as this is the first step towards raising living standards more generally. These issues are ones that resonate especially strongly with women and Latino voters, although surveys show that the agenda around work and family resonates with conservative voters as well.

Another way to make real the idea of middle-out economics is to focus attention on America’s capacity to be a global leader in innovation and production. Over his first term, Obama put manufacturing and boosting exports at the top of his agenda, and the fact that he was unwilling to allow the US auto industry to die was a key component of his re-election campaign. Rebuilding US manufacturing should remain a key plank of our national investment strategy, and this includes making sure that any corporate tax reform follows the agenda that the president has already laid out, discouraging offshoring, encouraging domestic production, and stopping tax advantages for the use of debt over equity.

Critical to this strategy is tapping into the foundation laid by the American Recovery and Reinvestment Act in green technologies, such as through the production of components for solar and wind power generation as well as innovations in battery and other technologies. While there are certainly political hurdles, the president can make the compelling argument that these investments will improve US economic competitiveness and grow the economy over the long term, which resonates with the public. Furthermore, the administration could pursue a competitive dollar strategy, which would make US exports more affordable and would not necessarily require congressional action.

With President Obama winning a second term, he has a mandate to build on the successful policies of the first term. Putting the middle class at the core of what makes the economy grow, as he did during the campaign, would be a good place to start. Americans re-elected Obama because they believe he will do a better job bringing them a strong economy and – in no small part – because he recognises that a strong economy starts with them.

Heather Boushey is a visiting fellow at IPPR and senior economist at the Centre for American Progress in Washington DC. A longer version of this article appears in the latest edition of IPPR’s journal Juncture.

Barack Obama delivers a speech on the economy at the Daimler Detroit Diesel engine plant. Photograph: Getty Images.

Heather Boushey is a Visiting Fellow at IPPR and senior economist at the Centre for American Progress in Washington DC

Photo: Getty Images/Christopher Furlong
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A dozen defeated parliamentary candidates back Caroline Flint for deputy

Supporters of all the leadership candidates have rallied around Caroline Flint's bid to be deputy leader.

Twelve former parliamentary candidates have backed Caroline Flint's bid to become deputy leader in an open letter to the New Statesman. Dubbing the Don Valley MP a "fantastic campaigner", they explain that why despite backing different candidates for the leadership, they "are united in supporting Caroline Flint to be Labour's next deputy leader", who they describe as a "brilliant communicator and creative policy maker". 

Flint welcomed the endorsement, saying: "our candidates know better than most what it takes to win the sort of seats Labour must gain in order to win a general election, so I'm delighted to have their support.". She urged Labour to rebuild "not by lookin to the past, but by learning from the past", saying that "we must rediscover Labour's voice, especially in communities wher we do not have a Labour MP:".

The Flint campaign will hope that the endorsement provides a boost as the campaign enters its final days.

The full letter is below:

There is no route to Downing Street that does not run through the seats we fought for Labour at the General Election.

"We need a new leadership team that can win back Labour's lost voters.

Although we are backing different candidates to be Leader, we are united in supporting Caroline Flint to be Labour's next deputy leader.

Not only is Caroline a fantastic campaigner, who toured the country supporting Labour's candidates, she's also a brilliant communicator and creative policy maker, which is exactly what we need in our next deputy leader.

If Labour is to win the next election, it is vital that we pick a leadership team that doesn't just appeal to Labour Party members, but is capable of winning the General Election. Caroline Flint is our best hope of beating the Tories.

We urge Labour Party members and supporters to unite behind Caroline Flint and begin the process of rebuilding to win in 2020.

Jessica Asato (Norwich North), Will Straw (Rossendale and Darween), Nick Bent (Warrington South), Mike Le Surf (South Basildon and East Thurrock), Tris Osborne (Chatham and Aylesford), Victoria Groulef (Reading West), Jamie Hanley (Pudsey), Kevin McKeever (Northampton South), Joy Squires (Worcester), Paul Clark (Gillingham and Rainham), Patrick Hall (Bedford) and Mary Wimbury (Aberconwy)

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.