Obama envisions America’s economic future and defends free trade

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President writes an unapologetically centrist essay for the Economist that reads like an open letter to his successor and a condemnation of crude populism

Barack Obama has defended free trade and condemned crude populism in what is in effect an open letter to his successor in the White House.

Writing in the Economist, the president does not mention Hillary Clinton or Donald Trump by name but makes clear that he disagrees with both candidates opposition to the Trans-Pacific Partnership (TPP).

Obama sets out a vision for Americas future based on boosting productivity growth, combating rising inequality, providing meaningful work opportunities and shoring up the economy against financial storms.

In what the Economist describes as a trenchant, unapologetically centrist essay entitled The Way Ahead, Obama, who leaves office in January, acknowledges that an anxiety over globalisation had taken hold in the US, not unlike the discontent leading to Britains vote in June to leave the European Union.

At home and abroad, he writes, people ask him: Why have some on the far left and even more on the far right embraced a crude populism that promises a return to a past that is not possible to restore and that, for most Americans, never existed at all?

Obama offers what he believes is a reality check: The world is more prosperous than ever before and yet our societies are marked by uncertainty and unease. So we have a choice retreat into old, closed-off economies or press forward, acknowledging the inequality that can come with globalisation while committing ourselves to making the global economy work better for all people, not just those at the top.

In an election year characterised by a wave of anti-trade sentiment from Trump and Democratic primary contender Bernie Sanders, Obama contends that globalisation has been by far a net positive for the American economy.

Lifting productivity and wages also depends on creating a global race to the top in rules for trade, Obama contends. While some communities have suffered from foreign competition, trade has helped our economy much more than it has hurt. Exports helped lead us out of the recession. American firms that export pay their workers up to 18% more on average than companies that do not, according to a report by my Council of Economic Advisers.

Clinton has joined Trump and Sanders in speaking out against the TPP, although some analysts suspect that, should she win the presidency, she will seek to repackage the deal in a manner that allows her to approve it. Obama pledges to keep pushing for Congress to pass the TPP because, he says, it will level the playing field for workers and businesses.

In an obvious swipe at Trump, Obama writes of the current air of discontent: The anti-immigrant, anti-Mexican, anti-Muslim and anti-refugee sentiment expressed by some Americans today echoes nativist lurches of the past the Alien and Sedition Acts of 1798, the Know-Nothings of the mid-1800s, the anti-Asian sentiment in the late 19th and early 20th centuries, and any number of eras in which Americans were told they could restore past glory if they just got some group or idea that was threatening America under control. We overcame those fears and we will again.

But he acknowledges that some of the unrest is rooted in legitimate concerns about decades of declining productivity growth and rising inequality resulting in slower income growth for low- and middle-income families. The financial crisis of 2008 only seemed to increase the isolation of corporations and elites.

So its no wonder that so many are receptive to the argument that the game is rigged. But amid this understandable frustration, much of it fanned by politicians who would actually make the problem worse rather than better, it is important to remember that capitalism has been the greatest driver of prosperity and opportunity the world has ever known.

Clinton is attempting a broad church election campaign that embraces some ideas from Sanders, a self-proclaimed socialist, but also has the centrist Obama as a leading surrogate. During an electrifying primary campaign, Sanders argued for the breakup of the Wall Street banks. But the president urges against quick fix solutions.

Further progress requires recognising that Americas economy is an enormously complicated mechanism, he writes. As appealing as some more radical reforms can sound in the abstract breaking up all the biggest banks or erecting prohibitively steep tariffs on imports the economy is not an abstraction. It cannot simply be redesigned wholesale and put back together again without real consequences for real people.

Obama does, however, devote a section of the essay to widening inequality a key theme of Sanders and Massachusetts senator Elizabeth Warren and its negative economic and moral consequences. In 1979, he says, the top 1% of American families received 7% of all after-tax income; by 2007, that share had more than doubled to 17%.

This challenges the very essence of who Americans are as a people. We dont begrudge success, we aspire to it and admire those who achieve it. In fact, weve often accepted more inequality than many other nations because we are convinced that with hard work, we can improve our own station and watch our children do even better.

He cites technology, education, globalisation, declining unions and a falling minimum wage as factors in growing inequality. But I believe that changes in culture and values have also played a major role. In the past, differences in pay between corporate executives and their workers were constrained by a greater degree of social interaction between employees at all levels at church, at their childrens schools, in civic organisations.

Thats why CEOs took home about 20 to 30 times as much as their average worker. The reduction or elimination of this constraining factor is one reason why todays CEO is now paid over 250 times more.

He urges the next occupant of the White House: In the future, we need to be even more aggressive in enacting measures to reverse the decades-long rise in inequality. Unions should play a critical role. They help workers get a bigger slice of the pie but they need to be flexible enough to adapt to global competition.

He also calls for increasing the federal minimum wage, expanding the Earned Income Tax Credit for workers without dependent children and limiting tax breaks for high-income households.

Obama further notes that in 1953, just 3% of men between 25 and 54 years old were out of the workforce. Today, it is 12%. In 1999, 23% of prime-age women were out of the workforce. Today, it is 26%.

Involuntary joblessness takes a toll on life satisfaction, self-esteem, physical health and mortality. It is related to a devastating rise of opioid abuse and an associated increase in overdose deaths and suicides among non-college-educated Americans the group where labour-force participation has fallen most precipitously.

Obama proposes increasing access to community colleges and providing wage insurance to those workers who cannot find a job that pays as well as their previous one. He says paid leave and guaranteed sick leave would also encourage flexibility that could lead to more people working.

Championing the achievements of his eight-year presidency, led by preventing the 2008 financial crisis from turning into a great depression, Obama says a foundation was laid for a better future. He suggests that the US should prepare for negative shocks to the economy before they occur and not have to fight for emergency measures in a time of need.

America must stay committed to working with all nations to build stronger and more prosperous economies for all our citizens for generations to come, he writes.

Read more: https://www.theguardian.com/us-news/2016/oct/06/barcack-obama-america-future-economist-essay