America 2021: Jobs & the Economy
In 2021, we will still bear scars from the Great Recession. But will America be a mighty economy again? What key investments are needed to ensure our growth and prosperity? Five experts take the long view.
What will America’s economy look like in ten years? Will the jobs that we lost come back? And what policies must we put in place now and in the coming years to make sure America will be healthy and prosperous again by 2021?
“America 2021” is a series that we began in our Summer 2010 issue. The idea is to bring together some of our brightest progressive minds to discuss what our country might look like roughly a decade from now.
For this edition, we take a look at jobs and the economy. We brought together five distinguished experts–Robert Atkinson, Heather Boushey, Harry J. Holzer, Thea M. Lee, and Sherle R. Schwenninger–to debate the big picture. E.J. Dionne Jr., Democracy’s editorial chair, moderated the discussion. Editors Michael Tomasky and Elbert Ventura also participated.
E.J. Dionne Jr.: It’s 2021. America is competitive in the world again. Middle-class incomes are rising. The poverty rate is going down. We’re making things. What did we do right in this period to get the United States to that point in 2021?
Heather Boushey: First of all, we did not let the hysteria over long-term deficits stop the United States from doing the right thing. If we’re in a good place in ten years, it’s because we made the investments we needed to make both in creating jobs and strengthening infrastructure. Also, it means that we did what we needed to do on energy and climate change because that’s one of the critical pieces in encouraging domestic manufacturing and investment.
The other thing we did right is refocus our economic policy on sustainable growth and growing the middle class, rather than giveaways to the wealthiest that don’t lead to greater investment growth or greater job creation.
Sherle R. Schwenninger: With the departure of Christina Romer and Larry Summers near the end of 2010, the Obama Administration underwent a historical evolution in its economic thinking, from a philosophy of general demand stimulation, short-term, to massive targeted public investment to drive economic growth. That was accompanied by a major push for global currency realignment, with the United States after several false starts putting on a full-court press to mobilize international support for pressuring China and other surplus economies to let their currencies appreciate and stimulate domestic consumption–or else face the imposition of tariffs.
This general shift in macroeconomic strategy was accompanied by three important legislative initiatives. First, there was the passage of the authorization of a national infrastructure bank, which allowed the government to leverage a trillion dollars in private capital for long-term infrastructure investment, greatly enhancing the productivity of the American economy.
That was married, secondly, with a major energy initiative–and here I differ slightly with Heather–to develop America’s natural resources, particularly natural gas, that allowed the United States to shift large parts of its heavier transportation fleet to natural gas and to begin the construction of all-truck highways that greatly reduced congestion and moved goods and services in a more efficient way. Finally, in a truly revolutionary moment, the Administration, realizing that the 2010 health-care reform bill was not going to achieve the results it thought, put forward a follow-on reform that opened up Medicare for all and allowed the federal government to more fully regulate health-care costs. Even some Republicans joined Democrats in passing the measure because the thought of endless health-insurance premium increases that were going to drive most employers into dropping coverage and bankrupt states was too much for even ideologically hardened members of Congress.
Dionne: A remarkable set of predictions. Rob, do you want to take it?
Robert Atkinson: We were able to emerge in 2021 as the most innovative and fastest growing–at least from a productivity standpoint–economy in the world because in 2011, we finally realized that neoclassical economics is a fundamentally misguided and bankrupt philosophy and cannot guide a twenty-first-century economy. Instead of bringing in neoclassical economists, we brought in innovation economists who understand the real economy and how economics is about institutions and not about prices.
Through the guidance of those folks, we did two big things. One, we finally put in place a tough and aggressive trade policy to stop foreign mercantilism. Not that we erected our own barriers or became mercantilist ourselves, but we took firm and hard steps to go after these countries, particularly China. And not just on currency manipulation but on a wide array of unfair practices, including intellectual-property theft.
Slightly more importantly, we put in place a proactive domestic growth and innovation agenda that I would call the “Chinese menu” strategy: a bunch from column A, a bunch from column B. In other words, there are ideas that Republicans and conservatives have, and there are ideas that Democrats and liberals have. And I think our problem right now in Washington is we can have only one of those menus–you can’t have both. We did something on the corporate tax side–not cut the corporate tax rate per se, but cut the effective rate by doing things like having a workforce-training tax credit, a more generous research-and-development tax credit, and giving companies a tax incentive for investing in new capital equipment. But at the same time, we had a domestic investment agenda that invested not just in physical infrastructure, but also what you might call “New Economy infrastructure.” Intelligent transportation systems. Smart grid. Electric battery charging systems.
Thea M. Lee: I want to focus on the trade issue. We’re in 2021, and the economy is growing, and we have a healthy middle class again. It’s because back in 2010, we recognized that we were on a path that was leading to greater erosion of the middle class. The path that we were on was also undermining our ability to innovate and reap the fruits of innovation. I totally agree with the need for massive and targeted public investments in all the areas that we’ve talked about: clean energy, infrastructure, skills, and education.
The problem with the economist mindset in terms of trade policy is that there’s been this primitive, textbook view of so-called free trade that for a long time hasn’t matched the world we’re living in. We don’t live in the perfectly competitive, full-employment, balanced-trade, no-externality world where neoclassical trade theory is really useful.
It’s also partly about currency–not having an overvalued dollar and glorying in our overvalued dollar, but trying to use the trade-policy tools available to us to make sure that other countries are playing by appropriate global rules. We need to design our trade policies to encourage our own country to develop and implement new technology and respect core worker rights, and we need to incentivize our developing country partners to have good labor practices as well, so that countries like China, for example, are becoming more democratic and developing their own middle class.
