The Prospect is proud to exclusively release the book Take Back Our Party: Restoring the Democratic Legacy by James Kwak. We will release one chapter every other day over the next two weeks. Read the Introduction.

Our New Choice plainly rejects the old categories and false alternatives they impose.… Liberal or conservative—the truth is, it’s both, and it’s different.

—Bill Clinton, at the 1991 annual conference of the Democratic Leadership Council

I have a poor memory of my own life, but I remember where I was when Bill Clinton was elected president: Kroeber Hall, on the campus of the University of California, Berkeley, in the evening of November 3, 1992. A friend and I were listening to the radio on a boombox when we heard the news. The nightmare of the Reagan-Bush years was over. We hugged. The Democrats were back in power.

Not surprisingly, I learned my politics from my parents. They came to the United States from South Korea, as they say, in search of a better life. My father arrived in San Francisco in 1953 on a freight ship that returned to America after delivering food to GIs fighting the Korean War. He then took a train and a bus across the country, arriving at Wesleyan College two months after the semester started (never having received the letter from Wesleyan telling him it was too late to come). My mother came nine years later to study at the University of Michigan. From them I learned that the Democrats were the party of workers, unions, and the poor, while the Republicans were the party of business and the rich.

The archetypal Democratic hero at the time was Franklin Roosevelt, the president of the New Deal, which included massive public works projects to fight unemployment, comprehensive regulation of the financial system, and the creation of Social Security. In 1944, he called for a “second Bill of Rights,” which would guarantee all Americans a job, basic material necessities, housing, health care, and an education—but which never materialized. His successor, Harry Truman, proposed a universal, single-payer health care program. And in 1964, President Lyndon Johnson declared “unconditional war” on poverty, pushing forward a legislative agenda that included Medicare, Medicaid, food stamps, and federal subsidies for schools with poor children. That was what the Democratic brand still meant in the 1970s, when I was a child.

At that moment, however, the legacy of the New Deal was in danger, weakened by the Vietnam War and economic stagnation. With a growing backlash against regulation, high taxes, and the civil rights movement, the modern American conservative movement—which had languished in obscurity as recently as the 1950s—was poised to take over the Republican Party and then the country.

Democrats were aware that President Johnson’s anti-poverty platform was losing viability on the national level. Jimmy Carter represented an alternative to traditional liberalism, but he was soundly rejected by voters in 1980 in favor of Ronald Reagan, who gave off an aura of breezy confidence that lower taxes and smaller government would unleash the American innovative spirit and usher in a new age of prosperity. The reality of the Reagan Revolution, with its tax cuts for the rich and assault on the welfare state, was the fulfillment of Democrats’ worst nightmares. After 12 years of Reagan and George H.W. Bush, we were desperate for change.

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The change that Clinton represented, however, went beyond a simple partisan shift in the White House. His historical significance lay in what he did not do. He did not reverse the conservative revolution and restore the core values of the New Deal. Instead, Clinton signaled something far more important: a realignment of the traditional account of American politics, in which Democrats represented wage workers and Republicans represented executives and business owners. Things were never quite so simple, of course—Democrats had long been financially dependent on particular segments of the business class, increasingly throughout the 1980s—but in general terms the economic identities of the two parties were clear.

The Clinton election was a crucial turning point in a transformation of the Democratic Party that has lasted to this day, more than a quarter of a century later. As the Republicans shifted to the right, metamorphosing from perfunctory defenders of corporate America to rabid zealots for unregulated markets and minimal government, the Democrats followed in their wake. The party that was once our country’s closest approximation to social democrats instead became technocratic cheerleaders for the market economy. Democratic politicians abandoned government policies that directly aided the disabled, the unlucky, and the poor, consoling themselves with the idea that facilitating overall economic growth was the best way to help the less fortunate.

× Expand Stephan Savoia/AP Photo Bill Clinton and Al Gore at a campaign stop in Carlisle, Pennsylvania, July 1992

The Clinton nomination in 1992 was itself the end product of a concerted effort to move the Democratic Party away from the left, with its embarrassing baggage of welfare programs and labor unions, and toward a more modern center. In the public’s mind, Republicans had successfully portrayed their opponents as tax-and-spend liberals who suppressed individual initiative, gave handouts to welfare queens, coddled criminals, and appeased Communists. Instead of trying to stand up for the social safety net and progressive taxes (and a humane criminal justice system), many Democratic leaders and strategists chose to distance themselves from their liberal past, accepting the conservative caricature of the New Deal and its legacy. The new Democratic Party would be responsible with the nation’s finances, strong on national defense, tough on crime, friendly to business, unfriendly to unions (except at election time), and supportive of free markets. In other words, it would be a lot like the Republican Party—but somehow, drawing on the credit it had built up from the 1930s through the 1960s, it would still claim to be the party of ordinary people.

The shift toward a market-centric ideology was foreshadowed by President Carter’s 1980 re-election campaign, as he unsuccessfully tried to co-opt Reagan’s vocabulary of individual initiative and freedom. “Every day millions of economic decisions are made in factories, in automobile showrooms, in banks and in brokerage houses, on farms and around kitchen tables … according to private needs and private individual judgments,” he said, attempting to rebut the charge that Democrats represented government control over the economy. Pressure to move the party to the right increased after Carter’s stinging loss (and the loss of the Senate majority for the first time since the Eisenhower administration). Louisiana Representative Gillis Long, the new chair of the House Democratic Caucus, sponsored the creation of a new Committee on Party Effectiveness, staffed notably by Al From. This committee began formulating a new platform—one focused on increasing private-sector competitiveness, reducing government spending, fighting inflation, and strengthening national defense. “We want to move away from a temporary economic policy of redistribution … to a long-term policy of growth and opportunity,” Representative Tim Wirth told reporters in 1982.

