This article appears in the Winter 2015 issue of The American Prospect magazine. Subscribe here.

Where should the Democrats go now? Losing both houses of Congress frees them to function as an opposition party, not just to the Republicans, but to a political economy that serves fewer and fewer Americans.

Whether they will seize that opportunity remains an open question. To many within the party establishment, the Democrats face a choice between moving to the center to win over white electors who have either stopped voting or strayed into the Republicans' ranks, or moving left to re-energize the Rising American Electorate, the young and minority voters who powered Barack Obama into the White House. The idea that a progressive populist agenda-one that explicitly champions the interests of the 99 percent against those of the one-could command support in both these constituencies is still alien to many Democratic leaders. Judging by the Beltway discourse, the question that vexes Democrats most is whether the defection of whites or the absence of minorities played the decisive role in the party's midterm debacle. The mere existence of this debate reveals the disquieting blindness of some party leaders to both the economic changes that have blighted Americans' lives in recent decades and to the political opportunities that await the party that reshapes that economy to create more broadly shared prosperity.

Not that the old debate doesn't pose some valid questions. Did the Democrats make a strategic mistake, as New York Senator Chuck Schumer argues, in crafting a program-the Affordable Care Act-that chiefly benefits the poor and near poor, disproportionately minorities, disproportionately young, disproportionately non-voters, rather than one tilted more toward the middle class? Does the emphasis that Democrats place on raising the minimum wage, commendable though it may be, do anything to help the mass of non–poverty wage workers whose own incomes are also stagnating?

(AP Photo/J. Scott Applewhite)

Within the confines of this debate, electoral considerations don't provide the Democrats with very much guidance. Their 2014 midterm catastrophe was the product both of white working-class rejection and rising-American-electorate indifference. Exit polls showed the Democrats losing the white working class by a 30-point margin, and the failure to win such voters clearly doomed Senate candidates like Colorado's Mark Udall and Iowa's Bruce Braley. Democrats are accustomed to losing these voters in Southern states by margins such as this, but to lose them at this rate in Northern states like Colorado marked a new low.

At the same time, the Democrats' debacle was also the result of failure to motivate their core constituents. The key to the Democrats' losing the governorships of such rock-solid Democratic states as Illinois and Maryland was their failure to give inner-city minority voters a compelling reason to turn out. In the 2012 presidential election, 1,028,870 Chicago residents voted; in last year's midterm, just 668,033. In Baltimore, the number of voters in those two elections fell from 257,399 to an abysmal 75,212-a decline of 70 percent. Indeed, the Democratic share of the House vote in big cities-those with a population in excess of 500,000-fell from 71 to 61 percent between 2012 and 2014, not because those voters were turning Republican, but because the falloff in minority participation was so steep.

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Yet while many of these races featured flawed Democratic candidates, they also shared a common handicap: the failure of the Democrats to tell voters how they planned to re-create broadly shared prosperity. This was part and parcel of an even more serious failure (one the Democrats shared with virtually every governing party in the advanced industrial democracies): their inability, only partly due to Republican obstructionism, to arrest the declining economic fortunes of all but the wealthiest 10 percent. The party's level of support among white voters reflects that failing. In 2012, President Obama won a majority of only the most highly educated-and disproportionately prosperous-whites: He took just 36 percent of whites with no more than a high school education, 37 percent of whites with some college, and 37 percent of white college graduates with no grad school. Among whites with postgraduate educations, however, he won 52 percent support. Such voters may be somewhat more liberal than most on social issues, but a gap that wide likely also reflects a divide between those whose lives have remained economically stable and those who have seen theirs shaken by the economic transformations of the past 30 years and overturned by the earthquakes of the past seven.

Hard times have descended on the party's core constituents and swing voters alike. Why, then, do the Democrats have to choose between them?

Why haven't they come up with a platform that can address the common needs of both? And what would such a platform look like?

