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Why the US jobs market is a lot healthier but still may have ‘some way to go’ before it’s back to normal
The official unemployment rate of 5.1% suggests a jobs market that is more or less healed:
The employment population ratio, the number of employed as a share of the working-age population, still looks deeply depressed:
So which measure better reflects the true state of the labor market? Well, one way to gauge is by looking at a third measure. A new Atlanta Fed blog post highlights the “utilization-to-population” ratio, or ZPOP. (Yes, there is a K-pop joke in there somewhere.
The ZPOP ratio is the share of the working-age population that is “working full time, is voluntarily working part-time, or doesn’t want to work any hours.” It is a way of answering the question, “Are your labor services being fully utilized?” The Atlanta Fed:
According to this measure, about 91 percent of the working-age population is considered fully utilized. The remaining 9 percent are “underutilized” and are a roughly even mixture of the unemployed, those not in the labor force but wanting to work, and those working part-time but wanting full-time hours. The headline U-3 unemployment rate is very close to its prerecession level but is thought to overstate the health of the labor market. At the same time, we think that the EPOP ratio overstates the amount of remaining labor market slack. The ZPOP ratio is in the middle; approaching its prerecession level but still with some way to go.
So maybe that isn’t a bad way of looking at the labor market, ” … approaching its prerecession level but still with some way to go.”
Economist survey suggests a better way to help low-income workers than raising the minimum wage to $15
An interesting question from the latest University of Chicago IGM Forum economist survey: “If the federal minimum wage is raised gradually to $15-per-hour by 2020, the employment rate for low-wage US workers will be substantially lower than it would be under the status quo.”
Their responses, weighted by confidence level: 34% agree (9% strongly), 37% uncertain, 29% disagree.
A bit more evidence, then, suggesting that the “Fight for 15” isn’t the least risk free way to help boost worker wages versus the Earned Income Tax Credit or other wage subsidy.
First, this was my original hed: “Hey, anti-growth regulations, Jeb Bush says he’s coming for you and he’s bringing hell with him! Or at least the REINS Act!”
Anyway, deregulation is just not as sexy a policy as tax cuts. Kind of technical and wonky, the effects less immediate and obvious. But regulatory reform may be just as important as tax reform in boosting US economic growth. It also may be a bigger political winner, at least for the GOP, than high-end tax cuts. So, Jeb Bush has come out with a regulatory reform plan. It’s a key part of his 4% GDP target idea. From the proposal:
Regulatory reform can bring America into the top 10 in ease of starting a business. It can increase productivity. It can finally give American workers a raise. Fully implemented, regulatory reform can boost GDP by three percent over the next 10 years. In conjunction with Governor Bush’s tax reform plan, the regulatory reforms outlined here will help increase average compensation, so that by 2020 a typical family of four earning $50,000 will have an after-tax income that is approximately $3,100 higher than it would without these reforms. … First, we will require regulators to live within a budget – for every one dollar of regulatory cost they propose, they will need to also propose ways to save an equivalent dollar through regulatory relief. We will implement a “one in, one out” regulatory budget. A rule like this would have avoided roughly $99 billion in regulatory costs over the Obama presidency.
Second, we will enhance and enforce presidential control over regulations.Regulations will not be issued unless regulators have identified a major market or policy failure that new regulations are likely to solve. They will need to show that state-based solutions are insufficient and that benefits outweigh costs. And we will expect regulators to strictly adhere to the plain, ordinary meaning of constitutional and statutory limitations. I will also sign the REINS Act into law, empowering Congress to approve or reject, through a simple majority vote, regulations that impose outsized burdens on the economy.
Third, we will establish a two-year deadline for completing federal permitting process – including environmental impact reviews — for major infrastructure projects that are mired in delays stretching up to a decade or more. We will get highway, port, bridge and other critical projects going, creating jobs and growing our economy.
Directionally, this is good stuff. The “one in, one out” riffs off the One-for-One regulatory rule instituted recently by Canada. Also begins building the case for infrastructure spending. But I would have preferred more on financial reform other than just a critique of Dodd Frank. Also nothing on reforming intellectual property, something that was outlined the other day in an excellent deregulation blueprint from Lincoln Labs. Of course, that stuff is more controversial on the right than, say, signing the REINS Act.