Harry J. Holzer: I started out having no intention to talk about trade policy, but I must respond to the unanimous bashing of my profession. Number one, neoclassical trade theory, while very incomplete, has enormous explanatory and predictive power. Maybe I’m nuts, but a billion people have risen out of abject poverty in China, in India, in Brazil, in many other places, and I think that’s great. It would not have happened without a lot of the trade developments that my friends here have roundly criticized.
How can we talk about America’s trade deficits without talking about how we overconsume in this country? And while we rail against China’s currency policy, and some of that railing is certainly justified, let’s keep it in context. If we successfully enable China to reduce the value of its currency by some amount, by how much would that reduce the overall trade deficit? I would guess it’s more modest than some of you have suggested.
About the last decade: I think we’ve made progress because we started to think about improving worker education and skills, along with the quality of jobs. We started thinking about skills and jobs in a more coherent fashion, making sure that education policy is not just about raising test scores, although that’s an important thing to do. It’s not just been about getting more people into college. It’s been about making sure many more people complete college, reducing the enormous dropout rates we had seen previously. It’s been about improving completion rates at two-year as well as four-year colleges, making sure people come out with certifications and skills that prepare them for the good jobs our economy is in fact generating in 2021. We also used apprenticeships and high-quality career and technical education, plus better labor-market services and information, to make sure that more workers are getting the skills that are actually relevant for getting good jobs, while we encouraged employers to create more such jobs with tax credits and technical assistance.
We also started to get a little more serious about improving the supports workers need, especially those low-wage workers who are going to have low wages no matter what we do in our economy. We started to extend successful policies like the earned-income tax credit to low-income workers who now are not eligible. We started to provide parental leave and sick leave to people. And we paid for it. We financed it. We didn’t just demand that employers provide it.
Finally, all this was possible, not because we dropped our hysteria about the deficit–some of which I think is actually justified–but because we started being more sensible about how we direct that hysteria. We stopped directing it at the one piece of the federal budget that’s not responsible for the deficit: non-defense discretionary spending. We started getting more serious about the growth of the retirement programs, but especially Medicare and Medicaid. We got much more serious about reining in those costs in the past decade, along with Social Security and defense spending.
Dionne: When Harry says that a billion people have been lifted out of poverty, that’s true. It also means that workers in the wealthy countries are now in competition with a billion, soon to be two billion, more workers, which reduces the bargaining position of workers in wealthy countries. So it’s always struck me that the problem with globalization is the people it disadvantages are the relatively disadvantaged in wealthy countries. We haven’t really taken that on as a serious problem. Is that a fair thesis, and if not, why not?
Atkinson: I think it’s only partly there. I think globalization is a wonderful thing. I think global integration has all these great benefits. What I object to is non-market-based globalization, which many countries practice. As an economist, Harry, you would, I assume, believe that subsidization by governments to distort prices is a bad thing. Yet that is what countries are systemically doing. And when one confronts economists about that and asks them to support the United States taking a stand against it, they will say, “We don’t want to become protectionist.” That’s not necessarily the answer. The answer is to get other countries to stop distorting markets. That gets globalization to be a win-win and work for everybody.
What China and India have to do is figure out how to grow their domestic sectors in terms of good jobs, higher wages, and higher productivity. Trade is not working great for the United States right now. It’s undermining our economic engine because of these distortions.
Schwenninger: I agree with Rob about the problem of neo-mercantilism, which I think is one of the big ideological divides of the early twenty-first century. We need to force China to raise wages and consumption. Only 35 percent of China’s GDP goes to consumption. Even in Japan, consumption was 55 percent during its rise.
What we have had from China in the past decade is a dramatic overbuilding and overinvestment, resulting in excess capacity and excess global savings. And this was a big part of the story of the bubble in housing and credit, since these savings needed to go somewhere and they ended up being recycled by Wall Street into American mortgage debt. It is not possible to have a stable world economy when the weight of these high-savings, neo-mercantilist economies is growing so dramatically and when economies that play by liberal rules must absorb their excess production while trying to maintain their middle classes.
Boushey: Here in the United States, we’ve seen this massive disconnect during my lifetime between productivity and wages. We’ve produced more stuff. It’s just that workers haven’t shared in it. There’s a very simple narrative there. Are we going to tax the wealthiest among us, or are we going to allow income inequality to continue to grow and grow? Trade is very important, but it’s also important what we do with our domestic policies.
Lee: Is it globalization that’s responsible for disadvantaging the relatively disadvantaged in wealthy countries? Globalization isn’t the right word. It’s not yes or no on globalization–that’s not the choice we have. The question is: Do we have the right set of rules in place? And we would certainly argue that the particular rules of the global economy over the last couple of decades have facilitated a massive shift of global bargaining power. Not just from labor to capital but from governments to multinational capital. National governments have less ability to put forward a responsible democratic agenda–whether it’s labor-law reform or environmental regulations–because every time they’re told, “You’re in a global economy now; you really can’t do that.”
Our task is to remake that global economy in a way that supports democratic government and empowers working people to get their fair share of the wealth they create through globalization. Otherwise, globalization and so-called free trade will fail. You can’t have a policy that’s bad for the bottom two-thirds of your population and expect to send your trade ministers off to Doha or Cancun or Hong Kong on a regular basis and have them come back with another crappy trade deal that people are going to accept.
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