Modest Proposal
The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity, by Gene Sperling

The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity
By Gene Sperling
New York, N.Y.: Simon & Schuster, 368 pp., $26.95

This book puts to rest the notion that the Democratic party is without ideas; there are plenty of ideas in this new book, and many of them would improve the lives of Americans. Gene Sperling, who spent eight years as deputy and then head of the National Economic Council in the Clinton administration, identifies serious economic-policy challenges facing the United States: furthering globalization, while supporting people adversely affected by it; improving education and training; raising national saving; and ensuring decent living standards for retirees. He explains that being in favor of strong growth does not mean abandoning concerns over equity; he touts policies that promote "progressive values," notably growth that "truly lifts all boats."

Sperling provides a veritable laundry list of talking points for future candidates (even if the writing style ensures that the book will be read only by staffers). His proposed solutions, however, tend to be smaller than the challenges he outlines. Huge parts of the U.S. education system are left unaddressed; the goal of raising national saving is given lip service, but not more; economic openness is portrayed as a good thing, but few if any proposals are offered to expand it. Instead, Sperling proposes a swarm of small new expenditures and modest expansions of existing programs. Call this incrementalism, realism, or triangulation--it's anything but visionary.

The tendency to skip hard issues is perhaps most apparent in the book's middle section, which covers employment, education, and training issues under the rubric of preparing the workforce for the "dynamism economy." Sperling focuses on pre-kindergarten education and college, but passes over the problems of elementary and secondary education. Key education issues such as accountability, vouchers, class size, and teacher recruitment are not addressed. Sperling includes a boilerplate attack on No Child Left Behind, but not an alternative.

Sperling is better when he sets forth ideas on such topics as minority fathers and technologies for the disabled, but he devotes his broadest discussion of education policy to early-childhood education. After a selective review of evidence that pre-kindergarten programs such as Head Start improve participants' later school performance, he lambastes the Bush administration for slowing the growth of Head Start funding and attacks people who worry that the gains from Head Start fade out over time. It's true that spending on Head Start has not recently been doubling, as it had been in the 1990s, but this might be reasonable in light of evidence that parents are increasingly turning to alternatives; as education scholar Douglas Besharov puts it, Head Start is running out of kids to enroll. Furthermore, people who are concerned about the disappointingly modest results from Head Start have in mind trying to figure out whether the money could be better spent in other ways to help children. But never mind; in this book, anyone asking such questions shows a "defeatist bias."

The section on the need to boost national saving is long on attack, but Sperling's proposals cover only part of the problem. The focus here is on ways to boost saving by low-income households, and some of these ideas have bipartisan support. Research indicates that making participation the default option for 401(k) plans will boost saving; similarly, relaxing asset tests on government programs such as Medicaid would remove a disincentive for saving by poor households, who now face the loss of benefits if they accumulate relatively modest savings. Less certain is broad support for what Sperling calls a "Universal 401(k)," under which the Treasury would match one dollar of savings by low-income households with two dollars of refundable tax credit: A family that sets aside $667 would accumulate $2,000. This proposal will probably encounter opposition from people who worry that increasing the refundability of tax credits will take more households off the income-tax rolls and concentrate the tax burden on an ever-narrowing number of households.

These policies would help many poor families save more, but Sperling is misleading in connecting this issue to the macroeconomic issue of U.S. national saving. If the 45 million households constituting the bottom 40 percent of the income distribution saved an additional $2,000 each--a huge amount for these families--this would add up to less than $100 billion. And only half of this at best would represent new saving for the country, since there would be a substantial cost to the Treasury from the 2-to-1 match and from relaxing the asset tests on programs such as Medicaid. (Sperling wants these costs to be offset in some unspecified way--a risible magic asterisk.) In total, then, even the most successful outcome would increase U.S. national saving by less than 0.5 percent of GDP--not much compared with the 6 percent of GDP that the U.S. annually brings in from overseas to fund investment.

The truth is that enhancing retirement security for the poor and raising U.S. national saving are different issues, simply because boosting personal saving by enough to matter in macroeconomic terms would require getting rich people to save more. This is unavoidable given U.S. income and wealth inequality--and the policies in this book are modest enough to avoid any meaningful change in the income distribution. Getting rich people to save more would likely require a reform to remove the tax bias against saving. But a further move toward a tax on consumption is anathema to Sperling because he sees it as regressive--it seems to tax work but not capital. Economists well understand that this appearance is deceptive: Lower taxes on capital income would benefit workers over time, because the resulting increase in saving leads to stronger capital accumulation and thus higher productivity and wages. But this is a process that unfolds over decades; it's certainly easy to attack the appearance of a tax break for the rich. And Sperling does.

The alternative way to raise national saving is to boost public saving--by, for instance, reducing the government deficit. Sperling is justifiably proud of the fiscal surplus achieved by the Clinton administration and calls for a renewed focus on fiscal discipline. It would have been useful, in this regard, to have had a budgetary scorecard of his own proposals. I suspect that the new expenditures and tax credits he proposes would vastly outweigh the revenue gains from restoring the estate tax and reversing other parts of the 2001–03 tax cuts involving upper-income earners.

In the section on Social Security, the author rehashes criticisms of the Bush administration's proposals. Some of this is thoroughly disingenuous. Sperling writes, for example, that the "progressive indexing" proposal to slow the growth rate of Social Security benefits would lead to a 42 percent benefit cut for people earning $58,000 per year. Left unsaid is that more than 85 percent of workers have lifetime average earnings below this amount; in short, Sperling is attacking the president for wanting to cut benefits by too much for the top 15 percent of earners! Reforming Social Security and Medicare does require higher taxes or lower benefits, but Sperling does not spell out a full proposal. If anything, he goes in the wrong direction with the implication that policies to boost retirement security will make a meaningful addition to national saving. The danger is that politicians might see popular actions on 401(k)'s as an alternative to entitlement or tax reform.

Sperling is at his best in explaining the benefits and costs of globalization and putting forward ways to help people adversely affected by trade. He explains the reasons progressives should be in favor of international economic engagement: Trade boosts incomes, while U.S. import barriers especially hurt the poor by raising the cost of such items as food, clothing, and housing. Sperling proposes expanding training, health-care, and financial assistance to dislocated workers; in order to provide incentives for job searches, the most generous assistance would go to people who find a new job. But there are glitches even in this section: Sperling comes out for free trade in principle, but not for actual moves toward expanding it; and his defense of the anti-dumping laws as preventing foreign anticompetitive behavior is preposterous. Nonetheless, it is encouraging to have a Democrat of Sperling's stature speak up for globalization.

The good thing about this book is that it puts forward ideas (even if many of them are narrow and the discussion of them is often superficial and one-sided). The truly unfortunate thing is that the book could have been so much more. Given Sperling's credentials and abilities, he instead could have addressed the really big economic challenges facing the U.S., such as reform of entitlements and the health-care system. These are issues on which difficult and politically unpopular steps will be required. A book on those topics might have to wait for later in Sperling's career, when he no longer has to worry about the next candidate or constituency, and is in a position to be more thoughtful.

Phillip L. Swagel is a resident scholar at AEI.

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