Whose Job Is It to Rebuild the US Middle Class?
Optimism among respondents to this month’s column concerning future United States growth rates hinges on whether the middle class can be restored. That’s a big contingency. Those commenting had differing opinions on just how this might be accomplished, including more freedom for business, more immigration, and big bets by the government and industry to meet imposing infrastructure needs.
Ron Kurtz said, “I am concerned that we are facing a decline in the size and spending power of the middle class for some time.” Added Rod White: “Rising productivity requires a large middle class that can afford to consume what is being produced. Solve the economic inequality problem, and we will solve the slow growth problem as well as a lot of other societal problems.” Gamaliel Pascual contrasted the positive impact of Henry Ford and his wage policies on the middle class in the past with Uber’s small middle class core corps of engineers and large “army of owner drivers … treated and priced out like commodities.”
Others concentrated on ways of achieving a return to the middle class of the 1950s.
David Wittenberg made the case for less regulation when he said "our best policy is to promote economic liberty so that individuals and corporations can adjust to changes in society, technology, the economy, the environment and politics… stop trying to make government the engine of growth, and watch the economy soar.”
Rob Houck suggested that increased immigration would help reverse current trends. As he put it, “Those folks tend to be younger, with growing families which require furniture, food, clothing. Our ‘native’ population is aging and doesn’t earn or spend as much.”
The case for strategic investment was made by ’95, who said, “The US is very proficient in mobilizing capital to stoke innovation and create new industries for sustained growth. It should focus on immense global market opportunities …”
Tip Parker suggested what those new global market opportunities might look like: “I think a whole new growth cycle can be driven by meeting the needs facing the threats of rising sea levels and record floods; converting energy systems to truly replaceable sources; reducing fresh water consumption or creating large desalination operations; saving top soils; reducing meat consumption; making health care (not just insurance) a human right; and other new industries that do more for all people while using up less of the planet.”
That’s a tall order, but an agenda that could hold the potential for many middle class jobs. The question is: Whose job is to foster this work? Whose job is it to rebuild the U.S. middle class? What do YOU think?
Let’s start with a confession. I’m confused about what to believe when it comes to United States (and global) economic growth, employment, and social inequality. I suspect I’m not alone.
On the one hand, I become enthusiastic reading my email from Harvard Business School graduates and former students who are exploring innovations such as battery technology, superconductivity, magnetism, and superintelligent computers. My feelings are buoyed when I read about a “second machine age” fueled by digital technologies, hailed by Erik Brynjolfsson and Andrew McAfee a couple of years ago, as being as important as the first machine age they attribute to the development of steam power.
These are ideas that can expand the potential for growth, if not for jobs and greater economic equality.
But on the other hand, one US presidential candidate has presented economic proposals that assume a 3.5 percent average growth rate over the next 10 years—something that would have profound implications for the global economy—largely through reductions in taxes and government regulation. Colleagues who have spent a lot more time on this than I point out just how unlikely such a scenario is.
The fact is that the US appears to have settled into a 2 percent growth rate at most, even in a recovery where higher rates of growth might be expected. An important examination of long-term US growth rates by a respected economist, Robert Gordon, concludes that even a 2 percent rate of what he calls “extensive” growth in output (versus “intensive” growth in productivity) may be difficult to sustain. In his latest book, he cites reasons why we may not be able to return to the “special century” ending in 1970, after which both intensive and extensive growth rates have slowed. Gordon believes we will have:
- Less innovation of real importance (so much for Brynjolfsson’s and McAfee’s digital technologies, particularly the kind that create jobs and distributes the spoils widely)
- Fewer social and economic changes--such as the invention of electricity, improvements in housing, and new transportation innovations, to name just a few
- Political headwinds that prevent us from realizing our full potential from new technologies
Reviewing Gordon’s arguments, I couldn’t help recalling the comment, “everything that can be invented has been invented” that was at one time attributed to Charles H. Duell, Commission of the U.S. Patent Office in 1899 (early in Gordon’s “special century”).
What I believe, based on personal homework, is limited to just a few things: (1) there is economic growth and then there is economic growth, (2) some industries—construction and infrastructure development (including that required to combat the effects of climate change), for example—have the prospect of creating many more jobs per unit of economic output than others such as clean energy, communications, and manufacturing, where productivity increases are squeezing out jobs, (3) therefore, much of our hope for the twenty-first century has to rely on the creation of new industries, in large part with the help of education and ready capital for investment.
Is it possible that one or more remarkable innovations with widespread impact will prove Gordon wrong over the long-term? Or are we condemned to a century (beginning in 1970) in which “intensive” productivity growth outpaces “extensive” growth in output, thereby limiting new job opportunities and further widening the gap between the haves and have nots? What should we make of these conflicting views? Looking forward, are you an optimist or a pessimist on the subject? Why? What’s your projection of US growth and prosperity? What do you think?
Erik Brynjolfsson and Andrew McAfee, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (New York: W. W. Norton & Company, Inc., 2014)
Robert J. Gordon, The Rise and Fall of American Growth: The US Standard of Living Since the Civil War (Princeton, N.J.: Princeton University Press, 2016)