What Biden-omics ignores

Politics

President Trump doesn’t have much of a second-term economic agenda. So far it’s really just a two-page grab-bag of voter-friendly goals such as “create 10 million jobs in 10 months” or “cut prescription drug prices.” The blueprint for achieving those goals is, in essence, “re-elect Trump.” For many Republicans, apparently, that’s plenty good enough.

Joe Biden has a more traditional policy agenda. And it’s a pretty extensive and detailed one, with numbers attached and everything. It even has a slogan, though one that substitutes consonance for cleverness: “Build Back Better.” Among the key elements of Biden-omics: A $15 federal minimum wage, a public option to ObamaCare, aid to states to help eliminate tuition for middle-class kids at public universities, and support for new rules to undermine anti-union “right to work” work laws.

If one can connect the various policy pieces with some overarching idea, it’s probably this: Too many Americans are sharing in too little of the economy’s gains. It’s the inequality, stupid. Time to spread the wealth more.

But what about building the wealth more? The U.S. economy grew at an average annual pace, adjusted for inflation, of about 2.5 percent during the first three years of Trump. That’s a bit faster than the 2.4 percent of the final three years of the Obama presidency, but a minor achievement when considering the huge amount of fiscal stimulus injected into the economy via tax cuts and spending increases.

But what if the economy had grown faster than 2.5 percent? And what if that growth had been driven by higher worker productivity (or the output of goods and services produced per hour of work)? One result probably would have been faster wage growth.

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A common critique of the Trump economy is that the record low levels of unemployment were not matched by record-high levels of growth in take-home pay, which was just a bit over 3 percent before the virus outbreak. Biden-omics sees that gap and blames the pernicious effect of income inequality. But weak productivity makes for a better explanation. When wages were growing at 4 percent and 5 percent in the late 1990s, productivity growth was twice as fast as it is today. Now, inflation was also higher back then. So when you adjust for prices, the gap in real wage growth for the average worker between the late 1990s and the pre-pandemic economy was a bit less than 1 percent a year, according to former Obama White House economist Jason Furman in a 2018 analysis. It’s a gap easily explained by weaker productivity growth today vs. back then. The clear message then: A more productive U.S. economy is critical for faster-rising living standards.

Does Biden-omics address weak productivity growth? Proposed new spending for infrastructure and science research might eventually create a more efficient and innovative economy. Then again, some of those gains might be offset by tax and regulatory changes that seem to downplay or ignore any potential negative impact on …read more

Source:: The Week – Politics

      

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