The most outrageous candidate on the stump in 2016 is not, if you can believe it, Donald Trump. It is someone who calls himself Vermin Supreme, the satirical presidential hopeful known for wearing a bushy white beard and an upended boot on his head and making ridiculous promises to voters: a pony for every American; more federal research into time travel (“to go back and kill baby Hitler”); and of course preparedness for the inevitable zombie invasion.
Yet when it comes to the kinds of economic promises we’re hearing these days, even the serious presidential candidates are in danger of wandering into Vermin Supreme territory. On both the right and left ends of the spectrum this has become the season of the fiery populists, with their ability to play to people’s frustrations. Donald Trump offers a restoration, Bernie Sanders a revolution, but both candidates suggest a return to a far better place in America. The majority of economic wisdom out there suggests these are false hopes: The most we can expect for the foreseeable future is incremental change, and we ought to get used to it—starting with a reality check on the campaign trail.
The biggest reality check recently has come from economist Robert Gordon in his book, The Rise and Fall of American Growth. Trump has surged into the GOP lead by promising to “make America great again,” and Sanders has called for a revolution against plutocracy to restore the middle class to its former standing and security. But Gordon argues in effect that we need to get used to just being an OK Nation. He concludes that the waves of innovation that gave us indoor plumbing, electricity, automobiles and computers may be a one-time blip in history that might not be repeated in the future. Like the historian of technology Vaclav Smil and David Edgerton, the author of The Shock of the Old: Technology and Global History Since 1900 (2006), Gordon argues that the second industrial revolution in particular, based on electricity and internal combustion engines, transformed existence much more than anything before or since, including the over-hyped the information revolution. The one-time transition from horse-drawn vehicles to automobiles was fundamental; the ongoing transition from human-driven cars to robocars is merely incremental.
Gordon may be too pessimistic. But even somewhat higher levels of productivity growth than he projects are unlikely to produce growth of the U.S. gross domestic product at historic rates, because of slowing labor force growth in an aging American population.
Yet that hasn’t stopped a bidding war of unrealistic promises, beginning with Jeb Bush’s claim that his economic proposals could raise U.S. annual GDP growth from 2.5 percent in 2015 and 2.4 percent in 2014 to 4 percent—a rate much higher than the rate under Obama (2.1 percent), George W. Bush (1.6 percent), Bill Clinton (3.7 percent), George H. W. Bush (2.0 percent), and Ronald Reagan (3.4 percent). Not to be outbid, Mike Huckabee claimed that his campaign proposals could ignite 6 percent growth. So did Donald Trump.
Nor are pledges of economic miracles to be found only among supply-siders on the right. According to Gerald Friedman, an economics professor at the University of Massachusetts at Amherst, if all of the tax and spending proposals of Democratic presidential candidate Bernie Sanders were enacted, the result would be an economic Golden Age. Unemployment would fall to 3.8 percent and median income would rise by more than $22,000. Instead of growing at 2.1 percent a year, the economy would expand at a remarkable 5.3 percent a year. Jared Bernstein and Paul Krugman, among other progressive economists, have raised questions about the plausibility of the Sanders economic platform.
In the general election, if the Super Tuesday results are any indication, we’re going to see Trump and Hillary Clinton vying over who can “make America great again” (Trump) versus who can “make America whole again” (Clinton), but both candidates will no doubt overpromise on growth then as well.
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Let’s go back to basics. GDP results from both productivity per worker and annual hours worked. In the 1960s, productivity grew at 2.2 percent and the workforce grew at a rate of 1.9 percent, resulting in GDP growth of 4.1 percent. But according to the Bureau of Labor Statistics, from 2012 to 2022, the labor force is expected to grow at only 0.5 percent per year, while labor force participation is expected to decline from 63.7 percent to 61.6 percent. Even if productivity growth is constant, the changing labor market in an aging, low-fertility society like the U.S. means lower GDP growth rates in the future.
Increasing annual hours worked is politically difficult. So is slashing Social Security and raising the retirement age to pressure Americans to work longer, which would make millions of the elderly miserable for what would be at best a minor uptick in GDP growth. The benefits to GDP growth rates from the entry of most adult women into the labor market were realized long ago. And child labor is unlikely to be revived.
What about immigration, another way to grow the workforce? At the request of Bloomberg News, economist Giovanni Peri of the University of California at Davis recently calculated that increasing the GDP growth rate from 2.5 percent to 4 percent, without raising the rate of productivity growth, would require tripling the flow of legal immigrants to the U.S. And in the present political environment that is clearly not going to happen. [Jeb Bush himself, in classic supply-sider fashion, argues that tax cuts for the rich along with other policies, not solely immigration, could bring about his 4 percent target).
If we don’t significantly raise hours worked, by forcing Americans to work more or importing vast numbers of immigrants, can we make individual American workers more productive by means of universal college education or K-12 math and science education? Candidates love to cite more education as a miracle cure that will grow the economy and increase wages all at once. But this is more hype.