Likewise, a bit surprising there was nothing explicit about the sharing/gig economy given how much Republicans like talking about Uber. Team Bush does, however, reference occupational licensing. I guess overall I would have liked the proposal to have been placed more firmly into a startups/Innovation State framework, especially given the recent Mercatus study. (This is something the Lincoln Labs report does a great job of, infusing these issues with Silicon Valley perspective.) I dunno, maybe something on bitcoin or drones, maybe?
A new study from Brookings shows flat wages for men since the mid-1970s. That and more surprises, like the Midwest’s opiate and heroin epidemic, and what technology can’t change in our happiness.
Unabomber’s anti-technology manifesto published 20 years ago – ArsTechnica
Who’s Benefiting from MOOCs, and Why – HBR
People Are More Likely to Cheat at the End – Scientific American – “This study concludes that, as people get closer to finishing an activity, they become more and more likely to deliberately deceive others for their own benefit. And they do this, the research shows, because they anticipate regretting a missed opportunity to cheat the system.”
Men haven’t gotten a real raise since the 1970s – The Week – “Analysis from the Brookings Institute finds that men in America haven’t had a real raise in 40 years.”
How Companies Can Help Rebuild America’s Common Resources – HBR – “Starting around 1980, however, shifts in technology, geopolitics, and governance changed the game. … Throughout this period, America systematically underinvested in the common resources that underpin shared prosperity. That needs to change.”
Why Europe isn’t creating any Googles or Facebooks – Business Insider
Europe’s relatively cautious attitude to investment stands out as one of the biggest hurdles — and among the most difficult to change. … Investors in Europe want to see that a young company can generate revenue from the start. Europe’s many high-technology companies are focused on manufactured goods that can be sold right away to generate revenue — industrial equipment, energy turbines, high-speed trains, medical devices, and nuclear energy.
By contrast, Internet companies often have little to no revenue at the beginning.
What Technology Can’t Change About Happiness – Nautilus
This article is too great to miss, and hard to excerpt, but here’s my best effort:
In 2014, researchers at the University of Warwick in England announced they had found a strong association between a gene mutation identified with happiness and well-being. It’s called 5-HTTLPR and it affects the way our body metabolizes the neurotransmitter serotonin, which helps regulate our moods, sex drives, and appetites. The study asks why some nations, notably Denmark, consistently top “happiness indexes,” and wonders whether there may be a connection between a nation and the genetic makeup of its people. Sure enough, controlling for work status, religion, age, gender, and income, the researchers discovered those with Danish DNA had a distinct genetic advantage in well-being. In other words, the more Danish DNA one has, the more likely he or she will report being happy.
[…] Over the past decade or so, a growing number of researchers have begun to rethink exactly what happiness is and distinguish between two types: “hedonic” happiness, that positive mental high, and “eudaimonic” happiness. Aristotle was referring to this second kind when he wrote 2,300 years ago: “Happiness is the meaning and the purpose of life, the whole aim and end of human existence.” This is the kind of happiness that qualifies a life well-lived, time on this planet well-spent. Medical technology may soon be able to engineer a momentary absence of fear, or the presence of a moment-to-moment sense of well-being, but engineering this second kind of happiness would be far more difficult.
Heroin in the Midwest: A hydra-headed scourge – The Economist
Heroin hit the Midwest harder than other places because the coasts learned to deal with the problem in the 1960s, and are thus better able to handle its resurgence, says David Ferguson, a medicinal chemist at the University of Minnesota… Midwesterners, especially in rural areas, are less aware of the dangers. They had to learn how to fight drug traffickers, mostly from Mexico, who use Chicago as a transport hub for their wares. The Midwest and the South also have far fewer treatment centres for addicts than the north-east.
