By Echoing Newsom, Biden Risks Becoming Carter

A week before the 1980 election, Ronald Reagan closed his debate with President Jimmy Carter with some of the most memorable questions in campaign history: “Are you better off than you were four years ago? Is it easier for you to go and buy things in the stores than it was four years ago? Is there more or less unemployment in the country than there was four years ago?” A tight election turned into a Republican romp.

Since then, the “are you better or worse off” question has become a staple of presidential campaigns, especially in times of rampant inflation and job loss. According to a recent Harvard CAPS/Harris poll, 55 percent of Americans — including 62 percent of independents and 21 percent of Democrats — believe they are worse off now than they were during the last administration. Data shows cooling inflation, but Americans remain surly about their economic prospects.

Against this backdrop, it’s odd that President Joe Biden would continue to look toward modern-day California for his economic inspiration given its embrace of labor policies that drive up the cost of living and eliminate jobs — and, most decidedly, haven’t made us better off. Yet that’s where we are, as Biden moved forward on Tuesday with a federal labor rule that, as Reuters explains, could “upend [the] gig economy” by limiting the ability of companies to use independent contractors.

Specifically, the new U.S. Department of Labor regulation overturns a Trump-era rule that allowed businesses to treat a wider range of workers as contractors, thus exempting them from paying the minimum wage, Social Security taxes, mandated overtime, and other benefits required for employees.

“We are confident that this rule will help create a level playing field for businesses [and] protect workers from being denied the right to fair pay,” said acting Labor Secretary Julie Su, who as a top California labor official implemented a similar policy in California. The president might not worry about a 44-year-old political debate, but he should ponder the results of a policy implemented only five years ago and overseen by his own acting labor secretary.

In 2019, Gov. Gavin Newsom signed Assembly Bill 5, which codified a state Supreme Court ruling known as the Dynamex decision that banned the use of independent contractors except in limited circumstances. The federal rule wouldn’t exactly impose AB5 on the nation. But, as the New York Times explained, “employers tend to follow the department’s guidance, and the determination could have influence in other contexts and jurisdictions.” It certainly pushes the country in California’s direction.

With AB5, the California Legislature had targeted ridesharing companies such as Uber, Lyft, and DoorDash, but the fallout was widespread. It was hatched by unions eager to protect their industries from competition. Supporters claimed its passage would expand benefits and improve working conditions, but it’s not hard to guess what happened next.

Companies quickly shed jobs. AB5 threatened creative endeavors that relied on freelance writers, musicians, and photographers. Rideshare drivers — who typically relied on these gigs between their other work and enjoyed the flexible hours — found their extra income threatened. Innovative tech companies faced an existential threat. Because the law applied to truck drivers, it contributed to massive backups at the Port of Oakland that further disrupted supply chains.

The state even doubled-down on enforcement in the midst of COVID-19-era “stay at home” rules, thus limiting freelance income sources for people when they desperately needed it and hobbling delivery services that provided groceries to people who were hunkered down. The Legislature ultimately exempted 100-plus industries from the rules, and voters exempted rideshare drivers (although the latter is still in the courts), but it caused blowback.

The Legislature didn’t seem to learn from the debacle. Newsom last year signed a law that raises the minimum wage for fast-food workers to $20 an hour and creates a sectoral-bargaining council to regulate restaurant working conditions. In anticipation of the April pay hike, fast-food restaurants already are shedding workers.

California progressives will do what they do, but it’s unfathomable that the president — down in the polls and struggling to boost the economy before November — is not grasping the obvious message: You can’t make those of lower income better off by regulating their jobs out of existence.

Economic news out of the state is discouraging. Its progressive tax system makes the budget overly reliant on capital-gains taxes and always susceptible to boom-and-bust cycles. The Legislative Analyst’s Office predicts an unparalleled $68 billion budget deficit. As CalMatters reported, “California is ending the year facing a multitude of economic challenges, including a budget deficit, flat tax revenue, sluggish job growth and massive unemployment insurance debt.”

Amid this economic malaise, Californians continue to vote with their feet, thanks largely to its punishing tax burdens, high housing costs, and declining quality of life. For several years now, the state’s population has declined significantly, led by middle-income people seeking better economic prospects. Recent news suggests the state’s wealthiest residents have now joined the exodus.

The situation isn’t getting better at the lower end of the economic spectrum, despite the state’s ever-expanding panoply of social services and income-transfer programs. California has the highest poverty rate in the nation, adjusted for the cost of living. Californians certainly aren’t feeling better off now than in the past, so Biden might want to rethink his labor policies lest he suffer the fate of Carter.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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