The vast majority of new jobs will not require the skills associated with workers in the lucrative but small high-tech sector. It would have been absurd in the 1930s to teach all American schoolchildren the essentials of electric wiring, on the theory that the nation had entered the Age of Electricity and most Americans would soon be electricians. It is equally absurd to say that success in the information age for most American children—and not just those who grow up to join the small segment of the workforce in the tech sector—will depend on their ability to write code or take part in a tech startup.
We have a good idea of what the real “jobs of the future” are—and very few of them are tech sector jobs that require STEM (Science, Technology, Engineering and Math) education. According to the Bureau of Labor Statistics, the occupations with the greatest job growth between 2014 and 2024 will be personal care aides, registered nurses, home health aides, combined food-preparation and serving workers (including fast food), retail salespersons, nursing assistants, customer service representatives, cooks (restaurant), general and operations managers, and construction laborers. There is not a conventional tech job in the Top 10 list, though one can be found if you go down to No. 14—software developers (applications).
Of the top 10 jobs of the next decade, only registered nurses and general and operations managers require education beyond high school and limited training. And with the exception of registered nurses, with a median annual wage of $66,640, and general and operations managers, with a median annual wage in 2014 of $97,270, the other occupations with the most job openings pay between $18,410 a year (combined food preparation and serving workers) and $31,200 a year (customer service representatives).
The most recent job creation data confirms the predictions of the BLS. Between January 2015 and January 2016, here are the sectors that added the most jobs: education and health (620,000); professional services, defined as accounting, engineering and entertainment (620,000); hotels, restaurants and entertainment (458,000); and construction (264,000). In contrast with these sectors, the manufacturing sector beloved by populists and labor liberals alike added few jobs (45,000)—while the information (telecom, publishing) sector added even fewer (28,000). The financial services sector enjoys a disproportionate share of income, but created only 149,000 jobs in 2015. Government created only 78,000 jobs, giving the lie to conservatives and libertarians who claim that public sector employment is exploding and crowding out private enterprise. All of these sectors—manufacturing, information, financial services, and government—combined added fewer jobs than retail alone (301,000).
For nostalgic populists and old-fashioned labor liberals who dream of restoring great numbers of well-paid assembly-line manufacturing jobs, these numbers are scandalous. Surely there is something wrong with an economy in which there are vastly more job openings for home health aides and mall workers than for factory workers!
A strong case can be made for preserving and strengthening the U.S. manufacturing base, if necessary by retaliating against the mercantilist trade policies of state capitalist countries like China. The positive spillover effects from manufacturing to the rest of the national economy are significant and U.S. national security depends in large part on a dual-use civilian-military manufacturing base. But even a renaissance of manufacturing in America would not bring back the number or kinds of well-paid factory worker jobs that existed half a century ago. Even in China, Japan and Germany, which have made manufacturing a priority, manufacturing jobs as a share of the workforce are in decline, thanks mainly to labor-saving automation. Today, the two most common large employers in the 50 American states are Wal-Mart and the local state university system.
To be sure, this is not necessarily a tragedy for the country. As heretical as it may sound, perhaps it’s not so terrible that most Americans in the future will be neither factory workers nor tech nerds but rather health aides or baristas.
Rather than trying to restore the glory days of the midcentury American factory worker, or, alternatively, treating Silicon Valley as the model for the U.S. as a whole, we Americans—like our counterparts in other developed nations—need to accept a future with lower long-term GDP growth and the predominance of domestic service sector jobs that require little or no higher education. Does this mean lowering our expectations? The answer is no, if we accept that even modest rates of productivity growth will tend to raise living standards cumulatively over time. But the answer is yes, if our expectations were unrealistic to begin with. The next step in the sequence from horse to automobile was never the flying car or the personal spaceship; it has turned out to be a combination of iphones and better health care.
The mass production of ever-cheaper goods will continue, with fewer and fewer workers involved, thanks to labor-saving technology. But in the labor market we will continue to see a shift from the mass production of goods to the mass provision of services. Some of them will be business and professional services that require advanced education, but most of them will be personal services that do not.
The shift from a focus on the quantity of goods to the quality of life, predicted for generations by economists like JohnStuart Mill and John Maynard Keynes, is taking place before our eyes in the U.S. and other advanced capitalist nations. If owning a car and a house defined middle-class status in the 20th century, in the 21st century middle-class status may be defined by having access to state-of-the-art health, education and recreational services provided by other people—services that by their nature are shared by numerous consumers, whether they are provided by the private sector, the public sector or the nonprofit sector.
If this is right, then the political debate in 2016 should have been about two subjects that have been slighted so far. We need to boost productivity as much as we can, while ensuring that the gains from productivity-driven growth are widely shared with everyone in the growing service-sector workforce.
The once-in-a-millenium drama of the transition from a society of farmers to a society of urban workers is unlikely to be repeated. Nevertheless, we can try to clear obstacles to the invention of the next world-changing invention like the steam engine or the silicon chip, without relying upon technological wonders to bail us out.