The heroin epidemic in the Midwest is closely linked to the rampant opiate epidemic. As doctors prescribed opioid painkillers such as OxyContin more and more liberally, their abuse grew. Sales of prescription opioid painkillers have increased 300% since 1999, according to the federal Centres for Disease Control and Prevention (CDC), even though the amount of pain Americans report to their physicians has not changed. …“This is a doctor-caused epidemic,” says Tom Frieden, boss of the CDC.
Mandating companies pay this or that benefit may seem like a free lunch to policymakers. Workers are helped, and taxpayers don’t bear the burden. Yet as Larry Summers wrote in“Some Simple Economics of Mandated Benefits”back in 1989: “If policymakers fail to recognize the costs of mandated benefits because they do not appear in the government budget, then mandated benefit programs could lead to excessive spending on social programs. There is no sense in which benefits become ‘free’ just because the government mandates that employers offer them to workers. … Mandated benefit programs can work against the interests of those who most require the benefit being offered.”
The Economist looks at this issue, in the context of part-timers, freelancers, and independent contract. Gig economy alert!
The main benefits associated with employment fall into three broad categories: public pensions, health care, and unemployment insurance. In the case of pensions, governments usually levy payroll taxes on firms in proportion to their workforce, and use the proceeds to support pensioners. Hire a worker as a contractor, and firms need not pay the levy; in America, the self-employed must instead pay it themselves. Workers’ advocates claim this means contractors face higher tax rates than employees.
However, conventional economics says the burden of a tax cannot be altered just by changing which party writes the cheque. America’s Congressional Budget Office considers payroll taxes part of a worker’s tax burden, even though employers pay them. Were Uber forced to pay social-security contributions instead of its drivers, it would presumably offset this extra cost by reducing the share of each fare that goes to drivers. Their take-home pay would remain the same. This argument cuts both ways: if it does not matter who pays, firms may as well cough up (though businesses may legitimately worry about the associated administrative costs of paying contributions).
Then there is health care, which is often tied to jobs in America. Again, there is no free lunch for workers when employers foot the bill. Numerous studies have found that the more firms pay for health insurance, the less they pay in wages. For instance, in 1994 Jonathan Gruber of MIT found that when some states began insisting on better coverage for childbirth, married 20- to 40-year-old women—whose insurance costs rose most on average—took an offsetting hit to their pay. …
If compulsory benefits are offset by lower wages, why should Uber’s drivers care how they are labelled? Accepted economic wisdom provides one possible answer: wages are “sticky”, or hard to cut in cash terms. If it takes time for pay to fall in real terms, workers who win more benefits in court would be better off for a short while. Workers may also recognise that there is one benefit attached to employee status—a minimum wage—that cannot be offset by lower pay.
Is that an argument for a minimum wage for contractors? Opponents point to its distorting effect on incentives. Workers would look to boost hours rather than output, requiring firms to monitor their effort closely. In Uber’s case, a driver could stay in a quiet area, take few passengers and still make money. What might tip the balance the other way is if firms have too much bargaining power over their workers. This should not apply to a traditional contractor, such as a plumber, who works for lots of clients. But were apps to dominate a whole market—as some suspect Uber eventually might—then contractors may feel outgunned. If that happens, they will need more protection.
Links and quotations for September 21, 2015: France vs. apps in the book sharing economy, the economics of ‘Mad Men,’ and more
French authorities are threatening to shut down a real contributor to the sharing economy: an app that encourages sharing of books. Why? It gets around French controls on the book industry. That and more updates from over the weekend here.
The iPad and your kid—digital daycare, empowering educator, or something bad? – ArsTechnica
Turning freelancers for firms like Uber into employees would not necessarily improve their lot – The Economist
Bitcoin: What happens next? – Bloomberg | “The U.S. Internal Revenue Service thinks bitcoin is property; a federal judge thinks it’s a currency; now the Commodity Futures Trading Commission (CFTC) has decreed it a commodity. That means the regulator can now bring charges against any wrongdoers trading cryptocurrency futures and options.”
Spurring Investments And Innovation In Agriculture – TechCrunch
At the Emmy Awards, Mad Men Provides An Essential Economic Lesson – Forbes | “HBO’s rejection of a show that, in hindsight it would have bought with great speed, is a reminder that in the real world of business even the giants stumble with great regularity.”
