Next Social Contract

The American social contract is in crisis. Even before the Great Recession exposed its inadequacy, it was clear that the existing American social contract — the system of policies and institutions designed to provide adequate incomes and economic security for all Americans — needed to be reformed to meet the challenges of the twenty-first century. What is needed is not mere incremental tinkering, but rather rethinking and reconstruction. Policies that have worked should be expanded, while others that have failed should be replaced.

Executive Summary
The conventional wisdom about Social Security is profoundly misguided. According to today’s mistaken consensus, the U.S. as a society cannot afford to allocate the money to pay for the present level of Social Security benefits for retirees in future generations. The solution, it is widely argued, is to cut benefits – either directly by means-testing or indirectly by raising the retirement age or allowing inflation to erode their real value over time. In this narrative, tax-favored private savings vehicles like 401(k)s and IRAs should be expanded in order to compensate for the allegedly necessary cuts in Social Security.

The recent deliberations in Washington about the fiscal cliff have triggered a national debate in the United States about the nature, extent and future sustainability of key elements of the U.S. social safety net: Social Security, Medicare, Medicaid, support for education, the unemployed and the poor.

The proliferation of semiautomatic weapons in the hands of Americans of the types that were used in the Newtown massacre is sometimes framed as a public health issue in the United States.

There is considerable merit to the notion of treating gun violence as a public health matter. After all, homicides -- around 70% of which are accomplished with firearms in the United States according to an authoritative study by the United Nations -- are the 15th leading cause of death for Americans.

If there is to be any durable hope for a social contract that transcends left-right partisanship, that contract must rest upon a majority consensus about policies that are efficient, fair, and sustainable. Once the smoke has cleared from this November’s battle over the role of government, what will endure are several policy prescriptions kept alive by an objective reading of economic history and a general consensus among economists.

The last thirty years of American history have witnessed, at least rhetorically, a battle over the size of government. Yet that is not what the history books will say the next thirty years of American politics were about. With the frontiers of the state roughly fixed, the issues that will dominate American politics going forward will concern the complexity of government, rather than its sheer size.

The fundamental ideological conflict surrounding the Welfare State in the U.S. is no longer over the scope of government, but instead how the government carries out its responsibilities and delivers services. The conservative and neoliberal vision is one of a government that provides a comparable range of benefits as conventional liberals, but rather than designing and delivering the services directly, it provides coupons for citizens.

Today’s prolonged economic slump is fundamentally different from an ordinary recession. In the aftermath of a severe financial collapse, an economy is at risk of succumbing to a prolonged deflationary undertow. With asset prices reduced, the financial system damaged, unemployment high, consumer demand depressed, and businesses reluctant to invest, the economy gets stuck well below its full employment potential.

For much of the last three decades, policy debates in the United States have been dominated by a quixotic concern about deficits, debt, and demographics. This concern has distracted policy from fundamental economic issues that have much more direct bearing on economic well-being, most notably the growth (and bursting) of the housing bubble in the last decade. While large deficits can have a negative impact on economic growth, this impact has been hugely misrepresented in public debates.

Over the course of the last two decades, a community of academics, policy wonks, and practitioners has been busy developing and testing ideas for helping ordinary people to save more and build their assets. Here are a few of the signature proposals of what has come to be known as the asset-building movement.