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The takeover of the party began in earnest, however, after President Reagan routed Democratic nominee Walter Mondale in the 1984 presidential election, which, many people thought, demonstrated the impotence of traditional liberalism (despite the fact that Mondale had promised higher taxes to reduce the national debt). Only weeks after the election, a group of major Democratic fundraisers met to discuss “how they might use their fund-raising skills to move the party toward their business-oriented, centrist viewpoints.” The same month, at an event held by the centrist Coalition for a Democratic Majority, Governors Bruce Babbitt of Arizona and Charles Robb of Virginia rejected the New Deal and emphasized the need for the party to embrace the business community. In 1985, former Caucus Committee director Al From founded the Democratic Leadership Council, which rejected the populist economic agenda inherited from Roosevelt and Johnson in favor of market-based solutions that could broaden the party’s appeal to the upper middle class and corporate America.

“We cannot afford to become a liberal party,” From wrote in a memo for Long; “our message must attract moderates and conservatives, as well.” Their new message was a paean to growth and opportunity. “The private sector, not government, is the primary engine for economic growth,” From wrote later. “Government’s proper role is to foster private sector growth and to equip every American with the opportunities and skills that he or she needs to succeed in the private economy.” The DLC was one of the central institutions of what came to be known as the New Democrats, who distinguished themselves from the presumably “old” Democrats by staking out moderate or conservative—that is, Republican—positions on issues like defense spending, crime, inflation, budget deficits, and free trade. The Progressive Policy Institute, a think tank spun off from the DLC, even adopted one of the conservatives’ favorite attack lines, arguing that the minimum wage harmed poor people by raising prices.

In 1990, Arkansas Governor Bill Clinton became chair of the DLC. He later wrote in his memoir, “the so-called New Democrat philosophy … was the backbone of my 1992 campaign for President.” Clinton spent his term as chair promoting the key themes of economic growth, limited government, and personal responsibility around the country—particularly in key primary states—before officially announcing his presidential candidacy in October 1991. He was joined on the campaign trail by Bruce Reed, former DLC policy director, who later became head of the president’s Domestic Policy Council; Robert Shapiro, who moved from the Progressive Policy Institute to become a campaign adviser and later an undersecretary in the Commerce Department; and, of course, vice-presidential nominee Al Gore, a longtime DLC stalwart. After the election, Al From headed domestic policy on the transition team; DLC vice chair Mike Espy was named secretary of agriculture; and DLC member Lloyd Bentsen became Treasury secretary.

In many ways, Clinton was the perfect standard bearer for the New Democrats. He was a Southern governor, apparently unstained by the corruption of the big city or of Congress. He had an impressive reputation as a policy wonk, having won a Rhodes Scholarship and graduated from the Yale Law School. He could fly back to Arkansas during the campaign to order the execution of the mentally disabled Ricky Ray Rector to demonstrate how “tough on crime” he was. He emphasized welfare reform and school choice to highlight his willingness to break with past orthodoxies. He openly rejected his own party: “The choice we offer is not conservative or liberal. In many ways, it is not even Republican or Democratic,” he said, accepting the nomination of the Democratic Party.

× Expand Joe Marquette/AP Photo President Clinton shakes hands with Secretary of State Madeleine Albright before beginning his State of the Union address, February 4, 1997.

And yet, in public, Clinton played as a populist. He promised opportunity for a middle class that “worked hard and played by the rules.” His optimistic post-partisan rhetoric papered over the fact that many of his substantive positions—tax cuts, smaller government, welfare limits, increased policing, charter schools, and so on—were taken straight from Republicans. He was campaigning during the aftermath of a mild recession, promising jobs and health care. More importantly, he could act like a man of the people and, like no one else, he could feel your pain. President Clinton sustained that magic throughout his eight years in the White House. As his policies became more and more firmly anchored in the center, his personal charisma and political gifts preserved his image as a defender of the common man.

Two decades later, Democrats’ memories of the Clinton administration tend to retain the Monica Lewinsky scandal, eight years of uninterrupted economic expansion, and little else. But in that period, Clinton put his stamp on the identity of his party like no president since Franklin Roosevelt.

Because he wanted to be all things to all people, Clinton won the 1992 election promising not just welfare reform but also a middle-class tax cut, health care reform, and more jobs. Even before his inauguration, however, his economic team sat him down and explained that his top priority would have to be not programs aimed at ordinary Americans, but … the bond market. On January 7, 1993, the president-elect held a meeting with his economic team in Little Rock, Arkansas. According to his advisers—including Robert Rubin, former co-chairman of Goldman Sachs and Clinton’s choice as director of the National Economic Council—Wall Street was concerned about the large budget deficits incurred by Republican tax cuts and spending increases. Investors were demanding high interest rates to buy Treasury bonds, which raised rates throughout the economy, making it harder for businesses and households to borrow and constraining growth.

The solution was to reduce budget deficits, which would lower interest rates and encourage more economic activity. Clinton supposedly responded, “You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?” But he sided with the bond market, giving up his hoped-for domestic programs for a package of tax increases and deficit reduction targets. The bill squeaked through Congress and helped fuel the Republicans’ sweeping victories in the 1994 midterm elections.

In retrospect, there are arguments in favor of the 1993 tax increase. It did reduce budget deficits, interest rates did fall, and the economy did expand for the next seven years. By the time Clinton left office, the federal government was actually running a surplus on an annual basis. Still, it is impossible to definitively say what policy produced what macroeconomic outcome; interest rates were already falling, and the economy had already begun growing in March 1991.