How timing can make or break a startup – FastCompany | “This sort of timing isn’t about launching in either this or that quarter. Rather, it’s about the much broader condition of the industry and culture as a whole—something that can’t usually be controlled by business leaders and in many ways can’t even be defined.”
No Library For You: French Authorities Threatening To Close An App That Lets People Share Physical Books – TechDirt
What is it about people today that makes them freak out about “free”? Of course, in France (as in much of Europe) the book market is bizarrely heavily regulated with full-on price-setting. Booksellers are forced to sell books at pre-set prices and there can be no competition in pricing — which is why Amazon got in trouble for offering free shipping on books in France. Apparently that was deemed “discounting” books. It sounds like this investigation may be under the same kind of law, and the idea that “lending” books for free somehow undermines the market for books by offering a discount. Again, in order to make this argument seriously you have to ignore public libraries.
The Internet And Its Discontents – TechCrunch
It was an old saw back in those days, after all, that “freedom of the press” only applied to those who could afford a press — and the level of financial responsibility and social respectability it required to publish created a de facto filtering function for the public sphere. For better or for worse, that filter is now gone. That filter disappearing has liberated the voices of a lot of people who’ve previously gone unheard, and I’ve stated strongly in the past that I think that’s a good thing.
But the power to broadcast any passing thought or utterance worldwide with the touch of a button for no cost with no delay is most appealing to the least responsible among us.
It’s Time to Free the Smartphone – Walt Mossberg
Why Income Inequality Isn’t Going Anywhere – Slate
We invited three very different classes of subjects to play our game and thus reveal their distribution preferences. The first came from the American Life Panel, or ALP, an Internet-based pool constructed by the RAND Corp. to resemble, as accurately as possible, the American public at large… The second class constituted an intermediate elite… made up of undergraduates at the University of California–Berkeley… The third and final class constituted an extreme elite, constructed from the student body at Yale Law School.
[…] The experimental behaviors of these three subject classes… revealed stark differences between attitudes toward economic justice among ordinary Americans and among the elite. To begin with, the Berkeley and Yale subjects were twice as likely to be selfish as their compatriots in general. In this respect, intermediate and extreme elites stand together with each other, and stand apart from the rest of the country.
What’s more, elite Americans show a far greater commitment to efficiency over equality than ordinary Americans… The ALP subjects split roughly evenly between focusing on efficiency and focusing on equality; the Berkeley students favored efficiency over equality by a factor of roughly 3-to-2; and the Yale Law students favored efficiency by a factor of 4-to-1.
Yale Law students’ overwhelming, indeed almost eccentric, commitment to efficiency over equality is all the more astonishing given that the students self-identified as Democrats rather than Republicans—and thus sided with the party that claims to represent economic equality in partisan politics—by a factor of more than 10-to-1. An elite constituted by highly partisan Democrats thus showed an immensely greater commitment to efficiency over equality than the bipartisan population at large.
Elites’ preferences matter. The American elite overwhelmingly dominates both campaign finance and political lobbying, and American policymakers themselves come overwhelmingly from elite circles—the powerbroker Yale Law alumni mentioned above represent just the tip of a vast iceberg.
Economist Deirdre McCloskey recently spoke in London, and this brief summary nicely captures her talk and her work on the power of economic freedom. Next year will see the arrival of her latest book, “Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World,” the completion of a trilogy on the wonder-working power of modern capitalism.
Now, McCloskey does not like the word “capitalism.” She would prefer our economic system be called “technological and institutional betterment at a frenetic pace, tested by unforced exchange among all the parties involved.”
Or perhaps “fantastically successful liberalism, in the old European sense, applied to trade and politics, as it was applied also to science and music and painting and literature.”
Or simply “trade-tested progress.”
Here is a seven-page summary by McCloskey of that upcoming work, worth reading and rereading. And here is a summary of that summary:
Perhaps you yourself still believe in nationalism or socialism or proliferating regulation. And perhaps you are in the grip of pessimism about growth or consumerism or the environment or inequality.
