Below is a longer version of the article published in The Nation. For the version appearing in The Nation, please click here.

Historical analogies are never exact. Yet many of the choices we have before us today are similar to ones that an earlier generation of progressives faced as the 1932 election approached. As we do today, the progressives of the 20th century confronted a society beset by a huge gap between classes and an economy laid flat by the bursting of the speculative excesses of the previous decade. To be sure, our economy is nowhere near Depression levels of collapse. But the choices New Deal progressives eventually made over the course of their generation is worth revisiting because they provide us some sound first principles about the way to think about the economy and government today. Indeed, many of these principles are even more appropriate for today’s world.

A High-Wage Economy with a Broad Base of Middle Class Jobs

The first lesson to be learned from this earlier era is that a large middle class rests first and foremost on a productive economy that produces a broad base of jobs that pay middle-class wages. The New Dealers of the 20th century were not opposed to “rigging” the labor and financial markets to achieve this result, as evidenced by the measures they championed to protect working people and to make the financial markets work for them and their communities. In this regard, New Deal progressives believed, that the economy should exist to serve society, not the other way around, and that the government had a duty to shape the economy to meet society’s middle class aspirations. A high-wage, middle class society in turn would be good for the economy: living wages would not only ensure adequate demand for the economy, but in so doing spur new investment and productivity growth, creating an ever larger virtuous circle of rising living standards.

The belief of New Deal progressives in an economy that could create good middle class jobs stemmed in part from their sensitivity to the downside of a large social welfare state. Although Franklin Roosevelt and other progressives who followed him saw the need for universal social insurance programs, they did not like government handouts because they understood that Americans don’t want a welfare check, even if it comes in the forms of tax credits, or to be dependent on the government for their basic livelihood. They want to be middle class with a home, a good education, a good job, and money in the bank. The leading New Deal politicians and thinkers therefore resisted social welfare subsidies to individuals on the grounds that this created an unhealthy dependence on the state.

Moreover, even though they favored progressive taxation with top tax rates as high as 90 percent, New Dealers were skeptical of a society dependent upon the permanent redistribution of income. The New Deal was thus less about the redistribution of income and more about the redistribution of the capacity for economic growth and wealth creation. The principal goal of many New Deal programs was not to relieve the conditions of poverty -- although they did often do so -- but to build physical and human capital that would allow people to escape permanently from poverty.

Thus, over time they created a more equal society by emphasizing government programs that expanded education, spread property ownership, invested in America’s common physical and knowledge capital, and seeded the industries of the future that would create more middle class jobs. The New Deal thus sought to shape a high-growth, high-wage, and low subsidy society. It was not perfect in large part because it preceded the civil rights revolution and thus left out millions of African-Americans. But it did build the largest and most secure middle class America has ever known.

Today, we see the consequences of a much different way of thinking about the economy and society. Over the last two decades, we have been told, in effect, that globalization is an immutable force and that domestic society must bend to its demands, not vice versa. The best strategy, therefore, was not to shape globalization and technological change to work for our middle class ideals but to embrace the agenda of free trade, financial deregulation, and less progressive taxation that globalization required in order to maximize wealth and then to compensate the losers. But as it turned out, no amount of new social welfare measures could compensate for the loss of millions of good paying manufacturing jobs and no amount of education could make up for the fact that 7 out of 10 of the fastest growing job categories involve low-skill jobs that pay below the median wage. Thus, without any real debate, America’s political elites have chosen for us a highly stratified, low-wage society with great costs to our middle class way of life and to our productive economy.

Using Public Investment to Lay the Foundation of a Middle Class Economy

If the first principle calls for a high-wage economy with a broad base of middle class jobs, then the second principle relates to how to achieve a high-wage economy and at the same time more widely distribute the capital and skills for wealth creation. Many policies and programs went into creating the New Deal high-wage economy from supportive labor laws to full-employment policies. But the principal policy tool this earlier generation used was massive public investment and public building. The public investment programs they pursued not only created many new middle class jobs but laid the foundation for a more productive economy, which in turn produced even more good middle class jobs. Programs like the Tennessee Valley Authority in the 1930s and 40s were followed by even more extensive public investment programs in the post-war years. From 1950 to 1970, the government spent more than 3 percent of GDP on public infrastructure alone. It built everything from public highways to public schools, to public power systems and public parks. It spent nearly an equal sum on other public investment -- on education, training, and research and development, including major government research projects that led to the space age and the computer revolution.

Throughout the New Deal era, public investment was America’s way of industrial policy. It helped build our modern agriculture sector, our aerospace industry, and gave us our initial advantage over other countries in the computer and internet age. It was understood that public investment paid for itself many times over. The investment in the GI Bill alone generated returns of up to seven dollars for every dollar invested. And because it generated returns to the economy and society, New Dealers in the post-war period were not afraid to raise taxes or to borrow if needed in order to ensure adequate levels of public investment. And borrow they did even though the national debt was a much larger percentage of GDP than it is now.

Over the past two decades, however, we have made a much different choice. As concerns over the budget deficit have grown, and as tax-cutting mania has taken hold, we have cut back spending on public investment. Since 1980, we have devoted less then 2 percent of GDP on public infrastructure, and have allowed federal spending on basic research and development to decline as a percentage of GDP as well. As a result, a backlog of pubic investment spending needs -- clogged roads and ports, collapsing bridges and levies, uneven broadband access, an antiquated air traffic system, an undersized energy infrastructure -- has begun to cut into our economic growth and undermine our efficiency.

Decentralize Power and Capital

A third principle of middle-class America that the New Deal offers us relates to the dangers of the concentration of power and capital. Earlier progressive reformers distrusted great concentrations of wealth and power. Not only did such concentrations threaten democracy but they also warped the economy and distorted consumption and investment. Government therefore must be a strong countervailing force to big business and oligarchic power, and government itself must be organized in a way that it could not be captured by one economic group at the expense of another or the general public.

The New Dealers were particularly concerned about the power of Wall Street and the financial community. They feared a national credit system that was dependent on Wall Street bankers, whose interests were not always aligned with the real economy needs of homeowners, farmers, and small and medium-size producers. They therefore sought to democratize capital by creating a myriad of credit institutions that would ensure that all regions and sectors of the economy had access to capital. They created a variety of federally subsidized credit programs to enable individuals to construct homes and start new businesses and to allow states and municipalities to build schools and to modernize their infrastructure. It was here that the New Deal was most creative -- combining a strong federal state with the local and regional decentralization of capital and the local and regional control of these programs and institutions.

As with other first principles of a middle-class America, we have seen a reversal of American priorities over the last two decades, as America’s big financial institutions have again asserted their influence over the economy and economic policy. The new power of Wall Street has been evident in its successful push for financial liberalization and de-regulation, in the emphasis accorded the budget deficit and concerns about inflation as opposed to full employment, and until recently in Washington’s preference for a strong dollar, which favors financiers over real producers. This triumph of Wall Street over Main Street has been responsible in part for the hollowing out of America’s tradable good sector and for the asset bubbles that have wreaked havoc with the economy. Indeed, one of the first things the New Deal would have us do is to re-regulate the financial system and to put the interests of the productive economy over that of Wall Street.

In all these respects, whether it be high wages, public investment, or the de-centralization of financial power, the New Deal succeeded because it changed the way the economy worked, and it did so by marrying progressive reforms with Americans’ preference for independence whether from government subsidy or big business paternalism. And this is and should be the real enduring lesson of the New Deal.