The US is struggling to find a way out of overlapping economic crises. One is cyclical: a painfully slow, jobless recovery from a recession magnified by the 2008 financial crash. The other is structural: US economic output and job growth have fallen well off the pace of previous decades. Although liberal commentators seem preoccupied with rising inequality, America’s fundamental economic problem is slow growth.
Even before the recession struck, the once-mighty American job machine was sputtering. Between 2000 and 2007, the US posted its worst job creation record in any decade since the Great Depression. Not only have many good jobs vanished, but also real wages have fallen or turned stagnant for all but the top US earners.
Overall economic growth has been declining steadily since the halcyon years after World War II, when the babies boomed and GDP grew at a robust average of 4 per cent per year. National output fell to 3 per cent during the 1970s and 1980s, before picking up in the late 1990s. Since 2000, the economy has downshifted again, averaging under 2 per cent growth per year. Research from the Kauffman Foundation also suggests a loss of entrepreneurial verve. The number of business start-ups, which Kauffman says generate most of US net job growth, has plummeted by about a quarter since 2006.
If there is a bright spot in the US economy, it is the rebound of corporate profits and stock prices since 2009. Yet these gains also highlight a stark inequity: returns to capital are up, but returns to labour are down.
In President Kennedy’s day, US prosperity really did lift all boats. Today, however, productivity gains do not automatically translate into higher pay for workers, especially people with middling skills. ‘This is America’s largest economic challenge’, says the economist Robert J. Shapiro. ‘People can no longer depend on rising wages and salaries when the economy expands.’
Amid such dismal conditions, Obama’s re-election by a comfortable margin (5 million votes) was an astounding political feat. Despite Republican challenger Mitt Romney’s claims that Obama fumbled the recovery, swing voters credited the president with having prevented the economy from capsizing during the perfect storm of 2008–9. It helped too that Romney offered no theory of his own for rekindling growth beyond hackneyed calls for lower taxes and regulation.
Unfortunately, little has happened since Obama’s victory to dispel the pall of economic pessimism that hangs over America. A late spring poll, for example, found that nearly 60 per cent of Americans worry about ‘falling out of (their) current economic class over the next few years’. No doubt subpar job growth is chiefly responsible for such unwonted gloom. According to preliminary figures, the number of people with jobs grew by only 28,000 (0.02 per cent) during Obama’s first term.
And there is little relief in sight. The Congressional Budget Office forecasts weak GDP growth and abnormally high unemployment persisting to the end of Obama’s second term. America is stuck in a slow-growth rut. While liberal Keynesians are calling for more shortterm spending to kick-start the pace of recovery, what progressives really need is a bolder plan for overcoming structural impediments to more robust growth.
Instead of devising one, Obama is bogged down in Washington’s endless trench warfare over taxes, spending and debt. True, the president won a tactical victory in averting the ‘fiscal cliff ’ and forcing Republicans to swallow higher tax rates on wealthy households. Yet this modest blow for tax fairness did little to fix the nation’s debt or stimulate growth. In fact, distributional politics distracts progressives from a truly historic opportunity to lay new foundations for US prosperity in the twenty-first century.
To inspire hope for such a change, the US president must broaden his message from fairness to growth: he must put America back on a highgrowth path. By setting audacious goals – say, doubling the growth rate and halving unemployment by the end of his second term – Obama
would convey the requisite sense of national urgency
A clarion call for renewed growth would create political space for progressive initiatives – public investments in training and education, broad tax reform – intended to spread economic gains more widely. And, by fanning hopes for a reversal of America’s economic decline, such a call could help Democrats make inroads among white working-class voters.
These voters, once the backbone of Democrats’ New Deal–Great Society coalition, have since defected en masse to the Republican camp. A conscious campaign to start winning them back, while retaining the Democrats’ strong advantages with young and minority voters, is the key to building a durable progressive majority and ending the 50:50 polarisation that has paralysed Washington.
PPI’s Will Marshall detailed Mitt Romney’s recent adventure in the world of foreign policy over at The American Interest. Romney was able to stumble his way through a trip to Britain, Israel, and Poland all while offering very little in the form of substantive policies focusing more on criticisms of President Obama’s foreign policy.