What you didn’t hear was anything approaching coherence, or even truth, about economic realities, either in terms of diagnosis or prescription. Yes, Trump complained about trade and immigration in his acceptance speech, but over the course of the week, I don’t recall hearing a single policy idea that could help America meet its economic challenges (with one notable exception, below).
Gov. Rick Scott (R-Fla.) even asserted, “Our economy is not growing.”
Wait … wuh? It’s year seven of an economic expansion. The figure below, showing real GDP growth since mid-2009, is just a mouse-click away.
To be sure, I’d like to see faster growth, driven by both faster productivity and labor force growth. I’d like to be certain that faster growth was environmentally sustainable, driven by investments in renewable energy sources. I’d like to see that labor force growth come from neighborhoods that are current “job deserts,” where a combination of poverty, discrimination, skills-deficits and criminal records create high barriers for able-bodied potential workers. And I’d like to ensure that GDP growth, faster or otherwise, was more broadly shared.
In the spirit of what an actual, meaningful discussion of the economy might sound like, let’s unpack all of those “I’d likes.”
Faster productivity growth
Problem: Growth in output-per-hour, or productivity, has slowed significantly in recent years, a serious economic problem. Though it’s notoriously hard to pin down the causes for this, there are three solid suspects: low investment, even at low interest rates; misallocation of capital to nonproductive finance, and the absence of full employment.
Solutions: The finance sector’s penchant to underprice risk and inflate bubbles must be offset with persistent, adequate oversight; a small financial transaction tax would help shrink the particularly nonproductive noise-trading part of the sector while raising needed revenue. Monetary policy that holds off on rate hikes and fiscal policy that invests in infrastructure — if the private sector won’t invest, the public sector must step up and do so — can help us get the rest of the way to full employment. We’ll also need to bring down the trade deficit by enforcing rules against currency manipulation by trading partners and pursuing trade agreements that center on workers, not corporations.
Labor force growth
Problem: Another reason for slow GDP growth is that labor force growth has slowed. Some of this has to do with retirement of the leading edge of the baby boomers, but not all: White House economists recently published a detailed study of the diminished labor force participation among “prime-age” men (25-54 years old). And women’s labor force participation has also flattened in recent years.
Solutions: As above, pursuing full employment matters here, too: The White House team found that weak labor demand for these workers, especially those with less education, is a prime factor behind the negative trend. Lowering the trade deficit will help, since many of these guys are production workers, and apprenticeships and sectoral training (training workers for known types of future jobs) can help reconnect them to the workforce. Paid family leave and affordable child care would also be beneficial (ideas that were raised last night in Cleveland by Ivanka Trump, to her great credit), as would other work supports, including an expanded EITC (a tax credit for low-income workers), higher minimum wage, and health and housing supports.
Growth and climate change
Problem: Growth that ignores the reality of climate change may help boost living standards in the near term (assuming away distributional issues for the moment), but it is unsustainable.
Solutions: On their own, especially given the socially underpriced cost of fossil fuels, private investors will underinvest in renewable resources. This is a market failure, driven by the very high rates at which we discount the future (money today is worth too much more to us than a livable environment tomorrow). This creates a dual role for government: 1) tax carbon, and 2) use its proceeds to invest in a renewable energy infrastructure.
Poverty, skills, criminal justice reform
Problem: Place-based research identifies neighborhoods that remain “job deserts” even when the job market is broadly robust. Those stuck in deep poverty often are beset by a variety of problems and deep skill deficits that create steep barriers to work. Similar barriers confront the millions of people with criminal records trying to get into, or back into, the labor market.
Solutions: The first step is reforms that focus both on reducing individuals’ exposure to the criminal justice system and on mitigating the effects of that exposure: it includes policing reforms, an end to for-profit policing and prison systems, changes to sentencing rules, expansions of alternatives to incarceration, more humane incarceration conditions, the implementation of “fair chance” hiring policies and much more. Second, if work is to be a true ladder out of poverty, we can’t assume an ample supply of living-wage jobs for poor people. We’re definitely going to need direct job creation, which in recent years has meant subsidized jobs in both the public and private sector, as was successfully done in the last recession.
Growth must be more broadly shared
Problem: When it comes to the prosperity of the poor and middle class, growth is necessary but not sufficient. Inequality continues to channel too much growth to too narrow a slice of people at the top of the income scale.
Solutions: First, do NOT exacerbate the problem with tax cuts that favor the wealthy, which happens to be about the only actual policy I heard discussed at the R’s convention. Second, strengthen the labor standards that push back on inequality, including minimum wages, overtime rules, and the ability of workers to form unions and bargain collectively. Much of the above will help here, too, including anti-poverty work supports, criminal justice reform, and especially full employment.
These are the solutions I think will work. You may well have others. Mine may be more interventionist in market outcomes than yours, and we can have a good argument about that. In fact, that is the discussion we need to have.
But we won’t get there if people in powerful positions are flipping between hateful obsessions and basic untruths about actual economic trends.