It is clear, however, that the decision to focus on deficits left a lasting imprint on the identity of the Democratic Party. The economic boom of the 1990s—the longest in modern American economic history at the time—and the budget surpluses of Clinton’s second term allowed his party to claim the high ground when it came to fiscal rectitude and macroeconomic management. In the past, Democrats had been big spenders, willing to shove money at the nation’s problems, while Republicans had been the mature adults worrying about deficits. Now the tables were turned. The Republican Party was in the hands of conservatives who cut taxes at every opportunity, fervently insisting that deficits would require spending cuts in the future. By contrast, Clinton and his successors could claim to be the prudent, responsible ones who understood how the economy worked. This is why Democrats have objected to every Republican tax cut on the grounds that it would increase deficits, and why Barack Obama made a “grand bargain” to reduce the national debt a top political priority, even while the economy was struggling to recover from the Great Recession.

Clinton remained determined to follow through on his campaign promise of health care reform. One challenge was that he and his team (led by Hillary Clinton), wary of undermining their newfound credibility as deficit fighters, insisted that their plan had to be budget-neutral and could not require additional new taxes beyond those in the 1993 budget bill. Perhaps more important, they rejected the basic model proposed by earlier generations of Democrats: a universal, single-payer health insurance program similar to Medicare.

Instead, they were convinced that managed market competition, not a new government entitlement, could provide the solution to America’s health care problems. Under the Clinton plan, consumers would choose their insurance from among plans offered by private insurers, either via large employers or via regional health alliances. Competition, the argument went, would give insurers the incentive to deliver superior health plans at reasonable prices, and insurers would then put pressure on providers to ensure quality and control costs. There are many reasons why health care reform suffered an ignominious defeat in Congress, never even coming up for a vote. The episode, however, was another landmark in the shift of the Democratic Party toward market-based, technocratic policies and away from the New Deal blueprint of large-scale government social programs.

The political backlash to the Clinton tax increase and health care debacle was overwhelming and immediate: The 1994 midterm elections gave Republicans control of both houses of Congress for the first time since the 1950s. The president’s response was to double down on “triangulation”—staking out a third position on the political landscape distinct from both Democrats and Republicans. And so it was Clinton, a Democratic president, who announced in his 1996 State of the Union address that “The era of big government is over.” What began as a clever strategy to secure re-election in the wake of the crushing midterm defeat has since become the standard playbook of the party: splitting the difference between conservative Republicans and a caricature of a liberal Democratic base whose primary function is to make the party establishment seem reasonable by comparison. In most cases, triangulation has led to the adoption of positions once characteristic of moderate Republicans.

Mike Albans/AP Photo New York City police officers stand guard over a wounded man in Times Square, February 1994.

One way to seek out the middle was to enact tough-on-crime bills, including the Violent Crime Control and Law Enforcement Act of 1994, which increased funding for police and prisons while lengthening sentences for federal crimes, and the Antiterrorism and Effective Death Penalty Act of 1996, which virtually eliminated the ability of the federal courts to review state court decisions, particularly in death penalty cases. After 1994, the Clinton administration’s only significant contribution to tax policy was a handout to the rich: the reduction in the maximum tax rate on capital gains from 28 percent to 20 percent in 1997. (Capital gains are the profits realized from selling assets, and thus are mainly collected by the wealthy.) Another of the president’s meager economic policy achievements was the ratification and implementation of the North American Free Trade Agreement. Although the effects of NAFTA on the American economy were relatively slight, it helped Democrats distance themselves from their traditional roots in labor unions while ingratiating themselves with the business community and burnishing their image as advocates of free trade. And it led to more aggressive trade actions, like establishing permanent normal trade relations with China, which had a far more disastrous impact on the nation’s industrial base, responsible for an 18 percent reduction in manufacturing employment from 2001 to 2007.

At the core of the New Democrats’ agenda was disassociating their party from the welfare state. Since the 1960s, conservatives had criticized government assistance programs for undermining personal responsibility and encouraging dependency on the state. By the 1980s, association with welfare was an enormous political weakness for Democrats. Republicans successfully popularized the image of the “welfare queen” and tarred Democrats as soft-hearted, weak-minded liberals who raised taxes on people who worked to fund lavish benefits for people who didn’t. In 1984, Charles Murray’s hugely influential book Losing Ground (written with funding from two conservative think tanks, the Manhattan Institute and the Heritage Foundation) argued that welfare programs harmed poor people by undermining their incentive to work.

Instead of defending the social safety net, the New Democrats simply co-opted the issue, adopting the idea that the poor needed better incentives to participate in the labor market. In 1986, DLC chair Charles Robb called for “a social policy that rewards self-discipline and hard work, not one that penalizes individual initiative.” In his 1992 campaign, Clinton staked out a position well to the right of President Bush, promising to “end welfare as we know it” and to impose a new work requirement that would kick in after two years of government assistance. In a 1993 interview, Clinton said, “[Murray’s] analysis is essentially right,” although he did not necessarily agree with the author’s policy prescriptions.

Once in office, Clinton backed his words with action. After his own welfare reform proposal fizzled out, the 1994 elections gave the initiative to congressional Republicans. While the president attacked some of their more extreme proposals, his administration quietly signaled his openness to a bill that he eventually signed into law as the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (an Orwellian name even by Washington standards). As promised, the act completely transformed the welfare system. It eliminated Aid to Families with Dependent Children, which had ensured a federal entitlement to cash support, and replaced it with Temporary Assistance for Needy Families, a new program that allocated money as block grants to states, which could spend it more or less however they wished. (The block grants were also designed to decline over time, after accounting for inflation.) PRWORA set a lifetime maximum of five years of welfare support from federal funds and placed work requirements on recipients, while giving states the latitude to impose their own, more onerous restrictions. This “welfare to work” bill also included severe cuts to food stamp benefits and, in a premonition of worse things to come, cut off most legal immigrants from both food stamps and Supplemental Security Income (paid to the disabled and the very poor elderly).

