Aside from the articles I have been reading this week about China, it is remarkable how little focus there is about economic growth. Europeans acknowledge substandard growth but do little about it. Brazilians have their hands full dealing with protests relating to the coming World Cup. Governments in Turkey and Venezuela are two examples of demonstrations in the streets that have nothing to do with growth. Of course former Soviet States are now preoccupied with Russian aggression. In the US we have a myriad of issues that policymakers have apparently placed above economic growth including climate change, immigration, the minimum wage, healthcare, and income redistribution.
One would think that after five years of disappointing employment and output gains, there would be more people in the street demanding stronger economic growth. One could imagine all manner of government committees hammering away at the best ways to restore economic growth. I understand that ideology has made it difficult to find a solution but that doesn’t fully explain why no one is even trying. We get steamed up when Russia exerts its will over defenseless people living on their borders – why is there no constituency comprised of the millions of small businesses and employees who are languishing in the shadows?
I have advanced some reasons for tepid approaches to growth in past posts but in this one I focus on the very meaning of macroeconomics. We take macro for granted since we have used its concepts and theories for at least half a century. GDP and inflation are macro concepts as widely known as spinach and atoms. We oooh when GDP rises and we cry when inflation accelerates. But the truth is that no one can buy a GDP and no one pays inflation. These and other concepts are made up by government statisticians and they are no more real to you and me than the Geico gecko.
GDP, inflation, and other macro concepts were designed for national cheerleaders. That is, we call the area within the boundaries of our nation the USA. Most of us are nationalist cheerleaders – we root for our Olympic teams and we revel in strong national economic growth. In economic terms, this nation is made up of a lot of parts – bourbon is largely produced in Kentucky; skilled workers reside in California and Washington; a lot of autos are manufactured in the Midwest; Cruise ships depart in huge numbers every day from Miami and Fort Lauderdale; Las Vegas had a huge crisis in residential housing; and so on. Everything is local. The US scorecard is credited but the truth of more Recreational Vehicles produced is that most of the benefits go to Northern Indiana.
To repeat, everything is local yet we cheer for the national team. Why? One reason is that when residents of Elkhart, IN do better, the benefits often spread to a wider geographical area as Hoosiers spend their new found wealth in other places. But a stronger motivation for macro is that our elected federal policymakers in Washington have an obligation to improve the economic well-being of people across the country. Their job is to make GDP sizzle like your favorite steak.
That is what they have done for decades. Whether it is the Fed or Congress, we hear over and over about how their policies address national concerns with national remedies. We argue about the success of these policies but it is undeniable that macro has been a very important motivator and macro policies have been the result.
And this game has worked because of the inter-related and interdependent nature of the US economy. While each region and sector might have obvious and stark differences, these matter less if a national macro policy appears to have broad benefits spanning the country. We all know that some regions or some products or some industries or some workers are impacted more than others – but so long as the benefits and costs appear to be borne across the nation – we consider macro and macro policy a legitimate exercise.
So that gets us to where we are today. People bought this macro story in 2008 when we all felt threatened by a severe global downturn. Helping the Saving & Loan in Fort Myers was not seen as a bailout for Florida or Real Estate. Rather it was viewed as part of what was necessary to bring the whole nation back to economic health. But that was then. Despite the fact that slow economic growth is very damaging, notice how many non-macro beliefs exist which stand against the advocacy of growth policies right now.
1. Growth will not be shared among all workers
2. Growth will not help the long-term unemployed
3. Growth will not raise the wages of those with low skills
4. Growth will not protect administrative workers from unfair business practices
5. Growth will worsen pollution connected to energy production
6. Growth will not solve problems of healthcare price inflation
7. Growth will worsen illegal immigration
8. Growth will not redistribute incomes from the rich to the poor
9. Growth won’t solve problems associated with crime and poverty
10. ……….add your own here.
This is not just ideology and politics – these and other charges shake the very foundation of almost 80 years of macroeconomic analysis and policy. We can argue every one of the above points but the truth is that I cannot remember a time in my career when macro was so dubious. I checked the dictionary and one word used to describe dubious is suspect. Today macro is suspect.
I point that out because I believe that while macro is a suspect – it is mostly not-guilty. I agree that income distribution has tilted towards the rich. I agree that the last 10 years have witnessed a time when many persons did not share equally in prosperity. But I will say that if there ever was a time when national economic growth could improve the lot of most Americans, it is now. And I will say even louder that if we spend all of our time debating the 10 points listed above, we will surely languish in substandard growth for the foreseeable future.
Let’s put it this way. There should be a time for everything. We don’t have the resources to do everything right now. Some of you would prefer to deal with a myriad of issues because you think they might goose the growth along. While some economists are making up theories that support income distribution before growth – I think there is much more evidence for the reverse. Let’s focus first and foremost on the national economic growth. Once we get a head of steam going, then we can work on the infinitely harder problems of distribution, immigration, climate change, etc.