Please, for the good of the wretched of the earth, reconsider.
Many humans, in short, are now stunningly better off than their ancestors were in 1800. … Hear again that last, crucial, astonishing fact, discovered by economic historians over the past few decades. It is: in the two centuries after 1800 the trade-tested goods and services available to the average person in Sweden or Taiwan rose by a factor of 30 or 100. Not 100 percent, understand—a mere doubling—but in its highest estimate a factor of 100, nearly 10,000 percent, and at least a factor of 30, or 2,900 percent. The Great Enrichment of the past two centuries has dwarfed any of the previous and temporary enrichments. Explaining it is the central scientific task of economics and economic history, and it matters for any other sort of social science or recent history.
What explains it? The causes were not (to pick from the apparently inexhaustible list of materialist factors promoted by this or that economist or economic historian) coal, thrift, transport, high male wages, low female and child wages, surplus value, human capital, geography, railways, institutions, infrastructure, nationalism, the quickening of commerce, the late medieval run-up, Renaissance individualism, the First Divergence, the Black Death, American silver, the original accumulation of capital, piracy, empire, eugenic improvement, the mathematization of celestial mechanics, technical education, or a perfection of property rights. Such conditions had been routine in a dozen of the leading organized societies of Eurasia, from ancient Egypt and China down to Tokugawa Japan and the Ottoman Empire, and not unknown in Meso-America and the Andes. Routines cannot account for the strangest secular event in human history, which began with bourgeois dignity in Holland after 1600, gathered up its tools for betterment in England after 1700, and burst on northwestern Europe and then the world after 1800.
The modern world was made by a slow-motion revolution in ethical convictions about virtues and vices, in particular by a much higher level than in earlier times of toleration for trade-tested progress—letting people make mutually advantageous deals, and even admiring them for doing so, and especially admiring them when Steve-Jobs like they imagine betterments. The change, the Bourgeois Revaluation, was the coming of a business-respecting civilization, an acceptance of the Bourgeois Deal: “Let me make money in the first act, and by the third act I will make you all rich.”
Much of the elite, and then also much of the non-elite of northwestern Europe and its offshoots, came to accept or even admire the values of trade and betterment. Or at the least the polity did not attempt to block such values, as it had done energetically in earlier times. Especially it did not do so in the new United States. Then likewise, the elites and then the common people in more of the world followed, including now, startlingly, China and India. They undertook to respect—or at least not to utterly despise and overtax and stupidly regulate—the bourgeoisie.
Why, then, the Bourgeois Revaluation that after made for trade-tested betterment, the Great Enrichment? The answer is the surprising, black-swan luck of northwestern Europe’s reaction to the turmoil of the early modern—the coincidence in northwestern Europe of successful Reading, Reformation, Revolt, and Revolution: “the Four Rs,” if you please. The dice were rolled by Gutenberg, Luther, Willem van Oranje, and Oliver Cromwell. By a lucky chance for England their payoffs were deposited in that formerly inconsequential nation in a pile late in the seventeenth century. None of the Four Rs had deep English or European causes. All could have rolled the other way. They were bizarre and unpredictable. In 1400 or even in 1600 a canny observer would have bet on an industrial revolution and a great enrichment—if she could have imagined such freakish events—in technologically advanced China, or in the vigorous Ottoman Empire. Not in backward, quarrelsome Europe.
A result of Reading, Reformation, Revolt, and Revolution was a fifth R, a crucial Revaluation of the bourgeoisie, first in Holland and then in Britain. The Revaluation was part of an R-caused, egalitarian reappraisal of ordinary people. … The cause of the bourgeois betterments, that is, was an economic liberation and a sociological dignifying of, say, a barber and wig-maker of Bolton, son of a tailor, messing about with spinning machines, who died in 1792 as Sir Richard Arkwright, possessed of one of the largest bourgeois fortunes in England. The Industrial Revolution and especially the Great Enrichment came from liberating commoners from compelled service to a hereditary elite, such as the noble lord in the castle, or compelled obedience to a state functionary, such as the economic planner in the city hall. And it came from according honor to the formerly despised of Bolton—or of Ōsaka, or of Lake Wobegon—commoners exercising their liberty to relocate a factory or invent airbrakes.
