When I was a kid we had this crazy dog that used to chase cars for all he was worth. My father used to yell after him, “What the heck you gonna do with it if you catch it?!?”
Given much of the recent economic news, one might say the same thing to John Kerry (I'm afraid I know what George W. Bush would do): If you win, what are you going to do with the spate of developing economic problems?
Both campaigns say a lot about how they're going to address the short-term problems generated by a fits-and-starts recovery and a labor market that just can't seem to get over the hump. This is an important discussion, because there's solid evidence that this persistently weak labor market has taken its toll on living standards. The real income of the median household has declined three years in a row, off $1,500 since 2000. Poverty has risen over these years as well, adding more than 4 million to the ranks of the poor.
The conventional wisdom that presidents have little impact on the economy is right, except for two cases: when the economy is expanding and when it's contracting. In the latter case, since John Maynard Keynes, at least, there's been an established role for a stimulative push from the federal government to restart the virtuous cycle of demand. Though the Bushies talk supply-side, they walk Keynesian. Unfortunately, their allegiances led them to totally botch the magnitude and targeting of the stimulus, so it hasn't worked too well, but the motivation made sense.
Moreover, while I'm sure that a Kerry stimulus would be more effective than the Bush version, it's unlikely that either candidate would be able to do much about these near-term problems. That money's already been (badly) spent.
But let's turn to a set of longer-term problems facing the next administration, some of which were caused by this administration, meaning that if Bush and Co. win, they won't fix them. These include: tax-cut-induced structural budget deficits, the kind that keep growing even as the economy gets back on track; large trade imbalances; the return of economic inequality; and the exposure of more Americans to various forms of economic risk, from the loss of health and pension coverage to the loss of overtime pay, and a less effective safety net.
At the same time, a great economic opportunity exists that wasn't in sight 10 years ago: faster productivity growth. The increase in the trend growth of this most important indicator means living standards have the potential to rise significantly faster than was the case over the 1980s and early 1990s.
The key word here is “potential.”
Once this recovery finds its legs, what will be its nature? Will it look more like the 1980s, which was characterized by trade and fiscal imbalances, high average unemployment, stagnant income growth for the bottom half, poverty rates unresponsive to growth, and expanding inequality? Or will it look more like the latter 1990s, where full employment, higher minimum wages, and a more progressive tax policy helped to ensure that the benefits of fast productivity growth were broadly shared throughout the income scale?
The answer may well hinge on the outcome of November 2. Though neither candidate admits it (Kerry explicitly denies it), both of their agendas are redistributive. Bush pledges to continue shifting the tax burden from the investment class to the working class. Kerry, on the other hand, wants to boost the progressivity of the tax code by reversing the Bush tax cut on those with high incomes, raising the minimum wage, and using government revenue to lower health costs, all of which increase the prospects for a more equitable distribution of growth, especially relative to the Bush plans.
In the longer term, progressives need a more ambitious agenda to avoid the 1980s path and to raise the probability that the bounty of faster productivity growth is fairly shared. In the past, unions, higher minimum wages, a much stronger manufacturing sector, more employment security, and a less porous safety net helped to cement this relationship between growth and middle incomes.
In fact, as we show in our upcoming "State of Working America" (to be published September 8), between 1947 and 1973, both productivity and real median family income doubled. Between 1973 and now, the growth rates were 72 percent for productivity and 22 percent for real family income. Notably, however, between 1995 and 2000, the two variables moved together for a few short years.
One moral of those statistics is that in the absence of the distributional mechanisms just noted, full employment is a necessary condition for progressive outcomes. We also need to strengthen minimum wages and unions, replace some of the regulation gutted over the past years (like overtime rules), and patch up the safety net.
It sounds ambitious, but I doubt my dog ever worried about the magnitude of the task he was undertaking. I suppose in the spirit of full disclosure I should point out that he died (of natural causes) before he ever caught a car. But I assure you he was a much happier dog for trying.
Jared Bernstein, a senior economist at the Economic Policy Institute, is co-author of the upcoming report "State of Working America."