New Year Predictions: The Tea Party Strategy and U.S. Economy in 2011

By Robert Reich

Next week starts the new Congress, and with it the Tea Party conservatives. What's their strategy? What will they rally around? 

They'll grouse endlessly about government spending but I don't think they'll use any particular spending bill to mobilize and energize their grass roots. The big bucks are in Social Security, Medicare, and defense, which are too popular. And their support for a permanent extension of the Bush tax cuts will make a mockery of any argument about taming the deficit. 

Nor will they focus on the debt ceiling. Their opposition to raising it will generate a one-day story but won't rally the troops or register with the public. Most Americans aren't particularly interested in the debt ceiling, don't know what it means, and don't feel affected by it. 

Instead, I expect their rallying cry will be about the mandatory purchase of health care built into the new healthcare law. The mandate is the least popular, and least understood, aspect of that law. Yet it's the lynchpin. Without it, much of the rest of the law falls apart: It's impossible to cover all high-risk Americans, including those with pre-existing conditions, unless those at far lower risk are required to buy insurance. 

Knowing they don't stand a chance of getting a direct repeal of the mandate (even if they could get a majority in the House for it, they won't summon 60 votes in the Senate, and have no possibility of overriding a presidential veto), they'll try to strip the federal budget appropriation of money needed to put the mandate into effect. This could lead to a standoff with the White House over government funding in general, and a possible government shutdown. 

My bet is Tea Party conservatives wouldn't mind a government shutdown over the health-care mandate. Unlike Bill Clinton's showdown with Newt Gingrich, which hurt the conservative cause, Tea Partiers believe this one could be helpful. In their view, it would enable them to stand on principle, dramatize their argument that the Obama administration overstepped with health care, and generate a particular event around which they can summon the energy and enthusiasm of their ground troops -- all with an eye on mobilizing for the 2012 general election.

Advice to Obama White House: Get ready. 

New Year Prediction II: The U.S. Economy

 

What will happen to the US economy in 2011? If you're referring to profits of big corporations and Wall Street, next year is likely to be a good one. But if you're referring to average American workers, far from good. 

The two American economies -- the Big Money economy and the Average Working Family economy -- will continue to diverge. Corporate profits will continue to rise, as will the stock market. But typical wages will go nowhere, joblessness will remain high, the ranks of the long-term unemployed will continue to rise, the housing recovery will remain stalled, and consumer confidence will sag. 

The big disconnect between corporate profits and jobs is likely to continue because America's big businesses are depending less and less on U.S. sales and U.S. workers. Their big profits are coming from two sources: (1) growing sales in China, India, and other fast-growing countries, and (2) slimmed-down US payrolls. 

In a typical recovery, profits lead to more hiring. That's because in a typical recovery, American consumers head back to the malls -- and their buying justifies more hires. Not this time. All the hype about Christmas sales over the last few weeks masked the fact that American consumers demanded bargain-basement prices. And the price-cutting dramatically reduced sellers' margins. In short, profits aren't coming from American consumers -- and profits won't be coming from American consumers in 2011. 

Most Americans don't have the dough. They're still deep in debt, can't borrow against their homes, and have to start saving for retirement. 

The Dow Jones Industrial Average is rising because of foreign sales. General Motors is now making more cars in China than in the US, and two-thirds of its total sales are coming from abroad. When it went public last month it boasted that soon almost half its cars will be made around the world where labor is less than $15 an hour.

Wal-Mart isn't doing especially well in America but Wal-Mart International is booming. And Wal-Mart is hiring like mad outside the US. 

General Electric is keeping its payrolls down in the US but plans to invest half a billion dollars in Brazil and hire 1,000 Brazilians, and invest $2 billion in China. 

Corporate America is in a V-shaped recovery. That's great news for investors and everyone whose savings are mainly in stocks and bonds. It's also great news for executives and Wall Street traders, whose pay is linked to stock prices. All can expect a banner 2011. 

But most American workers are trapped in an L-shaped recovery. That's bad news for the Main Streets and small businesses in 2011. It's also a bad omen for home prices and sales, and everyone whose savings are mainly in their homes. 

Home prices in major metropolitan areas sank last month, the third straight month-to-month drop. I expect home price declines to continue next year. We're in a double-dip housing market, largely because unemployment remains so bad that millions of Americans can't pay their mortgages. 

None of this bodes well for US employment next year. I expect the official unemployment rate to remain around 9 percent. 

In other words, whether 2011 is a great year economically depends which economy you're in " the one that's rising with the profits of big business and Wall Street, or the one that will continue to struggle with few jobs and lousy wages. 

Sadly, the next Congress is unlikely to do much to reverse any of this. Most Republicans and too many Democrats are dependent on corporate America and Wall Street. Their version of tax reform is to cut taxes on the wealthy and on big corporations, and either raise them on everyone else (sale and property taxes are already on the rise) or cut spending on programs working families depend on. 

At some point, perhaps, the disconnect between America's two economies will become so big and so obvious it can no longer be ignored. Progressives, enlightened Tea Partiers, Independents, organized labor, minorities, and the young form a new progressive movement designed to reconnect America. 

One can always hope.