What a Hillary Clinton economy might look like
Last week at the Republican National Convention, Donald Trump told us he'll fix things -- he'll "Make America Work Again" -- but exactly how remains mostly a mystery.
This week at the Democratic National Convention, I hope the talk from the podium goes beyond identifying problems and actually details the policies Hillary Clinton supports, so that voters can determine what she gets right about the economy and what she gets wrong.
What Clinton gets right:
Strengthen social insurance: Globalization, the rise of digital technology and the reduction of U.S. government support for social insurance programs (often to help pay for tax cuts for the wealthy) have increased economic insecurity for workers. American workers are tired of seeing the political establishment endorse policies such as tax cuts and trade deals that benefit those at the top of the income distribution while they struggle to make ends meet and worry that their jobs will disappear.
Technological change and international trade help the economy grow faster, increase the variety of goods we can consume and reduce the prices we pay. If the benefits are distributed broadly, we can all be made better off. However, most of the gains have gone to those at the top of the income distribution, while most of the costs have fallen on the working class.
If we want to maintain support for a dynamic, innovative and open economy, we must do a better job of sharing the gains from international trade and technological change and insulating workers from the costs.
Clinton has proposed several policies that would reduce economic insecurity, help workers find employment after they have lost jobs and promote a more equitable distribution of income. She supports helping families with their child care costs, debt free college education, access to affordable health care, extending unemployment compensation in deep recessions, protecting Social Security and Medicare, job retraining programs, rewards to companies that share profits with employees, strengthening unions and guaranteed family and medical leave.
I wish she would go even further to ensure that workers are protected when trade, technology, recessions or other factors out of their control cause them hardship, but her proposals are a move in the right direction.
Making sure the wealthy, Wall Street and corporations pay their fair share in taxes: In order to implement the social insurance programs the country needs and ensure that the economic pie is distributed more equitably, the wealthy will need to pay their fair share of taxes. It would be one thing if the tax breaks the wealthy have been given spurred economic growth and widespread prosperity, but that's not what happened. Instead, the tax cuts simply diverted income into the hands of those who need it the least.
Despite what you might hear from Trump, U.S. tax burdens are far from the highest among developed nations, and the economy had no trouble growing robustly in the past when taxes were higher and more progressive. It's time to end the tax giveaway to the wealthy, raise taxes as Clinton proposes and use the revenue to provide more support to working families.
Infrastructure investment: It's no secret that U.S. infrastructure needs repair. With interest rates near zero and with so many people looking for better job opportunities, or simply a job of some kind (unemployment is low, but that's deceptive because many people who have left the labor force would return if the job picture weren't so discouraging), now would be a great time to invest in our nation's productive capacity.
In fact, infrastructure investment would be worth doing even if interest rates were higher and the economy was booming. Clinton is correct to emphasize the need for this type of policy.
Advance America's commitment to research and technology: Productivity has been low in recent years, and if it doesn't improve, a long period of stagnation could be ahead. Government support for research and technological development is essential if we want to maintain America's position as "a global technology leader."
What Clinton gets wrong:
Strengthen manufacturing so we always "Make it in America": She's promising to bring manufacturing jobs back to America. To the extent that's possible, I have no quarrel with her policy objective. But it's important to understand that technological change has ended the days when manufacturing was able to provide a large number of jobs in America.
The U.S. has lost approximately 4.5 million jobs since NAFTA was enacted, mostly to China, but in recent years manufacturing has been returning to the U.S. However, the increase in manufacturing output has risen much faster than manufacturing jobs. We can probably increase the number of manufacturing jobs by between 1 million and 2 million, but that isn't enough to make a huge difference in America's 140 million-job economy.
There's no doubt that we need to increase the number of good jobs in the U.S., but it will require much more than a return of manufacturing to meet that goal.
Reforming Wall Street: For the most part, Clinton's policies on reforming Wall Street are tougher than most people give her credit for. She favors a "risk fee" to discourage excessive speculation, prosecutions of bankers who break the law, increased regulation of the shadow banking system, a financial transactions tax on high-frequency trading and the "Volcker rule" to limit banks' ability to take risks with consumer deposits that are backed by the government (thus allowing banks to take risks that the government could end up covering).
In my view, however, the Volcker rule doesn't go far enough in ensuring that banks can't take risks with deposits backed by taxpayer money. Something closer to the old Glass-Steagall Act is needed (which Clinton opposes).
In addition, having received a considerable amount from Wall Street to finance her campaign, Clinton needs to do more to convince voters that she'll follow through on her promises to get tough on the financial industry -- despite the inevitable objections from those donors that what's good for Wall Street is good for America. The financial crisis wasn't good for America, the bailout protected the wealthy on Wall Street while millions of workers paid a heavy cost. So it's essential that the government does all it can to reduce the chances of that happening again.
Federal Reserve appointments: The problem here isn't with what she has said about her plans for Federal Reserve appointments, it's that she hasn't said much at all. When Clinton appoints Federal Reserve governors, what types of views on bank regulation will she be looking for? How does she think they should react to a banking crisis? Should banks be bailed out in a crisis? When the goals of low unemployment and stable inflation come into conflict, which goal should take precedence?
A Fed Governor who's hawkish on inflation is much more likely to increase interests rates aggressively, which could have a negative effect on both wages and employment. What about the position of Fed chair? Will Clinton reappoint Janet Yellen, or does she want to take the Fed in another direction? These are important questions, and we ought to know more about Clinton's plans.