The biggest issue remains undecided


Unless something completely unexpected occurs, the presidential election has been settled, with Barack Obama the clear winner. Yet, except for the Republican Party’s demise, the most important issue of this era — the future of the middle class — remains largely unaddressed.

Indeed, even as social polarization has diminished — a change that is reflected in Obama’s electoral success — economic polarization has intensified. Globalization and the securitization of almost everything have created arguably the greatest concentration of wealth since before the Great Depression.

During much of the 20th century, the middle class was on a roll, with strong income gains and increasing rates of homeownership. But in the past few decades, while returns to capital and to certain elite occupations grew rapidly, wages for lower-income and middle-class workers have stagnated.

To date, neither Obama nor John McCain has articulated a clear message of how to restore the path to upward mobility. Recent proposals from both candidates have been distinctly ad hoc and have had a short-term orientation — not surprising, given the severity of the crisis and the brief period left before the election.

Yet over time, how the next president, presumably Obama, addresses the problems of middle-class Americans will determine the future of American politics. The party that captures the loyalty of that class — as Republicans did in the early 20th century; Democrats, from the 1930s to the 1960s; and Republicans, again after that — will dominate the nation’s politics in the coming decade.

The political future may lie with a party that embraces a growth-oriented economic strategy that focuses on the creation of higher-income productive jobs for both younger and older workers. But it’s far from clear that the Democrats under Obama are ready to play that role.

Clearly, these are not the Democrats of Franklin D. Roosevelt’s New Deal, Harry Truman’s Fair Deal or even Lyndon Johnson’s Great Society. Working- and middle-class Americans, including small farmers, low-level proprietors and ethnic businessmen, constituted the primary base for those Democrats. Although some leading Democrats, notably Roosevelt himself, came from the aristocracy, the upper classes and most of the corporate hierarchy remained fiercely Republican.

But now the old class lines have changed. The once-impregnable visual barriers of the past — which separated the ultrarich from the rest of us — have largely dissolved. As Irving Kristol once noted, “Who doesn’t wear blue jeans these days?” Today, you can walk into a film studio, software corporation or high-tech firm and have trouble distinguishing the upper tiers from at least the middle ranks.

Many of these moguls today tend to be socially and environmentally liberal and strong supporters of the Democratic Party. Yet despite their attire and attendance at U2 concerts, their economic concerns will remain radically different from the rest of society. Having secured their support, a President Obama may be forced to take great pains to secure the fortunes of the likes of George Soros, Robert Rubin, the Google decabillionaires and other big party funders.

We may have witnessed the birth of this new class in the bizarre alliance of Nancy Pelosi, Harry Reid and Barney Frank with Wall Street’s viceroy, Treasury Secretary Henry Paulson. Once fully in power, these Democrats likely will begin by propping up the financial elites — much as Bush has done — but will also have to make a “grand bargain” to satisfy key party constituencies outside of the financial elite.

There are already hints of this in Obama’s recent statements. His program to send cash to the poor through tax credits and other largesse can be seen as a political payout to his large, heavily minority, urban constituency. Massive bailouts for failing city, state and county governments — another part of the senator’s program — would also bolster public employee unions and their pension funds, both of which have emerged as key Democratic backers. New handouts for the U.S.-based auto industry, as Obama has recently suggested, would, not coincidentally, help one of the last large, unionized private sectors.

Sadly, none of this will do more to create upward mobility, particularly for the next generation. The working poor may get a few hundred desperately needed dollars to spend, but this is no substitute for a policy that would stimulate production of jobs. Unions and their pension funds would get an extended holiday from addressing their often outrageously generous retirement and medical benefits, but that comes at the expense of the larger, private work force. The financial elites could secure government support for stabilized markets but would have little incentive to invest in domestic production industries and middle-class employment.

Finally, Obama’s base of highly educated, socially liberal, professional Democrats — largely insulated in universities and nonprofits from economic distress — would be rewarded with the political validation of their worldviews on everything from gay marriage and diversity to environmentalism. More federal support for education, another likely Obama initiative, could also allow them to keep comfortably feathering their nests.

Over time, however, such an approach could threaten the unity of the Democratic Party. This prospect emerged in the first House vote on the initial Wall Street bailout package. In addition to economic fundamentalist Republicans, many suburban, exurban and rural Democrats also found the plan objectionable. Hostility was particularly marked in the Great Plains, Appalachia, South Texas and other areas strongly oriented toward energy production, manufacturing and logistics.

This growing wing of populist Democrats, often more socially conservative than their coastal and urban counterparts, tend to favor steering capital toward sectors such as domestic energy production, agriculture, manufactured goods and domestically sourced specialized services. All these, they believe, could drive up incomes and salaries for a wide spectrum of Americans far better than boosting transfer payments or shoring up investment banks.

This political approach does not appeal to the urban liberals now dominant in both the Democratic Congress and the Obama camp. These represent places, such as New York, San Francisco and Chicago, that are increasingly more dependent on speculative real estate and financial assets than producing goods. Their primary interest in the next few years will be to find out how to create yet another bubble, perhaps tied to designated “green” industries, which could send local land values and stocks soaring again to unsustainable heights.

All this, however, leaves the Democrats and Obama in a quandary. They could favor programs to expand industry, energy production and basic infrastructure, but they would risk of a wrathful Gore and his allies. It will take all Obama’s considerable political skill to balance his commitments to the greens, the hedge fund industry and venture capitalists with creating a program that will increase the incomes and prospects for middle-class Americans.

Republicans could take advantage of this schism — if they have the intelligence and foresight to do so. The GOP could embrace the old Hamiltonian policy of internal improvements and incentives for the country’s industrial, energy and logistics companies that still employ millions of working- and middle-class Americans.

After all, the legacy of corporate socialism bequeathed by President Bush makes it almost impossible for Republicans to sell themselves as economic libertarians. They will need to offer something to the middle class besides the well-worn politics of social resentment and military belligerence.

But such a GOP rebirth likely lies in the future, if ever. In the next few years, the Democrats will have to address the nation’s growing class chasm on their own. How they do this may well determine not only the future success of the Obama presidency, but the survival of the American aspirational model, as well.

This article originally appeared at Politico.

Joel Kotkin is a presidential fellow at Chapman University and executive editor of He is finishing a book on the American future.