In fact, it has proved easier for the Democrats to craft and enact programs to help those left out of our meager welfare state than it has been to develop and implement policies that could assist the larger number of Americans whose cause Schumer purported to champion. Extending subsidized medical insurance to the uninsured or giving legal status to the undocumented parents of American-citizen children may have proved politically contentious, but did nothing to threaten, or even discomfit, the nation's economic power centers, on whom Democrats, like Republicans, have come to rely. Championing the 99 percent at the expense of the 1 percent, by contrast, is not a battle that Democrats have been waging-at least not since Franklin Roosevelt's time.

The economic arrangements put in place by the New Deal created a broadly shared prosperity that enabled Democrats to focus on extending civil and economic rights to those left out of the New Deal's social contract. That was their mission, their default mode, throughout the second half of the 20th century, and into the 21st. It assumed no need to rework the fundamentals of American capitalism. The system worked reasonably well, at least for most Americans. The Democrats' task was to help the minority of Americans whom the system failed.

Now that that minority has become the majority, how should the Democrats respond?

The Democrats' task is greatly complicated by the skepticism, cynicism, and sheer anger that Americans feel toward their government and its endeavors. As pollster Stan Greenberg wrote in these pages in 2007, "Republicans have undermined Americans' confidence in the ability of government to play a role in solving America's problems. Democrats will not make sustainable gains unless they are able to restore the public's confidence in its capacity to act through government." Since Obama became president, Republicans' complete opposition to any Democratic initiatives to address the nation's economic distress has only intensified this disbelief in government's capacity. Exit polling from this November's election-which featured a disproportionately Republican electorate-found that 54 percent believed government was doing too much, while just 41 percent felt government needed to do more to help the economy.

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Decades of data make clear that Americans' opposition to big government as an abstract idea is consistently high. When questions are posed about particular government programs that aren't specifically targeted to minorities or the poor, however, the public tends to deliver favorable judgments. In his 2013 study, The White Working Class Today, Andrew Levison concludes that this on-the-one-hand-on-the-other-hand sensibility is particularly prevalent within the white working class, whose ideological assumptions and life experiences often prompt contradictory beliefs. He cites a 2009 Center for American Progress survey of white working-class beliefs in which 52 percent of respondents agreed with both of the following statements: First, "government spending is almost always wasteful and inefficient," and, second, "government investments in education, infrastructure and science are necessary to ensure America's long-term economic growth."

It's not just white workers who are prey to conflicting beliefs. An NBC/Wall Street Journal poll from late November found that 53 percent of Americans were pleased with the outcome of the midterm election. Asked to rank their priorities for the newly more divided government, however, the top three tasks that respondents wanted the government to accomplish were lowering the cost of student debt (more than 80 percent supported that), raising spending on highways and roads (more than 70 percent), and raising the minimum wage (more than 60 percent).

While Democrats must continue to advocate for government to undertake the myriad tasks that the private sector does poorly or not at all, they also must do a better job of balancing the kind of universal programs that most voters, all ideology to the contrary, actually support with ones crafted to help those left out of the 20th century's social contracts.

The Obama administration's error was not its enactment of the Affordable Care Act; its mistake was the failure to press for a bigger and broader stimulus program.

Its even greater problem was not one of its own making: that the economic growth its policies engendered did not accrue to the American people but only to its wealthiest percentile. Fully 95 percent of the income growth since the recession ended, economist Emmanuel Saez's survey of tax data reveals, went to the top one percent.

Senator Schumer, then, is both right and wrong. Right that the Democrats needed to place greater emphasis on programs that actually address the needs of the nation's majority. Wrong that it was a mistake to enact Obamacare. And more fundamentally wrong if, as his record as a frequent Wall Street defender suggests, he believes that the Democrats can actually address the needs of the nation's majority without a full-scale assault on the interests of those who profit from and defend the current economic system.

The Beltway wisdom is that those who favor such an assault constitute a discrete liberal minority of the larger public. The Beltway wisdom is wrong. The exit poll of November's midterm voters-36 percent of whom identified as Republicans, while just 35 percent said they were Democrats-included a question as to whether the U.S. economic system generally favors the wealthy or is fair to most Americans. Fully 63 percent said it generally favored the wealthy, while just 32 percent said it was fair. Even 46 percent of Republicans said it favored the rich.

