How America can become a job creator

Unless you have been hibernating, you understand that the debate over the proper role of government is a central issue in America’s current troubled political environment.

The contretemps over this question are exacerbated by high unemployment, which exerts a severe economic drag on the country. We should approach the question of government’s role with job creation as our top priority.

Nearly 11 million Americans are unemployed and another 9.8 million either involuntarily work only part-time or are too discouraged to keep looking for a job. Families struggling to make ends meet on unemployment benefits are no longer able to participate fully in the nation’s consumer economy. And since consumer spending accounts for some two-thirds of the nation’s gross domestic product, their reduced spending poses an obstacle to economic recovery.

People’s views on the role of government are heavily influenced by their political philosophies. Some care most about individual freedom, seeing wealth creation mainly as the product of individual effort; others prioritize promoting the well-being of the community as a whole. These two philosophical conceptions lead to disagreements about government’s proper role in the economy. Those on the right believe less government leads to more robust economic growth and those on the left argue for more government intervention.

The real problem is that what both groups really want is to find a political strategy that will tip a few red states blue and vice versa. That makes the philosophical clash toxic because bad politics trumps smart public policies.

There are, however, some basic areas of agreement about the role of government. For example, government should protect us from violence. To do so, government must have a monopoly on coercive power. Otherwise anarchy develops, and as the 17th-century philosopher Thomas Hobbes noted, “the life of man (becomes) solitary, poor, nasty, brutish, and short.”

Similarly, Adam Smith, the intellectual messiah of capitalism, argued that government should protect “society from the violence and invasion of other independent societies” and protect “as far as possible every member of the society from the injustice of or oppression of every other member of it.” The most limited government, then, is one whose sole function is to prevent its members from being subjected to physical coercion.

But even Smith argued that government should create and maintain “certain public works and certain public institutions, which it can never be for the interest of any individual or small number of individuals, to erect and maintain.” Think roads, bridges and sewers -the infrastructure required for society to function and grow.

Consider the Erie Canal, the transcontinental railroad, the great dams and water systems of the west, airports, seaports, transit, and the highways and bridges that are part of America’s great public works inheritance. They were the envy of the world and supported the growth of the greatest economic power the world has even known.

One way to pay for infrastructure upgrades is to recruit private firms as active partners to help fund and operate these projects. If properly structured, public-private partnerships could tap into billions of dollars in private capital that are looking for a home.

This kind of ambitious infrastructure investment plan could give the nation’s economic growth a vital shot in the arm by creating new jobs and reversing the negative-multiplier effect caused by high unemployment and reduced consumer spending.

originally published: December 14, 2013

Extreme wealth inequality threatens the nation

One of the salient characteristics of the last 20 years has been the unprecedented growth in income and wealth inequality, and the extent to which both have flowed to the proverbial1-percenters.

Market capitalism has generated enormous wealth, but the distribution of the spoils of capitalism has gone awry. While there are many ways to measure inequality, consider that in today’ s Gilded Age, the wealthiest 1 percent of American households enjoy a higher total net worth than the bottom 90 percent and the top 1 percent of income earners receive more pretax income than the entire bottom half.

Since 1979, 36 percent of all after-tax gains went to the 1-percenters; over 20 percent of those gains went to the top one-tenth of 1 percent of the income distribution.

The increasingly unequal distribution of income and wealth threatens not only the social fabric of American society but the economy as well. The mega-rich cannot spend enough to offset the lost demand that results from a shrinking middle class, which slows economic growth.

Growing inequality is making a lie of the American promise that this is a country where if you work hard, you can make it into the middle class. We are witnessing the hollowing out of the middle class; it is being mothballed like an old Navy ship. The last time that income inequality in the land of plenty was as profound as it is now was immediately before the 1929 stock market crash.

Right now, more than 8.4 million Americans are collecting either state or federal unemployment benefits and one out of every seven depend on food stamps, the highest share of the population ever to do so. A shrinking few claim a disproportionate share of the nation’s wealth at the expense of everyone else.

If we could identify a single culprit to blame for this mess, it would make for a good television drama. But the story of rising income inequality is more complex. None of the major explanations are exhaustive or definitive, and making sense of them is no easy task.

Some blame globalization, a process of closer integration between different countries and peoples made possible by falling trade and investment barriers, tremendous advances in telecommunications and  drastic reductions in transportation costs that have forced American workers to compete against the huge supply of low-cost labor in the developing world and contributed to the declining influence of labor unwns.

Others point to new labor-replacing technologies that threaten both unskilled and skilled workers, while they increase demand for a select few with highly specialized skills. They argue that American public education does not provide children with the advanced skills they need to compete in this new world.

Stated differently, the pace of technological advance has outstripped the educational system’s ability to supply students with the skills they need to utilize this technology, leading to outsized earnings gains for those who have such skill. This is the so-called college wage premium.

Over the past few decades, people in developed economies who were educated enough to take advantage of the technological advances won higher wages. Others got left behind.

Finally, there are those who contend that immigration policy worsens inequality. The mass influx of low-wage workers probably reduces global inequality at the same time it increases inequality within America by reducing the wages of hard-working, semi-skilled Americans.

Many pundits contend that we can reverse the deterioration of the middle class with a series of policies such as revising the tax code, making free trade fair, investing in America’s infrastructure, rethinking training and education and strengthening labor unions.

Perhaps America can deal finally with the divisive issue of inequality after having spent decades ignoring it, but hope is not a strategy. The only thing we can be certain of is that there are no quick fixes or easy solutions, and the longer it takes to address the problem, the more painful the cure will be.

originally published: November 30, 2013