Three Ideas to Fix the Economy

U.S. growth needs to be driven more from abroad (increased exports) and from domestically produced consumption (decreased imports). To achieve either, the American economy would rely on more investment and less on consumption—and what consumption the United States does have would need to rest on rising wages and not debt creation, government transfers, or the wealth effect from assets.

Here, the robust Keynesians like Paul Krugman, Brad DeLong, and Mark Thoma are not so different from the ones who populated the Obama administration. The former, too, believed that the nation could return to the old economic structure, this time without its obvious flaw: the bloated housing market. However, their solution, a bigger stimulus, did not lead to a new path for the economy.

Throughout the postwar period, the high priests of the American economic profession were macroeconomists. Aggregate changes in taxing and spending could produce prosperity, they believed. There are conservative and liberal versions, but all stress macroeconomic changes, advocate free trade, and argue that the microeconomy is immune to positive government intervention.

Other countries placed more faith in government decisions about the composition of their economy and the management of their international trade. They relied less on the market to sort out which sectors would dominate their economies. China’s decision to accumulate dollars, for example, is not a market phenomenon, but a product of government decisions to keep the yuan low so that its exporters (foreign and domestic) can penetrate world markets.

So, what can we do? We have plenty of commentators who have wonderful ideas. But they lack a politics that can power policy, which is one reason they often place excessive faith in individuals, like they did in Obama. Economists especially have tended to see the labor movement simply as an interest group. Many writers argue that labor was effective in the past, but won’t be any longer. In 2004, John Judis and Ruy Teixeira predicted a new Democratic majority composed of nonwhite Americans, professionals, and others who worked in the post-industrial economy. The labor movement was noticeably absent, as was the recognition that most nonwhite Americans are also working class. The only organized group that represents the working class of whatever color is the labor movement. Any idea that does not attempt to enlist the unions will remain on paper or in cyberspace.

But unions are to blame, too. The “Andy Stern” wing of the labor movement, reflecting the growth of the non-industrial economy, argues that labor should forget about manufacturing, which can easily be outsourced, and concentrate on organizing jobs that must remain in the United States: education, health care, services, and so on. Stern, the former head of SEIU and Change to Win, a group of unions that left the AFL-CIO, has subsequently retired from the labor movement, but his ideas live on. Both union groups unwisely decided to pursue an “insider” strategy that allowed the Obama administration to bargain with Republicans without an active movement to its left. Simply attacking the GOP and the Tea Party did not put into play ideas that the Obama administration has summarily rejected.

But let us imagine for the moment that our politics have changed somewhat. What should we say and do?

During the past thirty years, politicians have argued that the promotion of capital will eventually benefit labor. We need to return to the ethic of the postwar era: that labor and capital will progress together. Every measure advocated should fit into this framework. And every proposal should have the potential to attract a majority of Americans. This is not a leftist agenda—it is an American one.

Here are three ideas that fit under that rubric, on trade, infrastructure, and energy. They are not exhaustive, but they address areas crucial to growth and jobs, and they all can appeal to broad segments of the population.

1. Improving the U.S. trade balance could begin with creating a market for American-produced products.

Government procurement requirements are employed by most countries. They do not violate the WTO because the products in question are not sent into the global economy, but used at home. It is outrageous that the steel used in the reconstruction of the San Francisco-Oakland Bay Bridge was made in China, and defective to boot. Of course, there would be those who would cry protectionism. Let them. I would love to go into an election against an opponent who defended Chinese steel.

The Treasury could label currency manipulation an unfair trade practice. Congress threatens to do this all the time. The United States could then join with Europe, which also has an interest in seeing a larger realignment of global currencies, instead of competing with Europe for Chinese favor. The U.S. government could make common cause with southern Europe, whose slow growth is related to Asian mercantilism. When Portugal joined the EU, it lost its textile and shoe industry to Chinese imports.

2. An infrastructure bank that would leverage private investment by tapping private capital markets for public infrastructure investments would be a good beginning.

The Europeans have done this. Such investment would employ people, including the many unemployed construction workers, and make the economy more efficient and productive over the longer term.

3. Start taking alternatives to oil seriously, including natural gas.

Oil imports are an important part of the trade deficit. President Obama has made clean energy an important goal, but because his policy mainly subsidizes research and usage, not production, it serves environmental more than job purposes. Evergreen Solar is the latest state-aided green energy company that has filed for bankruptcy. It and other U.S.-based manufacturers like Solyndra and SunPower cannot compete in the face of the large subsidies that the Chinese government provides.

The United States should either match the aid or turn to other energy sources. It makes no sense to substitute imported wind turbines or solar panels for imported oil. In the short run, investing in domestically produced natural gas reserves in the United States is a better choice. It is cheaper, it will create jobs, and it could become a source of exports.

Judith Stein

Judith Stein is a professor of history and the author of Pivotal Decade: How the United States Traded Factories for Finance in the Seventies (Yale University Press, 2010). This article originally appeared in Dissent and is reprinted with the permission of the History News Network.