Not surprisingly, support for such sentiments has grown in recent years. In 2002, just 34 percent of respondents to an NBC/Wall Street Journal poll agreed that "the economic and political systems in this country are stacked against people like me." When asked the same question two weeks after this past November's election, 56 percent agreed.

These beliefs are particularly intense within the constituency that has been abandoning Democrats in droves: the white working class. In 2011, the Pew Research Center's polling on Americans' beliefs revealed that 54 percent within that group "strongly" believed that "corporations make too much profit," while just 28 percent agreed that corporations make "a fair and reasonable profit." Asked whether Wall Street hurts the economy more than it helps, or helps more than it hurts, 45 percent of white working-class respondents said it hurts more than helps, while only 20 percent said it helps more than hurts.

Data Source: EPI analysis of Piketty and Saez (2013)

At certain periods in American history-the Progressive era during the first Gilded Age, for one-hostility to the corporate domination of government and the economy has extended to the upper-middle class. In other periods, it has largely been confined to liberals and elements of the working class. Polling suggests we have entered a period more like the Progressive era in this regard. In the mid-1990s, polling by the Pew Research Center showed that just 59 percent of college graduates believed "there is too much power concentrated in the hands of a few big companies." Today that figure has risen to 75 percent.

All these data suggest that there would be widespread public support, in swing constituencies no less than in the party's base, if the Democrats advanced policies that reversed recent decades' redistribution of income and power from the majority of Americans to the wealthiest. The results of the midterm elections bear this out. As Bob Moser documents in "How Democratic Progressives Survived a Landslide" (The American Prospect magazine, Winter 2015 issue), his survey in this issue of the 2014 Democratic campaigns that succeeded, Democratic senators who linked their Republican opponents to Wall Street-New Hampshire's Jeanne Shaheen, Minnesota's Al Franken, Oregon's Jeff Merkley-not only won their elections but actually carried their state's white working-class voters-the same voters who rejected Colorado Senator Mark Udall, who eschewed such populist appeals, by 30 percentage points.

Democrats must do a far better job explaining what's changed in America over the past three decades. What has devastated the white working class, held back minorities' prospects, and imperiled middle-class security isn't the programs creating a more level playing field for blacks and Latinos. It's the massive transfer of income from more than 90 percent of Americans to the wealthy, from labor to capital, or, in American English, from workers to big-time investors.

The Economic Policy Institute has taken economist Emmanuel Saez's research on U.S. income tax returns and produced an account of just how America-altering that transfer of income has been. Between 1935 and 1980-that is, between the year in which both Social Security and the National Labor Relations Act were enacted and the year Ronald Reagan was elected as president-of all the income growth (excluding government benefits and transfer payments) that Americans reported on their taxes, fully 70 percent was income accrued by the bottom 90 percent of American households. Another 11 percent came from households in the 90th to 95th percentiles, and 12 percent in the households in the 95th to 99th percentiles. The wealthiest one percentile claimed just 7 percent of all the new income generated during those years.

The returns from 1997 through 2012 (the most recent year for which tax data are available), however, reveal a totally and terribly different America. During these years, the share of new income accrued by the 90th to 95th percentiles shrank from the 11 percent of the mid-20th century to just 9 percent. The share that came from the 95th to 99th percentile grew from 12 percent to 19 percent. And the share claimed by the wealthiest one percent exploded-from 7 percent in the pre-Reagan years to a mind-boggling 72 percent.

The income coming from those three groups adds up to 100 percent. All the income growth in the post-1997 United States went to the wealthiest 10 percent of Americans, most to the top one percent. The bottom 90 percent of Americans claimed none of it-indeed, their tax filings show that their incomes declined during this period by an average of $2,868.

The dividing line that Democrats should focus on, then, isn't the one Chuck Schumer draws between the poor and the middle class. It's the line between the 99 percent and the one percent. That doesn't mean that Democrats should abandon their quest to help the excluded and the poor, their efforts to legalize undocumented immigrants, reform discriminatory police practices, or provide health coverage to those who can't afford it. It does mean that their primary focus must be to champion the interests of American workers-and of income derived from work over income derived from investment.