Politically, welfare reform paid off handsomely. Clinton followed through on a 1992 campaign promise just in time for re-election while neutering a potent Republican attack line. By breaking with much of his own party (PRWORA was passed mainly with Republican votes, while congressional Democrats were roughly evenly split), the president perfectly executed the triangulation strategy, distinguishing himself from both poles of the political system. Or, as Republican presidential nominee Bob Dole put it, “By selling out his own party, Bill Clinton has proven he is ideologically adrift.” At the same time, by vetoing two earlier, more conservative bills, Clinton could still claim to be the protector of the downtrodden—or, at least, not as bad as the Republicans. He swept to victory over Dole just a few months later, while the balance of power in Congress remained virtually unchanged—seeming to demonstrate the benefits of running to the middle and portraying both liberals and conservatives as out of touch with America.

Welfare reform signaled that the Democrats were no longer the party of handouts to the poor. Instead of cash, the New Democrats promised to provide opportunity, which meant giving people the education necessary to compete in the new economy. Not surprisingly, President Clinton saw market incentives as the key to improving the public-school system. He embraced the idea of accountability, which was euphemistic shorthand for making the educational market more competitive. His administration supported nationwide K-12 standards and a requirement that states turn around or close schools that failed to meet those standards—in theory, a way to mimic the competitive forces of capitalism. The president also endorsed the budding charter school movement, which sought to provide a new source of competition to traditional public schools, which would be forced to improve or risk losing their students to the new entrants. The Federal Charter School Program, created in 1994, provided funds to support the development of charter schools by states and towns.

When it came to higher education, President Clinton helped launch the Federal Direct Student Loan Program, under which the government lends directly to students, instead of subsidizing and guaranteeing loans made by banks (thereby ensuring them risk-free profits). This was a small step in the right direction, but the focus on loan programs typified the New Democrats’ approach to education. Instead of thinking of a college education as something that an advanced society should provide to its citizens, they saw it as an individual’s private investment in her human capital; the government’s role was simply to provide a nudge to make that investment easier to finance. At the same time, the Higher Education Amendments Act of 1998 made it more difficult to discharge student loans in bankruptcy. While this provision may have caused banks to lower interest rates on student loans (because they now faced less risk of not being paid back), it also had the effect of punishing those people who were unable to turn their college studies into higher-paying jobs.

With welfare reform and education policy, the New Democrats repudiated the vocabulary of social solidarity and economic security in favor of their cherished themes of opportunity, accountability, and competitiveness. But to recast the party as architects of a dynamic, fast-growing economy, it was not enough to simply cut deficits and lower interest rates. By explicitly identifying themselves with the financial sector, and with Wall Street in particular, the Democrats rebranded themselves as the party of an innovative, prosperous future. This historic rapprochement with the bankers—traditionally a Republican stronghold—began with an open door to financial-industry executives unprecedented for a Democratic White House.

× Expand Dennis Cook/AP Photo Treasury Secretary Robert Rubin in 1995

Robert Rubin, the former co-chair of Goldman Sachs, was Clinton’s first director of the National Economic Council and was promoted to Treasury secretary in 1995. Other Wall Street appointees included Gary Gensler of Goldman (Treasury undersecretary), Roger Altman of Lehman Brothers (deputy Treasury secretary), and Lee Sachs of Bear Stearns (assistant secretary for financial markets). Most surprisingly, in 1996 and again in 2000, Clinton reappointed Alan Greenspan—a libertarian free-market ideologue and onetime devotee of conservative intellectual darling Ayn Rand—as chair of the Federal Reserve Board of Governors.

More important, Clinton definitively reversed the Democratic Party’s historic support for tight financial regulation. This dated back to the New Deal, when the Roosevelt administration and Congress had imposed sweeping constraints on the industry with the Glass-Steagall Act of 1933, the Securities Act of 1933, and the Securities Exchange Act of 1934. Financial deregulation had been one of the top priorities of President Reagan, but a decade later it was eagerly embraced by Democrats in both the White House and Congress. The Clinton years saw the Riegle-Neal Act of 1994, which opened the door to interstate banking and a wave of consolidation; the Gramm-Leach-Bliley Act of 1999, which dismantled the remaining barriers separating investment banking, commercial banking, and insurance; and the Commodity Futures Modernization Act of 2000, which effectively prohibited regulation of financial derivatives. All three bills were ultimately passed with major Democratic support in Congress. The Clinton administration even suppressed attempts by regulators to monitor excessive systemic risks—most famously when Rubin, Deputy Treasury Secretary Lawrence Summers, and Greenspan shut down a 1998 attempt by Brooksley Born, chair of the Commodity Futures Trading Commission, to study the possibility of increased oversight over derivatives.

The Democrats’ new love affair with Wall Street was based on the theory that relaxing the rules governing financial institutions would stimulate innovation and promote the flow of capital to where it would do the most good for the economy. In particular, deregulation gave Democrats a shiny new housing story, free from the complications and negative connotations of public housing and Section 8 vouchers. Freeing markets for mortgages and mortgage-backed securities would increase the funding available to homebuyers, making it possible for more and more people to buy real estate—even if their incomes remained stagnant. As we know today, deregulation also made possible the highly concentrated and unstable financial system that collapsed in 2008, when the world suddenly realized that millions of those same mortgages could never be repaid.

