Two different agenda's for growth

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Two different agenda's for growth

Stephen Moore argues that the Democrats do not mention economic growth, and therefore they do not have a growth agenda, settling for the 2% growth on average of the Obama years, which Moore thinks is insufficient.

There are a few things you have to remember first. Stephen Moore (together with Larry Kudlow) is an advisor to Donald Trump. They do have their own growth platform, which is the traditional Republican platform of reducing taxes (most notably on 'job creators') and regulation.

That is, they are traditional supply siders, arguing that unfettering markets will unleash a supply side explosion of increasing investment, production and productivity. They hark back to the Reagan years, when supply siders were influencing policy.

They claim that this produced a morning in America, but as you can read in greater detail here, the effects of the Reagan supply side revolution are rather questionable. Most of the growth spur (which was real) probably came from a drastic fall in interest rates, but there has really not been a structural increase in business investment (from Moneynews).

Since 1980, U.S. investment as a percentage of GDP was sliced in half, from nearly 24 percent to 12 percent, leaving the United States 174th in the world. The result was a dearth of real value added products and productivity.

Business investment really is the crucial mechanism here, it spurs demand, increases production capacity and modernizes production. The latter increases labor productivity, which allows wages to rise faster without leading to inflationary pressures.

However, the latter didn't seem to have happened either (Moneynews):

the Census Bureau reports real median wages increased a mere one-third of 1 percent annually during this time.

What did happen is that inequality took off



And the link between median wages and productivity growth was severed.



Now, we have research by Josh Bivens from the Economic Policy Institute arguing that these growth only policies have already been tried and the result was lower growth and an increase in inequality:

overall economic growth in the U.S. was indeed slower after 1979 relative to the decades before. For example, dividing total personal income as tracked by the National Income and Product Accounts (NIPA) by the total number of households in the U.S. produces an annual average rate of growth of 1.9 percent between 1947 and 1979, and 1.6 percent between 1979 and 2007.

That is, the rise in inequality was zero-sum, the gains at the top didn't come from faster growth (quite the contrary), they came at the expense of the bottom 90%.

The Reagan supply-side revolution has led to lower growth and higher inequality, it really hasn't done much for most people. One can wonder whether a new supply revolution as proposed by the likes of Moore and Kudlow would fare any better this time around. 

But this is only one part of the story, what is actually the growth platform of the Democrats?

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But first, one might want to consider the following:

As Nobel Prize-winning economist Peter Diamond and John Bates Clark medalist Emmanuel Saez have noted, since the 1970s no clear correlation exists between economic growth and top tax-rate cuts across Organization for Economic Cooperation and Development countries.

Tax hikes on the wealthy: Good or bad for growth? - CBS News

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Some interesting stuff from Thomas Friedman:

And that leads to my second reason for pushing Clinton to inject some capitalism into her economic plan: The coalition she could lead. If there is one thing that is not going to revive growth right now, it is an anti-trade, regulatory heavy, socialist-lite agenda the Democratic Party has drifted to under the sway of Bernie Sanders. Socialism is the greatest system ever invented for making people equally poor. Capitalism makes people unequally rich, but I would much rather grow our pie bigger and faster and better adjust the slices than redivide a shrinking one.

There are a lot of center-right, business Republicans today feeling orphaned by Trump. They can’t vote for him — but a lot of them still claim they can’t bring themselves to vote for Hillary, either. Clinton should be reaching out to them with a real pro-growth, start-up, deregulation, entrepreneurship agenda and give them a positive reason to vote for her.

It makes sense politically: Take Trump on at his self-proclaimed strength. And it makes sense economically: If Clinton wins, she will need to get stuff done, not just give stuff away. I get that she had to lean toward Sanders and his voters to win the nomination; their concerns with fairness and inequality are honorable. But those concerns can be addressed only with economic growth; the rising anti-immigration sentiments in the country can be defused only with economic growth; the general anxiety feeding Trumpism can be eased only with economic growth.
211COMMENTS
Sanders had no plan whatsoever for growth. Trump doesn’t, either, but he can fake it. It’s time that Hillary pivoted. The country today doesn’t need the first female president. It needs the first president in a long time who can govern with a center-left, center-right coalition, and actually end the gridlock on fiscal policy in a smart way.

If Trump continues to melt down into a puddle of bile, more and more Republicans will be up for grabs. With the right pro-growth economic policies, Clinton would have an opening to not only enlist them to help her win, but to build a governing coalition for the morning after.

How Clinton Could Knock Trump Out - The New York Times

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Now here is a good idea:

Hillary Clinton believes the central economic challenge in America today is achieving stronger and steadier income growth. While corporate profits are near record highs, everyday Americans’ paychecks have barely budged in real terms. Clinton’s vision for the country’s economic future prioritizes a rise in incomes for hard-working Americans so they can afford a middle-class life. Today in New Hampshire, Clinton outlined one idea to address this key challenge: encouraging companies to share their profits with American workers. She outlined a key proposal to give workers the chance to share in the profits they help produce.

Clinton's Plan for a Profit Sharing Tax Credit

The article goes on to lists the benefits (and a series of sources of economic studies):

• Profit sharing gives workers a stake in the company. Under profit-sharing arrangements, when a company does well, the workers share in the gains they helped produce. So when corporations see the type of near-record profits they have recently, not only would the executives and shareholders do well – the workers would too.
  
