The Right Is Wrong to Lose Faith in Economic Growth
(Bloomberg Opinion) -- Economic growth is under attack.
Or, more specifically, the idea that public policy should place a large amount of emphasis on the economy’s rate of growth is under assault by the political right as well as the left.
Traditionally, conservatives have placed a premium on growth as the best way to advance the fortunes of all Americans. But in recent years, some on the right have adopted more of the thinking espoused by Stephen Bannon, President Donald Trump’s former adviser, and other so-called populists, playing down the importance of growth to the well-being of many working-class Americans.
The latest argument for that position comes from Oren Cass, a conservative policy analyst at the Manhattan Institute. In his new book “The Once and Future Worker,” Cass argues that the results from decades of policies designed to encourage GDP growth are “embarrassing” and have “steered the nation off course.” Michael Anton, a former Trump adviser and a senior fellow at the conservative Claremont Institute, offers a similar view, questioning the presumption that technological and economic progress is desirable and that innovation is “per se good.”
On the left, “democratic socialism” and other varieties of aversion to the economic status quo have long dismissed the importance of making growth a top priority — and the influence of these voices is on the rise.
If the risk to U.S. society from the chance that this (surprisingly) bipartisan thinking could harden into conventional wisdom weren’t so dire, it would be tempting to dismiss the negativism toward economic growth as a straw man and move on. I don’t know of any serious economist or public figure who argues for a singular focus on maximizing GDP growth at the expense of all else.
To their credit, the populist critics of a growth-oriented public policy often acknowledge that the U.S. does pursue programs that reduce the economy’s rate of growth by impairing the functioning of the market through, for example, taxing higher-income Americans in order to fund safety-net programs. But that acknowledgment serves to make their critiques — and their general posture toward economic growth — even harder to understand.
Indeed, conservatives have been right in their traditional focus on growth. Let’s recall why.
This task is made easier by the visible proof that the hot U.S. economy is the best jobs program available for lower-wage and vulnerable workers. As I wrote in a column earlier this month, this strength is benefiting low-wage workers more than other groups.
The unemployment rate for the least-skilled workers is outperforming its average to a greater extent than for higher-skilled workers. Earnings are growing significantly faster for workers without a high school diploma than for higher-educated workers. The rate of employment among workers with a disability has jumped 26 percent in the last six years. The formerly incarcerated seem to be having a much easier time in the workforce than in previous years, and employers are less likely to require background checks on job applications.
Growth doesn’t just help low-income and working-class households in the short term. Over longer periods, seemingly small changes in the growth rate have large consequences. In the past four decades, for example, real GDP per person has increased from about $28,000 to over $55,000, growing at about 1.7 percent per year. If growth instead had been 1 percent, average GDP per head would be about three-quarters what it is today.
Today’s critics of growth-focused public policy are correct that a rising tide does not lift all boats equally, and it doesn’t lift them instantaneously. But over time, all boats do rise considerably.
There’s another reason that now is the wrong time to question the importance of growth. Demographic pressures are pushing the economy’s potential growth rate below its historical average. During this period, we need to be talking more — not less — about how to make GDP grow faster.
Populists are of course correct that we also need to be talking about targeted programs designed to help the working class — even if funding these endeavors can slow growth. There are many such programs that are worth the trade-off, including earnings subsidies (which Cass also supports expanding). But populists need to be reminded that it is precisely a growing economy that creates the financial and political space for these types of programs.
Undervaluing growth will lead us to make imprudent choices, forgetting the true cost of programs. Among the populists on the left and right, downplaying growth makes it easier to attack free trade and immigration, ignore the national debt, and support expensive and inefficient programs like federal job guarantees.
Imagine the world in the year 1900. There was no air travel, no antibiotics, no iPhone, no Amazon Prime, no modern high school and no air conditioning. Compared with today, people were starved for knowledge and leisure.
Anyone who played down growth a century ago wouldn’t have known they were arguing against any of these things, because none of these growth-enabled features of modern life had been invented yet. But they would have been putting the existence of all these at risk by stifling, even marginally, the economic engine that allowed for their creation.
What in the world of tomorrow doesn’t yet exist? We need growth in order to find the answer — both for ourselves, and for posterity.
Economic growth also advances moral goods. In a world with slow growth, the easiest way for me to do better is for you to do worse. In a world with rapid growth, I can do better without making you worse off. You can do better, too.
Growth facilitates aspirations. Those who undervalue it should remember that dynamism and increasing opportunity allow the young to dream and to strive, and allow the rest of us to apply our talents, efforts and skills to contribute to society in the best way possible, to provide for our families, and to lead full and flourishing lives.
The rise of populism has created a bipartisan challenge to the importance of economic growth. If this challenge isn’t met, the frustrations of today could haunt our tomorrows.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and resident scholar at the American Enterprise Institute. He is the editor of “The U.S. Labor Market: Questions and Challenges for Public Policy.”
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