At the time, however, catering to the financial industry dramatically increased the flow of campaign donations from Wall Street. Historically, banks and securities firms had leaned Republican, but the Clinton administration’s embrace of deregulation—along with the Republican Party’s increasingly hostile stances toward women, gays, and minorities—attracted more and more contributions precisely at the time when shrinking unions were unable to keep the party afloat. Bill Clinton, Barack Obama, and Hillary Clinton were all able to raise as much or more money from the financial sector than their Republican opponents for president.

The reconciliation between the Democratic Party and the financial industry also successfully redefined the party’s economic identity. Prior to the 1990s, Democrats were associated with the old economy: heavy manufacturing, with its smokestacks, acid rain, and largely unionized workforces. But after the stagnation of the 1970s and the invasion by cheap Japanese cars, the American manufacturing industry was widely perceived to be in decline. By contrast, finance seemed a hotbed of innovation, beginning with the leveraged buyouts and junk bonds that marked the 1980s. Oliver Stone’s 1987 movie Wall Street made corporate raider Gordon Gekko, best known for his “Greed is good” speech, a cultural icon; in 1989, Michael Lewis’s memoir Liar’s Poker, though written as an indictment of finance culture, helped make Wall Street the destination of choice for graduates of America’s elite colleges. Finance was perceived to be clean, modern, and sophisticated—an industry that moved dollars instead of steel, that relied on brains instead of brawn.

Once upon a time, the Democratic Party helped the working class by supporting unions and promoting the social safety net. Now it claimed to help the working class by lubricating the flow of capital, which would promote economic growth and eventually create good jobs for everyone. Tired of being seen as for labor and against capital, the party could now be for everyone; or, in practice, it could be for capital while claiming to help labor as well. In less than a decade, the Democrats successfully repositioned themselves as the party of deficit reduction, welfare reform, market incentives, and financial innovation. The fact that the Clinton presidency coincided with a long economic expansion only sealed the bargain in Democrats’ minds. From this point the party’s platform would be technocratic management of a growing economy in which markets fulfill everyone’s needs.

The 2000 presidential election demonstrated the weakness of this political strategy. Al Gore was the heir apparent, not only the two-term vice president, but also a fellow overeducated white Southerner and a longtime member of the Democratic Leadership Council. But when he tried to campaign on the continuation of the Clinton years (minus the sexual peccadilloes), it turned out that no one really knew what that meant. Without Clinton’s personal charisma to close the deal, it wasn’t clear that many voters wanted to buy the New Democrat brand—or that they could distinguish it from the empty “compassionate conservatism” that George W. Bush was peddling. In the late stages of the campaign, Gore tried to reinvent himself as a populist. “They’re for the powerful. We’re for the people,” he declared, but by that point it was just an empty slogan. Although overall economic growth had boosted the wages of lower-income workers, the administration he served in could point to few identifiable accomplishments that benefited “the people,” and while the president himself had the political skill to square that circle, his lieutenant did not. And so the moderation of the Clinton years gave way to the disaster of the Bush years: two major tax cuts for the rich, an all-out campaign against economic regulation, and the most severe financial crisis and recession for 70 years.

Bob Childs/AP Photo Al Gore and his running mate Joseph Lieberman during a campaign stop in Stamford, Connecticut, August 2000

The New Democrats, however, escaped the shipwreck of Gore’s defeat with their prestige intact and only flourished during the next eight years. Indeed, they followed the model defined by conservative think tanks decades before, creating a network of Washington institutions that would house the “government in waiting” until the next shift in power. In addition to the Democratic Leadership Council, think tanks such as Third Way, the Progressive Policy Institute, the Center for American Progress, and the Hamilton Project (housed at the Brookings Institution) became refuges for Clinton administration alumni and sources of policy research favoring market-based solutions to economic problems. The Hamilton Project was founded by Robert Rubin, Clinton’s Treasury secretary, and the Center for American Progress by John Podesta, Clinton’s chief of staff. In Congress, Democrats used their new stature as responsible economic technocrats to criticize President Bush’s tax cuts on the grounds that they threatened to increase budget deficits. For the most part, however, corruption, incompetence, and the Iraq War tarnished the Republican brand enough that Democrats could win an emphatic victory in 2006 without having to articulate a coherent economic agenda.

Hillary Clinton was the obvious first choice of the Democratic establishment for the 2008 presidential nomination, but Barack Obama fit the bill equally well—a smart, well-educated policy wonk who claimed to transcend party divisions. “There is not a liberal America and a conservative America—there is the United States of America,” he proclaimed as a Senate candidate giving the keynote speech at the 2004 Democratic National Convention. (After his election, Obama spoke at the launch of the Hamilton Project in 2006.)

Obama was arguably the most moderate of the main primary contenders; on health care, for example, he opposed the individual mandate proposed by Clinton (and later incorporated into Obamacare). He won the presidency largely on his personal story and charisma, an uplifting but vague promise of change, and general disaffection with Republicans that was exacerbated by the 2008 financial crisis. Obama’s first inaugural address in 2009 was a masterpiece of triangulation, stereotyping and discarding both conservative and liberal positions in favor of an idealized center. “The question we ask today is not whether our government is too big or too small, but whether it works,” the new president said. His economic philosophy was even more squarely in the Clinton tradition: “Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched. But this crisis has reminded us that without a watchful eye, the market can spin out of control.” In short, markets are the source of prosperity, and government’s role is limited to ensuring that they function properly.