As if reversing the shift in income from labor to capital weren't challenge enough, the task before American progressives is to do so without estranging potential supporters who believe, as a series of surveys conducted by Stan Greenberg demonstrate, that governmental efforts to promote full employment through stimulus and public works programs only create make-work jobs and a larger public deficit. The Obama administration's inability to augment its own stimulus program once Republicans won the House in 2010 and the failure of its stimulus program (and of everything else) to slow the ongoing upward redistribution of income have surely contributed to this skepticism.

(AP Photo)

While Democrats must continue to support public programs that meet social needs to which the market is either indifferent or opposed, the primary focus of their agenda has to be on the internal dynamic of the market itself-specifically, on interventions that give workers more power and income. Such policies should command broad public support extending well beyond the party's core constituencies. Indeed, they already have.

In the November midterms, for instance, voters in four solidly conservative states-Alaska, Arkansas, Nebraska, and South Dakota-voted overwhelmingly for ballot measures that raised their states' minimum wage standards. Their support for a higher minimum wage, it should be noted, didn't carry over to support for Democratic candidates, partly because Republican candidates, knowing the measures would pass, endorsed them, and partly because the issue doesn't affect most voters directly. But there are a host of similarly pro-worker measures Democrats can back that are far less likely to win Republican support, and yet that matter to a wider range of voters.

Some, to be sure, involve enacting labor laws that disproportionately benefit the Democrats' base. A number of states and cities have enacted paid sick day laws, while four states have passed legislation making domestic workers eligible for overtime pay and time off. San Francisco recently enacted a Retail Workers Bill of Rights, requiring employers to give their employees their schedules two weeks in advance so that they can make plans for dropping off their kids, cooking dinners, and taking courses. The cities and states in which these statutes have thus far been enacted are all liberal, but the appeal of such legislation isn't likely confined to America's bluest regions any more than raising the minimum wage is. Retail workers in Alaska and Nebraska, like their San Francisco counterparts, surely don't like having to scramble to find someone to pick up their kids because their manager has called them in with just two hours' advance notice. It takes no great imaginative leap to envision voters in Alaska and Nebraska backing such measures as well.

But the main challenge before Democrats is to devise and enact policies that help a far broader range of workers than those in the lowest-paid sectors. Restoring workers' right to form a union without fear of being fired-a right established by the National Labor Relations Act, but eviscerated by court rulings and negligible penalties on employers who violate it-would be a good place to start. Efforts to strengthen this right failed, however, during the administrations of each of the last four Democratic presidents (Johnson, Carter, Clinton, and Obama) even when the Democrats controlled both houses of Congress. With unions clearly too weak to affect the flow of income from labor to capital (currently, just 6.7 percent of private-sector workers belong to unions),

Democrats must devise laws that do what unions in the mid-20th century did: create a prosperity that's broadly shared.

When unions were strong, the nation's median household income rose even more than the nation's productivity increases, but since the 1970s, it has lagged far behind. Now that unions are weak, Democrats should advocate lowering taxes on corporations that increase their employees' wages at the same rate the nation's annual productivity increases, and raising taxes on corporations that don't. They should advocate lowering taxes on corporations that divide their boards between shareholder and worker representatives, as the Germans do, and raising taxes on corporations that don't. They should back higher tax rates for corporations that offshore their work. They should require studies of all pending trade agreements that assess the effect of those agreements on domestic median incomes, and support only those that raise them. That should certainly be the criterion by which Democrats judge the pending Trans-Pacific Partnership and other trade accords.

They should support tax reform that shifts the burden from labor income to investment income-demanding that a reduction in payroll tax rates (something that Republicans may back in the coming congressional session) be offset by higher taxes on capital gains and dividends, which would shift the funding of Social Security and Medicare to a source of income that continues to grow. Taxing income derived from investments in American-based multinationals at a rate lower than that of labor performed entirely within the United States tilts the tax code in favor of domestic disinvestment; Democrats should insist on raising the rates on investment income above the rate on income derived from work.

