DC Economic Summit Shows Policymakers Stuck in 1980
It's time for economic policymakers to stop their obsession with the problems of 30 years ago and start focusing on the needs and realities of 2012.
That was my takeaway after attending The Atlantic's excellent Economy Summit in Washington, DC, last week, a forum dominated by old white men and women who emphasized the importance of controlling inflation and bringing back manufacturing jobs, reasonable goals in 1980 but bizarre areas of focus in 2012.
Consider those two items for a moment, inflation and manufacturing jobs. Core inflation has been running at a rate of 2.5% or less for nearly 20 years, wage growth and housing costs are stagnant, there's plenty of spare capacity in the industrial sector, and private sector credit growth is nonexistent, and we are supposed to worry about inflation?
Similarly, goods-producing jobs, of which the US still has around 18 million, have been shrinking as a percentage of total US jobs for over 50 years, just as agricultural jobs once did. Fifty years ago, goods-producing jobs as a percentage of all nonfarm jobs exceeded 35% vs. today's sub-15%. While the US is now more cost-competitive in manufacturing than it has been in several decades, and manufacturing will remain an important part of the US economy for years to come, it is not the future of job growth in an economy increasingly driven by services and information.
It is understandable, though frustrating, that policymakers in their 50s and 60s are ideologically captive to the ideas and experiences of their formative years, and the concerns of their like-minded and similarly aged personal and professional peers. It is unclear, however, if their goals and suggestions are the right approach for an economy that is increasingly the domain of those born after 1970 and the conflicting values and behaviors of this younger generation.
There was no real mention of the economic impact of the Internet, which has been a part of American life for over 15 years now. Obviously there was nothing about social networking, collaborative consumption, and the data economy. The most encouraging voice was Gene Sperling's, the new director of President Barack Obama's National Economic Council, who emphasized what an infrastructure program with teeth could do right now.
Before some throw out the catcalls of "socialism!," allow me a bit of Volckerian pragmatism. We know that much of the infrastructure of the US needs repair and maintenance, whether that means fixing roads and bridges, making old buildings more energy-efficient, strengthening and securing the electricity grid, or environmental work. More progressive approaches would include building new roads and bridges, public transportation and inner-city rails, and cell phone towers and wireless infrastructure. Federal, state, and local gross investment as a percentage of GDP is around 2.5%, a fair amount below the levels of the late 1950s through early 1970s.
We also know that the recession threw 2 million construction workers out of a job, many of whom the government is already paying through unemployment and health care programs.
We also know that interest rates are at multidecade lows. This is a beautiful time where we could combine public necessities and wants, upgrading and adding to our infrastructure, with resources the market will provide cheaply, construction workers and government credit, to achieve public policy goals and provide a short-term kick to the economy while households finish their balance sheet repair.
At the summit on Wednesday, Larry Summers said, "The single most important determinant of almost every aspiration the country has...is the rate of growth of our economy over the next decade," a point on which almost every American would agree. We have seen in Europe over the past few years, and to a lesser extent here in the US, that while deficits in the long run are important, austerity and deficit control are not the foundation of economic growth during a time of private sector deleveraging.
It's time for economic policymakers to stop their obsession with the problems of 1980 and start focusing on the needs and realities of 2012.
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