Barack Obama borrowed not only Bill Clinton’s ideology, but also much of his staff. He turned over his transition team to Podesta, a longtime Clinton loyalist. Several of his Senate and campaign economic advisers were sidelined in favor of Clinton veterans. Among those taking top economic positions in the new administration were: Lawrence Summers, Robert Rubin’s understudy and successor as Treasury secretary in the Clinton years; Timothy Geithner, an undersecretary to Summers and Rubin protégé; Peter Orszag, a former Clinton adviser and director of the Hamilton Project; Jason Furman, director of the Hamilton Project after Orszag; Michael Froman, Rubin’s chief of staff in the Treasury Department; Gary Gensler, undersecretary for domestic finance under Summers; Mary Schapiro, head of the CFTC under Clinton; Neal Wolin, former general counsel of the Treasury Department; Jack Lew, former head of the Office of Management and Budget; and Michael Barr, a deputy assistant Treasury secretary under Rubin. When it came to economic affairs, it was clear that the new president was eager to embrace the legacy of the Clinton years.

Coming into office in the depths of the Great Recession, Obama’s first task was to shore up a global financial system that had imploded the previous year and was only functioning thanks to oceans of liquidity provided by the Federal Reserve. At the same time, he had to rescue an economy that was shrinking rapidly and shedding jobs by the millions. Some members of the president’s team considered nationalizing some of the sickest megabanks, particularly Citigroup and Bank of America, which clearly would have failed without government assistance (and whose recklessness had helped produce the financial crisis in the first place). But instead, the administration continued where its predecessor had left off, giving Citigroup a third bailout in February 2009 and effectively pledging unlimited support for the megabanks. Given the close relationships with the financial sector that had been fostered by the Clinton administration and maintained during the intervening years, the instinct of the Obama White House was to ride to the rescue of the banks they knew. Whereas Franklin Roosevelt positioned himself as an opponent of Wall Street, Obama styled himself as its protector. “My administration is the only thing between you and the pitchforks,” he said to the CEOs of 13 large banks at the White House in March 2009. As it turned out, that was a promise, not a threat, and Obama lived up to it, ensuring that the remaining large banks survived the crisis intact, with their CEOs in place.

× Expand Charlie Neibergall/AP Photo The Obamas at the Democratic National Convention in Boston, July 27, 2004

The paralysis of the financial system was an unprecedented emergency, but the choice to rescue the megabanks that caused the crisis was a natural one for a Democratic establishment that prided itself on its sophisticated appreciation of modern finance. The Obama administration’s broader response to the crisis and Great Recession demonstrated where the party now stood on key economic issues. The stimulus bill passed early in 2009 was far better than nothing, but it was constrained by the administration’s dedication to fiscal responsibility, which the Clinton veterans saw as the keystone of both the 1990s boom and the Democrats’ return to power. To preserve the party’s deficit-fighting credentials, the stimulus had to be coupled with a “strategy to return to long-term fiscal discipline,” in Furman’s words. Or, as Rahm Emanuel, Obama’s first chief of staff, put it, “No fucking way is this number coming anywhere near a trillion dollars.” Therefore, the stimulus was too small to fill the hole created by the recession, while also designed to phase out quickly and avoid creating long-term government programs that could have had a lasting structural impact on the economy.

While the 2009 stimulus was merely inadequate, the administration’s response to the housing crisis was unconscionable. The collapse of the housing bubble and the financial system inexorably produced wave after wave of delinquencies and foreclosures as homeowners, no longer able to refinance their houses, could not make their monthly payments. Yet the federal government never addressed the problems faced by ordinary families—once the backbone of the Democratic Party—with anything like the imagination or financial firepower it used to rescue the big banks. President Obama failed to follow through on his campaign proposal for mortgage “cramdown,” which would have allowed bankruptcy judges to reduce the principal balance on mortgages. A plan by Treasury official Herb Allison to force banks to recognize losses on their bad loans was rejected by higher-ups because, in Allison’s words, “We don’t want to appear as though we’re socialists.” (Allison was himself a seasoned capitalist, previously chief operating officer of Merrill Lynch and CEO of asset management giant TIAA.) The administration declined to pressure mortgage servicers to reduce the principal owed on mortgages, even in federally funded programs purportedly designed to help people stay in their homes. Any of these ideas would have hurt the banks’ balance sheets, weakening them further.

Instead, the administration’s main vehicle to help homeowners, the Home Affordable Modification Program, was designed as a voluntary program for mortgage servicers, promising them cash subsidies in exchange for reducing borrowers’ monthly payments—another attempt to achieve public ends by giving a gentle nudge to private-sector institutions. The significant discretion handed to mortgage servicers enabled them to use the program as a predatory lending scheme, squeezing extra payments out of struggling borrowers before ultimately pursuing foreclosure. As Treasury Secretary Geithner infamously said, HAMP’s real purpose was to “foam the runway for [banks]”—that is, to space out foreclosures long enough so that banks could absorb their losses without going under. In other words, the administration’s strategy was to let struggling families lose their homes in order to protect banks—an approach that clearly showed where their priorities lay. In the end, only a small fraction of delinquent homeowners received permanent loan modifications under HAMP, while more than nine million households lost their homes to foreclosure or financial distress. In total, the Treasury Department only spent $29 billion on (mostly indirect) aid to homeowners, less than half of what the administration initially promised; to put this in context, families collectively lost more than $7 trillion in equity in their houses during the financial crisis.

Alan Diaz/AP Photo A foreclosed home in Homestead, Florida, 2009

The disintegration of the banking system also demonstrated the need—and created the opportunity—for comprehensive reform of the financial sector. It was clear that decades of unchecked innovation, rampant deregulation, and excessive concentration had produced a financial system in which a handful of colossal banks preyed on unsophisticated borrowers while accumulating risks they scarcely understood, forcing the government to come to their rescue when they finally exploded. Unlike in 1933, however, the Obama administration and Democrats in Congress chose not to pursue structural reform of the industry. Instead, the Dodd-Frank Act of 2010 re-engineered the regulatory framework of the financial sector, rearranging and in some cases increasing the powers available to government officials to oversee and potentially intervene in banks’ operations.

