By William Reinsch
I confess. I’m confused. Certainly not for the first time — it happens more often than I admit. During the recent campaign we heard two widely varying views of the U.S. economy. To Donald Trump, things were terrible and getting worse. For President Obama, things were getting better every day after a crash that rivaled the Great Depression. While it is normal for people to discount statements made in the heat of a campaign as over-the-top election rhetoric, now that policy makers in the incoming administration and the Congress will be faced with actual decisions about what to do next, it would be a good idea to separate the wheat from the rhetorical chaff, but it turns out that is harder to do than one might think. Three recent analyses:
Here is Steven Pearlstein on December 12 arguing against massive economic stimulus:
“To anyone serious about economic analysis, it should be obvious that we don’t need Keynesian stimulus at the moment. The unemployment rate is at 4.6 percent, which is about as close to full employment as it gets. The economy is producing more than 175,000 jobs each month, with many industries complaining they could add more if there were trained workers to hire. Wages are rising faster than they have in a decade, and faster than productivity is rising. Corporate profits and share prices are at record levels….Keynes himself would never have suggested that this is an appropriate time to use the government’s taxing and spending powers to boost the economy. In fact, seeing the developing bubble in stock and real estate markets, Keynes probably would be recommending a budget surplus right about now.”
And here is Anne Kim two days after the election talking about the state of manufacturing:
“After hitting a low of 11.4 million jobs in 2010, manufacturing employment has since climbed to nearly 12.3 million in May 2016, according to the Bureau of Labor Statistics….While some of this rebound is due to a broader economic recovery, there’s also evidence that more companies – such as Ford and Caterpillar – are “insourcing” jobs back to the United States from countries such as Japan, China and Mexico. According to a 2012 White House report, the combination of low energy prices, the ability to protect intellectual property and rising production costs in China and other countries is making the United States increasingly attractive for manufacturers….U.S. manufacturing output, which also dropped during the recession, has been growing since 2010. But manufacturers are also continuing to show gains in productivity as robots and more efficient production processes take over human brute labor….real output per person has more than doubled in the manufacturing sector from 1988 to 2016. In fact, total real output reached an all-time high in 2015.”
Meanwhile, in between those two commentaries, the Council on Competitiveness issued a report on December 6 called, “No Recovery” which presents a sharply different view:
“The economy is not working well. But the problems did not start with the Great Recession. For decades, the nation’s income, measured as GDP, has barely grown overall; on a per capita basis, median household income peaked in 1999; the subjective general health status of Americans has declined, even adjusting for the aging population; disability rates are higher; learning has stagnated; fewer new businesses are being launched; more workers are involuntarily stuck in part-time jobs or out of the labor force entirely; and the income ranks of grown children are no less tied to the income ranks of their parents.”
So, apples and oranges and pears? Pearlstein is talking about right now; Kim is talking only about manufacturing; and the Council is presenting a long term view of productivity. More like the blind men examining the elephant — they’re each looking at one piece of the economy and coming to an appropriate conclusion — for that piece. Unfortunately, the political decision making process, where studies are weapons, expects less nuance. Is the glass half full (Pearlstein or Kim) or half empty (Council on Competitiveness)? The response that all three are right does not move the ball forward.
But are all three right? Pearlstein may be right that major stimulus at this point is overkill if the economy continues to grow at the pace set in the third quarter — which we won’t know for a while. He also acknowledges, however, that there is nonetheless a good argument for an infrastructure bill, more to improve our crumbling roads and bridges than explicitly to provide stimulus.
Kim’s numbers are hard to dispute, but her charts show that the positive trend may be leveling off, suggesting that her good news may not be sustained.
The Council on Competitiveness projects more gloom than may be warranted right now, though it makes a very useful distinction between sectors that are doing well (technology and professional services) and those that are not (healthcare, housing, and education). By doing so it exposes a fissure in our economy that was reflected in the election results — some parts are doing very well; other parts are not. In light of Pearlstein’s concerns, it will be important for Congress and the incoming administration to target its efforts towards that part of the economy and the population that need help rather than providing unnecessary support to those who are already doing well. Since that would reflect regional disparities, primarily the two coasts vs. the interior, it is easy to predict howls of protest from non-beneficiaries. However, given our overall debt burden, this may be a time where “a rising tide lifts all boats” is not the right cliché. Better to focus on the boats that are actually sinking.
Next week, I will look a bit more at which boats are sinking, what might be done about them, and how all of this relates to trade policy (trust me; it does).
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.