A recent New York Times Magazine piece on the advisors to Senator Obama’s campaign notes that the new progressive economists from the Chicago School of economics believe that the nation’s economic problems can be addressed by, among other things, a reversal of Bush’s tax cuts. In the name of achieving greater income equality and fairness, the middle class should receive a tax cut and the top 1 percent — those earning between $500,000-800,000 — should pay more. And the top .1 percent — those earning around $9.1 million would see their tax bills increase by $190,000 a year. If the nation’s economic problems are solely about tax fairness, this plan might have some merit, but such a scheme is not really going to help the middle and working classes that much.

To paraphrase Bill Clinton’s 1992 Campaign slogan of it’s the economy stupid, it is institutions stupid. Middle class wages have stagnated because of the deterioration of labor market institutions — primarily labor unions and minimum wages — designed to bolster wages. Reducing wage and income inequality requires bolstering the wages of those particularly at the bottom of the distribution. Wage inequality tends to be less when the percentage increase is greater for those at the bottom of the distribution relative to those at the top. It is no small wonder, then, that European nations with strong labor market institutions tend to have lower levels of inequality. But they have something else which nobody seems to be talking about in this presidential campaign: universal health care.

We talk about the stagnant wages of the middle class over the last few decades, but those wages have stagnated as healthcare costs increased. The basic social contract of our health care regime has called upon employers to provide health care to their employees. This contract was born out of pattern bargaining between the automakers and the UAW following World War II. If workers agreed to take lower wages, the employers would provide health insurance. Then insurance was relatively cheap. But as insurance increased in costs, and these costs were only part of the overall wage package, it only seemed logical that firms would recoup some of those costs by holding the line on wage increases. And if institutions were no longer there to assist workers, their wages could only be expected to deteriorate even further.

There is no question that the current tax code is unfair, but to make it the centerpiece of an economic reform and recovery package only obscures the true import of institutions. An Economic recovery package that strengthens labor unions and raises the minimum wage — one that essentially gives workers voice — is what the country needs and would represent true change. To focus on the tax code as Senator Obama’s advisors from University of Chicago’s economics department suggest is really nothing more than a repackaging of the proposals the Chicago School of economics is famous for: Friedmanomics.