The administration opposed proposals either to separate investment and commercial banking (by repealing the Gramm-Leach-Bliley Act) or to impose size limits on banks. After an amendment to establish size caps failed in the Senate, a senior Treasury official said, “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.” Lobbyists swarmed over Capitol Hill, picking off moderate Democrats—often longtime recipients of financial-industry support—to weaken the legislation even further. In 1933, Franklin Roosevelt had shut bankers out of his inner circle. By 2010, however, the Democratic Party was locked in a marriage with Wall Street, even if it was going through a rough patch at the time. A core tenet of the New Democrats was that finance is good and more finance is better, and one crisis was not enough to shake that belief. The result was a bill that largely preserved the financial system that was responsible for the 2008 crisis—and, indeed, America’s largest banks today are even bigger than ever.

While financial reform was a battle that was thrust upon President Obama, he always intended health care to be the centerpiece of his legacy. The Patient Protection and Affordable Care Act of 2010 was the clearest demonstration yet of the Democratic Party’s infatuation with market-based solutions to broad social problems. As late as the 1970s, party leaders had been proposing government-financed universal health insurance programs; even Republican Senator Jacob Javits introduced a Medicare for all bill in 1970. In 2010, by contrast, the party united behind a bill whose centerpiece was exchanges, in which insurers would supposedly compete for consumers by providing better health plans at lower prices.

The administration’s experts knew that health insurance markets, left on their own, would produce unwanted outcomes. Poor people simply wouldn’t be able to afford coverage; people might be tricked into buying deceptive policies that turned out to provide minimal benefits when they were actually needed; and, because of adverse selection, insurers would set high prices that only sick people would be willing to pay (if they could afford them). To address these problems, the Affordable Care Act included subsidies for lower-income families, minimum coverage requirements, and the individual mandate, which was designed to force healthy people to buy insurance, bringing down prices for everyone.

Obamacare, as it came to be known, was an improvement on the unregulated individual market that preceded it. But as an exercise in Democratic policymaking, it was remarkable for its insistence on using markets and the private sector to achieve public ends—which, in this case, could be much more simply accomplished with a traditional social insurance program such as Social Security or Medicare. The root problem with the American health care system is that care is expensive; the average total premium for an employer-sponsored family plan is more than $20,000 even before deductibles and co-payments, far more than many workers could afford. In a properly functioning market, people who can’t afford something don’t get it. But when it comes to health care, that’s not an outcome we are willing to accept. No one will say (in public, at least) that how much you suffer, or whether you live or die, should depend on how much money you have—although in practice that’s often how it works. Instead, Republicans and Democrats agree that all people should have access to decent health care at a price they can afford.

The most direct way to realize this goal is a universal health insurance plan (often known as “single payer”) paid for by a progressive tax system; that way everyone has coverage, and the amount you pay depends on your income. But the core assumption behind the Affordable Care Act was that competitive markets are the best way to provide goods and services, and the role of government is limited to ensuring that markets function properly. That’s why we ended up with a complicated system designed to contort markets into producing socially acceptable outcomes, whose features include private insurers whose costs are significantly higher than Medicare’s; complicated risk adjustment mechanisms designed to ensure that insurers aren’t profiting by skimming off the healthiest customers; subsidies that aren’t enough for many families; coverage for the poor that is subject to the whims of state governors and legislatures; annual negotiations in which insurers threaten to pull out of the exchanges unless they can raise prices; and, because underlying health care costs continue to rise, plans that increasingly require more out-of-pocket spending by customers.

Despite all the attention paid to the private health insurance exchanges, it is telling that the part of the Affordable Care Act that expanded coverage the most was actually an expansion of public insurance: the increase in Medicaid eligibility up to 138 percent of the federal poverty level. This one provision alone gave health insurance to 14 million Americans, far more than the increase in coverage in the individual market—even though many Republican governors and legislatures chose not to adopt the Medicaid expansion.

× Expand Charles Dharapak/AP Photo Obama is applauded after signing the Affordable Care Act into law, March 23, 2010.

Defenders of Obamacare point out that there were not enough votes for a universal single-payer system. But there is no evidence that the architects of the Affordable Care Act would have preferred single-payer; instead, they seem to have been firmly in favor of private markets. More to the point, the question of votes only deflects the question. Exactly zero Republicans voted for the final version of the Affordable Care Act. The health care reform we got was the health care reform that the Democratic Party wanted—whether for ideological reasons, or because its members wanted to stay on good terms with the insurance industry. The Democratic position was once that we should pool our resources to ensure that everyone is protected against certain shared risks, including lack of access to health care. Now the default approach was to assume that markets can provide all good things and then, if necessary, figure out how to make those markets work better. Obamacare fit perfectly with the new worldview of Democratic insiders, who rejected anything that might be seen as socialist and portrayed themselves as sophisticated, business-friendly architects of enlightened policies informed by the latest economic research.

Although finance and health care dominated President Obama’s legislative agenda, other components of his economic agenda betrayed the same preference for technocratic, market-based solutions. Retirement security has been a ticking time bomb for decades, made worse by the collapse of home values beginning in 2006. The traditional Democratic approach to retirement was Social Security—a mandatory, government-run program that provides minimum benefits to virtually every worker. Obama’s answer, however, was a proposal to require companies to automatically enroll their employees into 401(k) individual saving plans administered by the private asset management industry. This was a classic New Democrat proposal, giving private markets a nudge to help them achieve public ends—in this case, a nudge based on the hot new field of behavioral economics. It also fit the New Democrat mold by failing to address the root cause of retirement insecurity: After decades of wage stagnation, many people just don’t make enough money to save. Unwilling to propose anything that smacked of redistribution, Obama was left talking about the power of the stock market to multiply wealth—scant consolation to workers who have none to begin with.

