Hey Democrats, the Problem Isn’t Jobs and Growth

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James Kwak
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It’s inequality.

By James Kwak

This American Life‘s forays into politics and economics are generally less satisfying than their ordinary storytelling fare. That’s especially true when they try to answer some specific question, like “What is wrong with the Democratic Party?”—the subject of a segment last month. The story did have some telling moments, however, most vividly when moderate Congresswoman Cheri Bustos was trying to pitch the party’s forgettable and already-forgotten “Better Deal” message (which she helped design) to a local newspaper. Here are a couple of excerpts. (The audio begins at 53:50, or you can read the transcript).

First, on jobs:

Cheri Bustos

We want to be in a position to help create 10 million good-paying, full-time jobs. There are still people hurting, and I think we need to acknowledge that and say that we want to do something about that.

Chuck Sweeney

Right. Well, Donald Trump says that, too. … He says exactly the same thing. Too many people are still out of work. You know, we need to do something about bringing back jobs.

As politics, this is laughably amateurish, and Sweeney slices it to ribbons. When it comes to the economy, the centrist Democratic message is that ordinary people are struggling and we want to create better jobs for them—which is exactly what Donald Trump says. Wait, we say, we’re better at creating jobs! But Trump and the Republicans have a clear story about how they will create jobs: cut taxes on job creators, increase incentives to work and invest, eliminate “job-killing” regulations, deport immigrants who “take away jobs,” and rewrite trade deals that hurt American workers. Our story is: “But none of that actually works: Cutting taxes doesn’t increase growth, regulation is necessary for a healthy economy, immigration actually helps Americans, trade deals help more people than they hurt, blah blah blah”—because everyone has already tuned out by now. The facts and the economics may be on our side, but that and $3 will buy you a coffee at Starbucks. As Sweeney points out, Bustos stands for the exact same thing Trump does (on economic issues). The only readily apparent difference is she thinks Democrats can deliver better than Republicans—and we know how far technocratic competence will take you in today’s political environment.

As politics, it’s inept. But as policy, it’s beside the point.

All these moderate Democrat congressional hopefuls (who keep calling me to ask for thousands of dollars without having the faintest idea what I believe in) seem to think that what the American people need is more growth and more jobs.

Growth and jobs are not the problem.

Sure, all things being equal, more growth and more jobs are better than less growth and fewer jobs. But if you look at recent history, we’ve had enough growth. The problem, as is well known to anyone (except centrist Democrats, apparently) is how that growth has been shared. Since 1980, real per capita gross domestic product — total economic output per person — has grown by 82% (1.7% per year), while real median household income has increased by only 16% (less than 0.5% per year). Over the same period, the proportion of household wealth owned by the bottom 90% has fallen from 32.9% to 22.8% (see Saez and Zucman, Appendix Table B1). In other words, if wealth inequality had not increased, ordinary American families would have 44% more stuff—more housing, more education, more health care, more retirement security—than they actually do today. That’s a lot of stuff.

But, Bustos and her clan will object, they want to provide better jobs. That was part of the slogan that—as you can tell from the audio—no one really believed in: “better jobs, better wages, and a better future.” But the only things they can think of to help people get these better jobs are infrastructure investment (which could create a burst of decent-paying construction jobs) and job retraining. The problem is much deeper.

We live in a deeply unfair and unequal world. Children born into rich families have the best educational and extracurricular opportunities that money and well-educated parents can provide. Children born into poor families, not so much. There are exceptions, of course, but few people born into the bottom quintile (by lifetime income) can realistically compete with those born into the top quintile. Few people laid off from factory jobs in their fifties are going to have second careers as Silicon Valley software developers or Wall Street traders, no matter how much money we spend on job retraining. It just isn’t going to happen.

On top of the skills problem, there is the problem of capital and labor. In the contemporary economy, an increasing share of the surplus goes to capital and a decreasing share to labor. Ordinary people haven’t lost ground simply because they lack skills. On the contrary, labor productivity has gone up by 94% since 1980 (1.9% per year). They have lost ground because the rewards have been claimed by a handful of top executives and mainly by shareholders. There are many reasons for this—most recently the Trump tax bill, which, by cutting corporate taxes, increased the value of existing stocks. The bottom line is that there are millions of people with considerable job skills who make barely enough to get by. Consider customer service representatives, for example, who have to navigate complicated software programs while dealing with frustrated and often irate customers who can often barely articulate what problems they are having. The reason they don’t make a lot of money isn’t that they are unskilled; it’s that their employers have all the market power.

Moderate Democrats think we can solve our problems with a little more economic growth, more job retraining, and a modestly higher minimum wage. This is a fantasy.

Our economy segments people into classes brutally and unfairly at birth and then distributes the vast bounty it produces in a harshly unequal manner. Higher growth and a slightly more skilled workforce are not going to change this.

We have to recognize two things.

First, for the rest of my lifetime and probably yours, there are going to be millions of people who will be left behind by the economy through no fault of their own. We have to take care of those people. We have to because we have a moral obligation as a society. And the Democratic Party has to because we have to be the party of poor and working families. (We know the Republicans aren’t.) We have to make sure they have housing, health care, and the ability to retire. Those have to be universal rights, guaranteed by the federal government and funded by taxes on the fortunate. We have to take those problems completely off the table. We have to say, “If you are part of the American community, you will have a place to live, you will have food to eat, you will have health care when you are sick, and you will be able to retire when you are old.” Only then will the extreme inequality of the market economy be at least minimally tolerable.

Second, if we ever want to build a better society, we have to address the problem of inequality at its source. We have to chip away at the pervasive unfairness of our society by doing everything we can to reduce the vast advantages of the wealthy and the fortunate: a higher minimum wage, but also paid family leave, child care subsidies, universal public preschool, better public K–12 schools, free public higher education, subsidized internship programs, and progressive taxation to pay for it all. That’s what it will take just to begin to reverse the tide of increasing inequality.

Every American has a right to a decent standard of living. And every American has a right to a better, more fair society. That should be our message.