None of these are fights that the Democrats are likely to win anytime soon, much less in the next two years. But if they become the collective centerpiece of the Democrats' agenda, the talking points that elected officials and party leaders make again and again, they will reposition the Democrats as the party that can plausibly help the clear majority of working Americans, not just those in the lowest-paying jobs. Backing policies such as these enables the Democrats to reframe the economic debate-making them relevant again to the white working and middle class, and drawing a much clearer distinction between themselves and the Republicans.

Perhaps the clearest and quickest way Democrats can draw that distinction is to distance themselves from Wall Street. Massachusetts Senator Elizabeth Warren's opposition to the Obama administration's nomination of Wall Street banker Antonio Weiss to a top position at the Treasury Department should signal a new direction for the party. In both the Clinton and Obama administrations, the top economic positions went to Wall Street bankers and their protégés, who backed the repeal of the law that had separated government-insured depositor banking from investment banking, declined to regulate the derivatives that brought the economy down in 2008, and bailed out the big banks while doing little for underwater homeowners. Democrats should require their 2016 presidential candidates to shun Wall Street in their economic appointments. Wall Street may be a mega-source of funding for many Democrats, but putting Wall Street off-limits is the sine qua non for any Democratic reinvention that has a chance of winning back working- and middle-class support.

Such Wall Street aversion has a distinguished Democratic pedigree. Raymond Moley, Franklin Roosevelt's most influential adviser during his 1932 presidential campaign and the first year of his administration, recounted in his diary a talk he had with Roosevelt during the transition between his election and inauguration, in which FDR was considering whom to appoint as his Treasury Secretary. Some advisers were arguing for Senator Carter Glass, who insisted he needed a top executive at J.P. Morgan as his deputy. According to Moley, Roosevelt rejected Glass because, he said, "We can't have anyone from 23"-the street address of J.P. Morgan's headquarters being 23 Wall Street. After the role that the great banking houses played in the Crash of 1929 and the ensuing Depression, Roosevelt believed it would be bad politics and economics to elevate a Wall Street banker to a top economic post. It would be similar bad politics and economics to do so today, and Democrats should pressure their 2016 presidential candidates to take a "Nobody from 23" pledge.

Is it fantastical to think that this pushback against Wall Street has appeal beyond the party's most liberal supporters?

Those few remaining Democratic senators who primarily represent white working-class electorates don't consider it fantastical in the slightest. Five Democratic senators joined Warren in voting against the cloture motion that allowed the 2015 omnibus appropriations bill to come to a vote in December. Warren opposed the measure because of a clause, written by Citibank lobbyists, that allowed Wall Street banks to roll back one of Dodd-Frank's provisions prohibiting publicly insured banks from trading in derivatives. She was joined in opposition by three staunch progressive populists-Franken, Ohio's Sherrod Brown, and Vermont's Bernie Sanders-and two colleagues generally considered to constitute the right flank of the party's Senate delegation, Missouri's Claire McCaskill and West Virginia's Joe Manchin. West Virginia has a higher share of working-class whites in both its population and its electorate than any other state. Yet Manchin and McCaskill clearly believed that defining themselves and their party by opposition to Wall Street was an act that would win their constituents' approval. Similarly, former Virginia Senator Jim Webb, who is considering, like Sanders, a presidential run in 2016, sounds remarkably like Sanders in his condemnations of the Democrats' refusal to break with Wall Street's priorities. For Webb, Manchin, and McCaskill, the problematic Democratic policies include some environmental regulations and expansions of government programs targeted to minorities (or "special interests," as Webb has termed them)-the very policies their white working-class electorates oppose. But when it comes to curtailing Wall Street's stranglehold on the economy, they are almost as one with Warren and Sanders.

Ultimately, the changes to American capitalism will require the Democrats to find new ways for government to bolster Americans' economic prospects and security. The rise of the gig economy and the declining levels of pay and benefits that people receive from their work will demand that government provide a greater share of the economic stability that used to come with jobs and careers. Democrats should not shy from this challenge, but it must be embedded in a broader campaign to shift power and income away from activist shareholders, overpaid CEOs, and financial elites and back to American workers.