Maybe everyone is overcomplicating America's economic challenges today. Maybe there are no deep mysteries behind the slow growth, the stagnating incomes and the widespread economic anxieties that have given rise to populist movements on the left and the right.
But the solution, they say, also is simple, though politically unpopular: roads and bridges, and a lot of them.
Penned by investment banker Daniel Alpert, the paper, builds on his 2013 book “The Age of Oversupply,” and it's Third Way’s latest effort to shape the liberal policy conversation in the 2016 presidential primaries. It does so in decidedly un-centrist fashion — by embracing a larger infrastructure spending program than Bernie Sanders does.
It starts with the fact that the emergence of China, India and other developing nations has added billions of hands to the global workforce over the past quarter-century.
In the paper, Alpert laments the “suddenness and extent of the integration of over 3 billion people into a global capitalist market, that really only hitherto consisted of about 800 million in the advanced economies.”
He argues that worker influx has triggered a wave of low-wage job creation in America. He notes that nearly half of the jobs created in the current recovery have come in traditionally low-wage sectors such as retail services and leisure/hospitality; annual incomes in those sectors average about $25,600 a year. Only about an eighth of the jobs created in the recovery have come in the higher-wage sectors of mining, manufacturing and construction, where annual incomes average $55,200 a year.
In an era of expanding trade, those new workers from emerging economies compete with Americans (and workers in other wealthy countries) for jobs and push down their wages. But the new workers often save a large amount of their earnings, Alpert argues, and thus do not spend enough on American goods and services to create a classically virtuous cycle of trade raising everyone's living standards.
As a result, Alpert says, the United States is suffering from weak economic growth and the fact that workers are enjoying a smaller share of that growth compared to previous generations. Companies, he contends, aren't creating enough high-value, high-paying jobs in America: Surveying several recent years of data, he concludes that U.S. companies are increasingly focusing their investments in sectors that don't employ a ton of Americans, such as software.
Cutting taxes won't solve that problem, Alpert writes. Subsidizing investment and holding down interest rates won't either, he adds, nor will raising the minimum wage or pushing more workers into labor unions.
“The most important thing we can do is get more people employed in high-paying jobs,” he said in an interview -- and that means overcoming the market signals that are pushing companies to invest elsewhere, or hoard cash. “If we don’t intervene, this is not a 10-year cycle problem, it’s a Japanese style problem" of permanently slow growth. "We’ll be talking about this in 20 years.”
Intervening, he says, requires a "bold change in policy focus" for the United States. Which is to say, a $1.2 trillion infrastructure spending program, at a time when Congress remains dead set against big new spending plans. Alpert estimates it would create 5.5 million jobs.
Sanders and Hillary Clinton, the leading candidates for the Democratic nomination, have both called for increased infrastructure spending. Sanders' plan is for $1 trillion.
Alpert says the government should borrow the money for infrastructure, echoing the liberal economists Larry Summers and Brad DeLong. They argued in a 2012 paper that with interest rates low and economic activity depressed in the wake of the Great Recession, government spending on infrastructure could pay for itself, in terms of new tax revenue generated by increased economic growth.
There's no alternative to such spending, Alpert says, because the oversupply of global labor is preventing private business from investing in U.S. workers on a similar scale - because, he says, such investments would not turn a profit. A government infrastructure program, he argues, would be a kick-start, rebalancing global demand to meet the global labor supply and returning the global economy to a more virtuous state for all.
It might seem an unusual position for a centrist think-tank, outflanking the most liberal presidential candidate on the left. But Third Way officials argue it's an economic imperative.
“Whether it’s through some sort of spending deal, where you’re getting more money into infrastructure, or repatriation or some other means, you have to get this done” in Congress, said Jim Kessler, the group's senior vice president for policy. “That glut of worldwide labor is not going to go away, magically.”
It is notable that Alpert's dismissal of bargaining-power remedies for worker woes echoes Third Way's centrist case against the Sanders-style populists who are ascendant in Democratic policy circles right now. The populists are winning in New York and California on the minimum wage. Their momentum shows no signs of going away, magically or not.