As for Social Security, President Obama was willing to offer a major long-term reduction in benefits (by changing the way cost-of-living adjustments are calculated) in his pursuit of a budgetary deal with Republicans. When negotiations failed, he even included the same benefit reduction in his 2014 budget proposal as a way to reduce long-term deficits—since the Clinton administration, Democrats’ way of showing their tough-mindedness on economic issues.

President Obama also inherited Clinton’s market-oriented approach to education. His administration took up the buzzword of “accountability,” backing the development of the Common Core standards and providing incentives to states to develop teacher evaluation systems based on standardized test scores. The Race to the Top program dangled money to states strapped for cash after the recession, rewarding those that attempted to expand the market share of charter schools. Obama went one further than Clinton in the student loan market, completely eliminating federal subsidies to private banks. In addition, the administration created a new loan repayment plan that links payments to the borrower’s income, while requiring universities to demonstrate that their graduates were actually able to get jobs, and issuing a rule helping people who had been defrauded by for-profit institutions. These were welcome changes. But after a generation of rapidly rising tuition costs, and with outstanding loans doubling to $1.4 trillion during the president’s tenure, they barely made a dent in the ballooning student debt crisis. Making it a little easier to borrow money was no solution to the fundamental problem: that college costs were rising much faster than incomes.

With time running out on his second term, President Obama pinned his hopes for one more economic policy victory on the Trans-Pacific Partnership, a trade agreement negotiated between a dozen countries bordering the Pacific Ocean. For the administration, the TPP was simply a matter of basic economics: International trade contributes to economic growth, creating jobs in export industries and lowering prices for consumers. Opponents of the agreement, Obama’s team insisted, were simply old-fashioned protectionists who didn’t understand the magic of markets.

Even in the economics textbook, however, trade creates winners and losers, and since the invasion of our markets by Chinese exports, the United States has not done a good job of protecting the losers—primarily people dependent on industries threatened by foreign competition. In addition, TPP was far more than a free-trade agreement. Among other things, its intellectual-property rules forced other countries to adopt laws protecting the (U.S.-dominated) media and pharmaceutical industries, and its system for “investor-state dispute settlement” allowed multinational corporations to bypass domestic legal systems—fostering the belief that TPP was primarily drafted to benefit big business. Politically, TPP ultimately became a casualty of the populist rebellion of 2016, leaving a Democratic president as the last supporter of a trade agreement rejected by both the left and the right—an outcome that would have seemed fantastic only 30 years before.

To be sure, there are other voices in the Democratic Party, which has not been entirely taken over by pro-business, pro-market ideas and policies. Presidents Clinton and Obama, however, almost by definition constitute the center of gravity of the party. Their ideas, their legacy, and their people make up the current Democratic establishment. In addition, in an age of short memory spans, they represent what the party means to most Americans today; its identity is largely a creation of their words and their actions. Hillary Clinton certainly did little to reposition the Democratic Party in the eyes of most people. Her economic platform was a caricature of New Democrat technocracy, with its catalog of bulleted plans, its painstaking care to distinguish itself from opponents on both the right and the left, the overbearing sophistication with which it lectured that Bernie Sanders’s proposals were impractical, and its lack of any message beyond a promise to create economic growth and good jobs. Clinton’s few, faltering endorsements of progressive positions—such as her switch from supporting to opposing the TPP—only came after considerable pressure from the left, and only reinforced the idea that the Democratic standard-bearer stood for nothing more than grinding out every last vote possible in the upcoming election.

This brings us to the Democratic Party of today. Leaving aside the recent progressive insurrection—inspired by Sanders and embodied by Alexandria Ocasio-Cortez and the Squad—it is a party devoid of any compelling idea of how to address the fundamental economic challenges our country faces today: wage stagnation, the rising cost of health care and urban housing, the precariousness of most jobs, and extreme inequality. After defining themselves in opposition to old-fashioned government spending programs that smacked suspiciously of redistribution, after embracing the doctrine of market-based solutions, and after insisting for decades that economic growth would solve all problems, establishment Democrats today have nothing left to offer.

Their economic policy agenda is anemic, constrained as it is by the premise that all good things must come from the market. Infrastructure spending is a perennial favorite, because it addresses a market failure (private companies have insufficient incentive to build or maintain shared goods like roads and bridges), can be touted as a productive long-term investment, and can be channeled through the private sector. Job retraining programs are another staple, because they promise to help workers adapt to changes in the labor market—a promise that, unfortunately, they often fail to keep.

Otherwise, there is precious little. The idea of a $15 minimum wage was the product of progressive groups on the state and local levels, only later reluctantly embraced by party leaders. Medicare for All likewise was born on the party’s left wing, and the establishment currently appears to be trying to figure out how best to squash the idea without being blamed for doing so. The idea that the government should increase taxes on the rich and give stuff to ordinary people (a college education, for example) is anathema, condemned as class warfare by moderate Democrats even more vigorously than by Republicans.

This is the economic vision of their Democratic Party. Economic growth is the goal, markets are the means, and the role of government is to maximize efficiency by correcting for specific market failures. The things people actually want—such as education, jobs, housing, and health care—are a by-product of that growth. Heavy-handed attempts to intervene in the economy will only backfire.

The fact that we would have called this a moderate Republican vision only a few years ago doesn’t necessarily make it wrong. And it isn’t nonsensical on its face. The problem is that it has failed, both as policy and as politics.