And guess what? McCloskey will be speaking at AEI on Oct. 1. Please attend or watch online.
My colleague Joe Antos sketches out a market approach to healthcare reform with the goal of better care at lower cost. Here is a bit on deregulation (bold is mine):
Regulatory reforms are needed to promote innovation in health care delivery and to provide better options for consumers. The ACA added a new layer of federal insurance regulation, but simply reverting to state regulation is not the answer. We need smarter regulation to protect consumers without imposing greater inefficiency on the health care market. Increasing the number of people with insurance is an important step in improving population health, but offering coverage that consumers want at a price they are willing to pay works better than mandating that they buy only what satisfies government requirements. Avalere Health reports that 76% of those eligible for the highest subsidies—those with incomes between 100% and 150% of the poverty level—enrolled in exchange plans, but enrollment dropped off sharply as subsidies declined.
Insurers need greater flexibility to offer a wider array of benefit packages. Counterproductive regulations, including restrictions that discourage the use of proven patient management methods, should be eliminated. Government controls on insurance pricing attempt to make coverage more affordable for some groups but drive up the average premium to allow for this redistribution. For example, states have typically limited agerated premiums to a 5:1 ratio, indicating that an older individual will pay no more than five times the premium costs a younger person would pay. Starting in 2014 the ACA limited the ratio to 3:1, which drives up premiums for young people with the lowest typical health costs and discourages them from enrolling in insurance. If we want to help those who most need financial assistance, we should provide that help directly rather than distort market prices. Reforming the open-ended subsidies already available would provide an opportunity to better focus aid on the least fortunate.
Medicare and Medicaid need greater flexibility to meet the needs of beneficiaries without dictating how health care must be provided. Although traditional Medicare is thought of as a uniform national program, it operates in local markets that have varying needs and resources. Restructuring the program would give it greater ability to promote local delivery system innovations, to price services to reflect local conditions, and to become more competitive in a premium support setting. States also need more autonomy in running their Medicaid programs. State innovation waivers under ACA section 1332 allow states to change how they implement ACA requirements, beginning in 2017. However, that authority is limited, and states that wish to make adjustments to Medicaid must apply to the Centers for Medicare and Medicaid Services (CMS) for additional waivers. CMS has granted waivers to several states that expanded Medicaid eligibility, but the agency has not allowed states full control over how they run their own programs.
One of AEI’s greats, Walter Berns, is highlighted in this short video released today. A taste: “To be a partisan of the Constitution, by late in his life… that meant Walter Berns was a conservative by default, but not in the way the Conservative Movement understands that term.”
Watch and learn!
Other taster quotations :
- You should go back and read old books because you can still learn things from them.
- It’s not enough to say you don’t completely agree… You need to go back and say what you think is right.
- True patriotism, for an American, means an appreciation for self-criticism. … Ours is not a blind patriotism.
The WaPo’s Catherine Rampell certainly sums up what I was thinking during the recent GOP debate:
To the great disappointment of econo-nerds everywhere, the economy was almost entirely ignored during Wednesday’s Republican presidential debate. Over the course of three hours, the moderators and debaters found time for but a few minutes of discussion on the economy, most of that on the minimum wage. There was almost nothing on jobs; nothing on inflation; one throwaway mention of trade; and nothing on the Federal Reserve’s impending interest-rate decision, which would be announced the following day (spoiler: the Fed kept rates at zero percent — more on that in a bit). And so the econ-Twitterverse cried out: Whither the economy? Attention must be paid!
Rampell speculates Republicans don’t want to talk so much about the economy because of its slow improvement. Sort of makes sense.”The economy is not as strong as it should be” is a less compelling narrative than, “The economy is in the tank.”
