Short-Term Thinking Distorts Economic Policy
One of the most important things to happen in 2017 was the continued reduction in global poverty. Indeed, 2017 probably saw the lowest poverty rate on record. Over the past five decades, global poverty has plunged. This remarkable achievement has been driven by the spread of the free enterprise system and growing economies in the developing world.
It's useful and bracing to think about 50-year economic trends like that one. Policy debates tend instead to focus intensely on what's likely to happen next month or next year. That's natural enough, but it also makes it too easy to miss important things that really matter.
In the U.S., for example, many economic-policy arguments are about the tradeoff between creating a more equal society and increasing the rate of economic growth. The longer your horizon, the more growth wins the contest. Increasing the economy’s long-term growth rate by even a few tenths of a percentage point does dramatic things for our grandchildren’s living standards.
This is not to say that the U.S. shouldn’t try to lift the incomes of workers. A robust safety net is critical, as are sensible public programs that create on-ramps to opportunity.
But a focus on the short term leads to inadequate thinking about how to attack income inequality. Higher taxes on the rich and more income redistribution would reduce inequality tomorrow, but the best solution — building skills and other productive attributes among workers that the labor market will reward with higher wages — operates on a much longer time horizon.
Analysts spend a lot of time wondering whether this or that policy will affect the next quarter’s rate of economic growth. But over the long term, the most important driver of growth is productivity.
It's instructive to think about the Republican tax overhaul signed by President Donald Trump in the waning days of 2017. Opponents argued that corporations don’t need the tax cut the new law provided because they are sitting on piles of cash in a low-interest-rate environment. They're missing the point. What's important is that improved incentives for corporate investment should increase productivity — and wages along with it — over the next several decades, not over the next several quarters.
There's an active debate over the cause of the declining employment rate of 25-to-54-year-old men, those in their prime working years. Is the social safety net too generous, giving these men the means to subsist without working? Are globalization and technological change putting downward pressure on wages and therefore pushing men out of the workforce? Do institutional factors like the decline of unions and a low minimum wage play a role? Are the gig economy, the opioid crisis and better video games to blame?
Many of these explanations have merit. But consider that 65 years ago, 98 out of every 100 prime-age American men were in the workforce. Two decades later, the number was down to 95. Twenty years ago, 92. This year, it's about 89. My point? The rate was falling before the intense globalization of the 1990s, before modern computers, when unions were strong, when disability insurance was harder to receive, and long before the Xbox. We don’t often think about the decline of work as a challenge that is seven decades old. But it is.
An issue Americans will face in 2018 is the basic stability of the U.S. political system. I’m optimistic that our institutions will fare well in 2018, in part because of how they performed in 2017. But more than that, taking the long view reminds me that these institutions have been built up over decades and decades, and are used to withstanding assaults.
For example, the Trump administration has accepted the authority of the courts despite the president’s clear disdain for an independent judiciary, most prominently by accepting rulings that blocked its plan to ban entry into the U.S. of individuals from certain Muslim-majority nations. And Trump’s sustained attack against the news media and the spirit of the First Amendment — the media has challenges, but it is not “the enemy of the American people” — has not significantly damaged the institution of a free press.
At the start of 2018, I find myself less hopeful about the strength of American social solidarity, the idea of a common identity. Here, the longer view increases my concern. The institution of the family has been in decline for decades. Families are the primary transmitters of the shared values and manners that facilitate social networks and can encourage social cooperation. One wonders whether the balance between partisan loyalty and basic decency — e.g., supporting the Senate candidacy of an accused child molester who has a problem with Muslims serving in Congress — would be better if shared values and norms were stronger.
Many citizens seem to have forgotten that the U.S. is a creedal nation, not an ethnic one. Many seem not to believe that American society can overcome real divisions and advance toward a common future with confidence and openness to the world. The populism of 2017 revealed this. But populism isn’t simply a 2017 phenomenon. Decades of slow-burning economic and social change contributed to the U.S.’s current populist moment. After such damage, can a national narrative be restored?
Yes, I think it can. But for it to happen, taking the long view of the American story will be necessary. Doing so will help the U.S. to understand — to remember — the value of what 2017 forgot.
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Jonathan Landman at email@example.com