Even in the absence of new transformative technologies, a modest rate of productivity growth can produce substantial gains in the standard of living over time. Investments in infrastructure and innovation-spurring research and development can help us enjoy savings and new amenities thanks to the emergence of the “Internet of things.” Beyond America’s borders, bringing current technology and efficient organization to poor populations has the potential to produce sustained economic growth in those areas—and that will bring more growth at home.
A realistic agenda to boost long-term productivity would require, if not more direct federal spending, at least more federal borrowing or federal support or subsidy for private investment in infrastructure and public and private R&D. As for jobs, rather than try to revive the glory days of well-paid factory work or try to turn most American schoolchildren into STEM workers in the tech sector, the priority should be to ensure that the many Americans who take the jobs that are being created in fast-growing sectors like health care and hospitality can enjoy a middle-class standard of living.
In the 20th century, many poor American farm and factory worker families were lifted into the middle class not by a single gimmick, but by a number of complementary policies—the minimum wage, pro-union laws, limited low-wage immigration, subsidies for home ownership, and social insurance policies like Social Security, Medicare and Medicaid.
In the 21st century, turning America’s struggling service-sector proletariat into a service-sector middle class will require a mix of regulation and subsidies, paid for by somewhat higher taxes overall.
Progressives would prefer to boost the pre-tax incomes of American workers by labor market regulations, like a higher minimum wage and pro-union laws. Conservatives generally favor aftertax subsidies like a higher earned income tax credit (EITC) or an expanded child tax credit of the kind proposed by Marco Rubio, although the low-wage immigration restriction favored by much of the right is itself a direct labor market intervention.
When it comes to the costs of health care and higher education, the choice is between higher subsidies or price-altering market interventions, taking the form of antitrust actions or utility-style price regulations, or the socialized health care and higher ed favored by the Sanders wing of the Democratic Party.
The point is that any realistic program to expand the service-sector middle class, whether offered by left or right, would not be made up of hype and absurd promises. Rather, a realistic program would be based on the premise that the new normal of slower long-term GDP growth and more low-wage service sector jobs can be made considerably better by policies like more government borrowing for productivity-boosting investments, along with a mixture of more redistribution and more regulation in some areas.
Yes, that’s right—more borrowing, more redistribution in some cases, and more regulation in other cases, all to produce modest and incremental rather than revolutionary improvement in the U.S. and global economies.
I realize this won’t fly on the campaign trail. For one thing, the objective would be viewed as too modest—why try to boost productivity growth gradually and slightly, when this or that candidate’s simple plan can magically produce 4 or 5 or 6 percent GDP growth? Populists and many progressives would denounce the kind of collaboration in R&D and infrastructure investment among government, the private sector and universities that is needed to boost productivity growth as sinister “crony capitalism.” At the same time, free market fundamentalists on the right would denounce even “reformicon” measures like a bigger child tax credit as wicked “statist social engineering.”
Furthermore, the price would have to be paid, in part, by the middle class—not just the existing middle class, but also the new middle class that such a program would help to create. The experience of Western European nations with more generous social support systems shows that taxes to pay for them must fall on the middle class, not only on the rich. The idea that only plutocrats need to be taxed to pay for a more generous middle-class economic support system is an illusion.
If middle-class and working-class Americans believe they are getting value for their money, they may be willing to pay somewhat higher taxes themselves. But even Bernie Sanders emphasizes taxing the rich. For her part, Hillary Clinton, a reformist rather than a revolutionary, has promised that she would oppose raising taxes on households making less than $250,000 a year. (The median household income in the U.S. is $53,657; households making $250,000 are in the top 5 percent).
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In the end, it speaks poorly of the state of American politics that many of the most important subjects we should be debating cannot be discussed realistically in the political arena. To one degree or another, the major presidential candidates treat the main economic phenomena of our time—slower GDP growth, the decline of manufacturing employment and the rise of low-wage service sector jobs concentrated in health care and leisure and hospitality—as temporary aberrations to be corrected by a radical restoration or an equally radical revolution, not as historic trends to be accepted but modified for the better. Follow my plan, our candidates say, and the U.S. will enjoy a return to the high productivity of the late 1990s and the kind of well-paid jobs that unionized manufacturing workers enjoyed in the 1950s or that skilled tech workers enjoy in Silicon Valley today.
Instead, we should get used to the new normal—while tweaking it and upgrading it to become a decent “next normal.” This is less dramatic a message than promising to unleash 4, 5 or 6 percent annual GDP growth, or to provide free universal health care and higher education to the middle class while raising taxes only on the rich. It is not a message that will set the saloons on fire, as they used to say. But leadership involves education, not pandering, and this is the message that Americans need to be told.
And the voters who don’t want to listen? They can always find presidential candidates who will tell them what they want to hear, like Vermin Supreme, with his promise of a pony for everyone.