• Profit sharing increases worker pay. Evidence shows that profit-sharing arrangements are linked with higher pay. If a worker is enrolled in a good profit-sharing plan, that could mean a raise of thousands of dollars.1
  • For example, Professors Richard Freeman, Joseph Blasi, and Douglas Kruse of Harvard and Rutgers find "strong evidence" that profit sharing has "meaningful impacts on workers' wealth" because "[w]orkers with profit sharing or employee stock ownership are higher paid and have more benefits than other workers."2
    

• Profit sharing makes businesses more productive and innovative. Studies find that profit-sharing plans on the whole result in increased business productivity and innovation.3 This makes sense: when employees share in profits, they have a stronger stake in the company's success.
  
• Profit sharing improves the workplace. Profit sharing has also been associated with other improvements in the workplace – including better employee training, lower employee turnover, and increased employee participation in decision-making.4 In fact, evidence suggests that profit-sharing leads workers to be more satisfied with their jobs overall.
  

It's an idea we also put forward previously

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And this isn't the only policy for getting wages higher:

Unlike her opponent, Democratic presidential nominee Hillary Clinton has offered a series of serious policy proposals designed to boost wages, former Federal Reserve Vice Chairman Alan S. Blinder writes in the Journal. “Add it all up—a higher minimum wage, profit-sharing, vocational education, apprenticeships, pre-K for all, and a more generous [earned-income tax credit]—and you have a policy package that, while no miracle, is almost guaranteed to give American workers a raise.

Blinder Makes the Case for Clinton’s Income Proposals - WSJ

Why can't the US do what other countries have?

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So, on the right there is Voodoo economics, the belief that blanket deregulation and tax cuts for the top will revive growth and that the benefits will trickle down towards the bottom as well (trickle down economics).

But what's there on the left? Well, this:

The new liberal economics makes several claims:

1. Inequality is not a regrettable but inevitable byproduct of an efficient economy, nor a temporary, self-correcting trend. It’s driven by policy choices, and new choices can make a difference. 
   
2. The economy will not simply bounce back from any weaknesses, as was assumed under Alan Greenspan’s Great Moderation. Rather, there are deep structural problems that include a global savings glut and unwillingness by US companies to make investments. 
   
3. "Nudging" the private market is not always the best way to deliver core goods and economic security. Deploying government services directly can be more effective.
   

The "new liberal economics" is the key to understanding Hillary Clinton's policies - Vox

Compelling reading..

This is especially noteworthy:

Now inequality research is all the rage, and a new culprit is becoming clear: The rules of the economy, meaning the regulatory, legal, and institutional frameworks that underpin our markets, are a major driver of inequality. Since the 1980s, there have been a series of changes to these rules, and the result has been greater inequality with no extra growth as recompense.

We see this in research that finds that the top share of income has historically been driven by changes in top tax rates, and in other studies that show the mighty growth of incomes in the financial sector correlates closely with an increase in financial deregulation.

The "new liberal economics" is the key to understanding Hillary Clinton's policies - Vox

The last basically argues the reverse of Voodoo economics, deregulation and tax cuts at the top lead to more inequality.

The second plank of this is that more inequality doesn't lead to more growth, we already discussed this earlier in this thread (here). Another overview of this you can also find here.

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And the evidence is gathering that the trickle-up economics is working. Here is Krugman

Only serious nerds like me eagerly await the annual Census Bureau reports on income, poverty and health insurance. But the just-released reports on 2015 justified the anticipation. We expected good news; but last year, it turns out, the economy partied like it was 1999. And this tells us something very important — namely, that a government that wants to can make American society more equitable, improving the quality of life for ordinary families.

The reports showed strong progress on three fronts: rapid growth in the incomes of ordinary families — median income rose a remarkable 5.2 percent; a substantial decline in the poverty rate; and a significant further rise in health insurance coverage after 2014’s gains. It was a trifecta that we haven’t hit since, yes, 1999.

Republicans accused Mr. Obama of being a “redistributionist,” taking money away from “job creators” to give free stuff to the 47 percent. And they claimed that these socialistic policies were destroying incentives and blocking economic recovery.


There was, in fact, a grain of truth in the first part of this accusation. Mr. Obama is no socialist, but since his re-election he has presided over a significant rise in taxes on high incomes. In fact, the top one percent is now paying about the same share of its income in federal taxes as it did in 1979, before Ronald Reagan began the era of big tax cuts for the rich. And some of the increased tax take is being used to subsidize health insurance for middle- and lower-income families.


Conservatives predicted disaster from these initiatives. Tax hikes on the rich, they insisted, would stall the economy. Obamacare’s combination of regulation and subsidies, they declared, would kill millions of jobs without increasing the number of Americans with insurance.

What happened instead after Mr. Obama was re-elected was the best job growth since the 1990s. But family incomes, at least as estimated by the Census, continued to lag. So there was still some statistical basis for the right’s Obama-bashing. Now that statistical basis is gone.

Obama’s Trickle-Up Economics - The New York Times

Two birds don't make a summer, but the last couple of developments are certainly encouraging.