In his latest New York Times column David Brooks speculates that maybe the U. S. economy is working as you would expect it to:
In 2015, median household incomes rose by 5.2 percent. That was the fastest surge in percentage terms since the Census Bureau began keeping records in the 1960s. Women living alone saw their incomes rise by 8.7 percent. Median incomes for Hispanics rose by 6.1 percent. Immigrants’ incomes, excluding naturalized citizens, jumped by over 10 percent.
The news was especially good for the poor. The share of overall income that went to the poorest fifth increased by 3 percent, while the share that went to the affluent groups did not change. In that year, the poverty rate fell by 1.2 percentage points, the steepest decline since 1999.
The numbers for 2016 have just been released by the Census Bureau, and the trends are pretty much the same. Median household income rose another 3.2 percent, after inflation, to its highest level ever. The poverty rate fell some more. The share of national income going to labor is now rising, while the share going to capital is falling.
However, this passage jumped out at me:
In a well-functioning economy, workers are rewarded for their productivity. As output, jobs and hours worked rise, so does income. Over the past two years, that seems to be exactly what’s happening.
That’s simply not true. Workers are rewarded based on the productivity of other workers whom they resemble superficially, not on the basis of their own personal productivity. The most productive mail carrier in the U. S. is paid the same as other mail carriers with the same job title and seniority. That’s the way the government and most private sector companies work. Maybe that’s not a “well-functioning economy” but it’s the one we have and we shouldn’t expect anything else to materialize in the foreseeable future.
He continues:
The problem of the middle-class squeeze, in short, may not be with how the fruits of productivity are distributed, but the fact that there isn’t much productivity growth at all. It’s not that a rising tide doesn’t lift all boats; it’s that the tide is not rising fast enough.
That’s why I perseverate on deadweight loss. Total government spending is around 36% of GDP. That’s a lot of space for deadweight loss (the difference between the economic activity that would have been realized and the economic activity that was actually realized in the light of government spending) and it wouldn’t take much to boost GDP.
Then Mr. Brooks lurches uncontrollably on to the truth:
If productivity itself is the problem, not distribution, radically different politics is demanded than we’re seeing today. If productivity is the problem, we need more dynamism, not less, more openness, not less, more growth-oriented policies, not more dirigiste and redistributive ones.
Simply discarding the programs that aren’t accomplishing their goals would be a step in the right direction.
Well, 36% of GNP looks like a lot, but about half of that is spending by states and cities and so on. It isn’t instantly ameniable to our analysis, or nor manipulation by Congress. Of the 20 percent or so that Congress can affect, about five percent goes to Social Security, five percent to Medicare, maybe four percent to Medicaid. four percent to DoD. Leaving about 2 or 3 percent, depending on the deficit the politicians find acceptable, for interest payments and foreign aid and science and public radio and school lunch programs and everything else conservatives hate. I don’t think there’s a lot you can tinker with here that’s going to radically change productivity and growth rates.
Some of course. There’s the National Bureau of Standards, the National Institute of Health, NASA, the National Science Foundation, NOAA, the Department of Energy. But altogether that’s about one half a percent of GNP. That’s chickenfeed, unless people who are really clever are in charge of that spending.
Do you have the opinion that the people Donald Trump appoints to run these agencies are going to be so clever? Or even feel that they maybe ought to be really clever administrators?