As it happens, I also wrote about this issue in a post yesterday, “How will the GOP deal with the slowly improving economy?” I partly blamed the debate moderators. Still, the candidates could have done more themselves, especially given that the moderators held the reigns pretty loosely. But maybe they didn’t for the reason Rampell cites. Indeed, recall that the Goldman Sachs election forecasting model finds the economy is a tailwind for Democrats, not the GOP. Now Rampell’s colleague, Jim Tankersley took issue with the thesis, via Twitter, and makes a good point:
Respectfully disagree with @crampell here: GOP candidates are campaigning on econ issues, just not in debates … Which is why it’s a mystery that moderators aren’t asking about economy more. … One possibility: The candidates aren’t disagreeing hugely (save Trump) on econ — they all want some variations of pro-growth tax cuts.
The GOP has policy ideas. But what I see less of is the sort of macro theorizing about what is really wrong with the US economy — both in terms of growth and how the fruits of that growth are dispersed. I would like to see the candidates talk deeply about those issues rather than simply ticking off this or that policy to supposedly boost GDP growth. More on their diagnoses, please.
Why has high-end inequality risen and what are the growth impacts? How is automation affecting workers today and how might it in the near-to-mid future? What do they make of the “secular stagnation” thesis? Might the economy actually be stronger than we think because currents stats do a poor jobs on measuring the digital economy? What factors will make it harder to grow as fast in the future as in the postwar era? Is the link between productivity and wages broken? How are the economic challenges of today different than those when Ronald Reagan or Bill Clinton or George W. Bush came into office?
For an idea of how it sounds when a politician does talk about such ideas, I highly recommend reading this talk at AEI by George Osborne, Britain’s George Osborne:
This prediction, that the link between living standards and economic growth has broken, also leads its proponents to the same prescription: more government spending on welfare and the costs of economic dependency. But it too can be proved wrong if we follow a different approach.
To begin with, this argument about the broken link is not well supported by the facts. As Greg Mankiw has pointed out for the US, on a superficial reading, the data appears to show that real median incomes grew by only 3% over the entire period from 1979 to 2007. And that sounds like there is a big problem. But in fact, once you take account of changes in household composition, lower taxes, health care benefits and other forms of remuneration, then that number turns into a 37% real terms increase. Of course, that’s not to say that inequality doesn’t matter. It does. The great recession made our countries poorer and times have been difficult for British and American families. But in the UK, the evidence shows the growth supports rising living standards. Recent work by academics of the London School of Economics and our own analysis at the treasury has found no evidence that employee compensation has become detached from GDP growth in recent decades. Previous results that appear to show a break disappear once you take into account rising pension contributions and my previous – the previous government’s payroll taxes in the UK. And that is one reason why the labor share of national income in the U.K. has stayed constant over the last decade.
Nor does the evidence support the so-called hollowing out hypothesis in the UK – the idea that middle-skill and middle-income jobs are disappearing with most of the growth in employment either at the top or the bottom of the distribution. While some traditional mid-level occupations have shrunk or moved down the income scale, new ones are being created to take their place. So we have less middle-paid production line and secretarial jobs, but a lot more middle-paid jobs in IT and professional services. Overall, there has been little change in the proportion of people in middle-income jobs in recent years. And after rising during the industrial restructuring of the 1980s, as it did in many countries, the level of inequality in the U.K. has been fairly constant for two decades. And according to the latest data, it’s at its lowest level since 1986.
So the long-term link between economic growth and living standards has not been broken. When the economy shrinks, people get poorer. And the only way to ensure that people are better off is for the economy to grow, But we, nevertheless, face a tremendous challenge. The very legitimacy of our free market depends on the promise that effort is rewarded and prosperity is shared. In recent decades, the premium earned by highly skilled, highly qualified people has increased even as the number of highly skilled people has increased. And that tells us something important about the insatiable demand for higher skills in the modern global economy. The flipside side of that is that the downside of having low skills has increased, too. Harvard economist Claudia Goldin and Larry Katz famously posited a race between education and technology. And, more recently, Erik Brynjolfsson and Andrew McAfee have been among those writing about the race against the machine – the risk that increasing deployment of artificial intelligence and driverless cars and other digital technologies will lead to unemployment. …