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

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Tom Watson rouses Labour's conference as he comes out fighting

The party's deputy leader exhilarated delegates with his paean to the Blair and Brown years. 

Tom Watson is down but not out. After Jeremy Corbyn's second landslide victory, and weeks of threats against his position, Labour's deputy leader could have played it safe. Instead, he came out fighting. 

With Corbyn seated directly behind him, he declared: "I don't know why we've been focusing on what was wrong with the Blair and Brown governments for the last six years. But trashing our record is not the way to enhance our brand. We won't win elections like that! And we need to win elections!" As Watson won a standing ovation from the hall and the platform, the Labour leader remained motionless. When a heckler interjected, Watson riposted: "Jeremy, I don't think she got the unity memo." Labour delegates, many of whom hail from the pre-Corbyn era, lapped it up.

Though he warned against another challenge to the leader ("we can't afford to keep doing this"), he offered a starkly different account of the party's past and its future. He reaffirmed Labour's commitment to Nato ("a socialist construct"), with Corbyn left isolated as the platform applauded. The only reference to the leader came when Watson recalled his recent PMQs victory over grammar schools. There were dissenting voices (Watson was heckled as he praised Sadiq Khan for winning an election: "Just like Jeremy Corbyn!"). But one would never have guessed that this was the party which had just re-elected Corbyn. 

There was much more to Watson's speech than this: a fine comic riff on "Saturday's result" (Ed Balls on Strictly), a spirited attack on Theresa May's "ducking and diving; humming and hahing" and a cerebral account of the automation revolution. But it was his paean to Labour history that roused the conference as no other speaker has. 

The party's deputy channelled the spirit of both Hugh Gaitskell ("fight, and fight, and fight again to save the party we love") and his mentor Gordon Brown (emulating his trademark rollcall of New Labour achivements). With his voice cracking, Watson recalled when "from the sunny uplands of increasing prosperity social democratic government started to feel normal to the people of Britain". For Labour, a party that has never been further from power in recent decades, that truly was another age. But for a brief moment, Watson's tubthumper allowed Corbyn's vanquished opponents to relive it. 

George Eaton is political editor of the New Statesman.