Economic malaise

Marketplace Staff Jun 7, 2006

KAI RYSSDAL: The International Monetary Fund said this week the American economy’s doing pretty well. In fact, the US is driving the global economy. Despite oil prices, hurricanes and rising interest rates. So how come we’re not feeling so good about it ourselves? Commentator and economist Glenn Hubbard has one explanation.

GLENN HUBBARD: It’s true that the American public’s anxiety over the economy matches up poorly with the economic headlines. But, you know, it’s also understandable.

Economists believe that higher productivity translates into higher wages, but productivity and pay don’t jump simultaneously. So workers aren’t yet seeing much bigger paychecks.

The same was true in the mid-1990s. Worries over job cuts and downsizing drowned out the good news of higher economic growth. But later in the decade higher compensation figured in more fully, and it will again.

And there are other, deeper fears at work in the American psyche. We are growing. But change and risk come with growth. Whole industries and skill sets can wax and wain. To keep growing, we have to resist protectionism. Instead, as a society, we have to cushion changes with training and education.

Anxiety over the loss of traditional safety nets like generous employer pensions is also understandable, but so is the fear of large tax increases to sustain traditional government programs like Social Security and Medicare. Right now, USA Today tells us, each American household owes almost half a million dollars to fund these entitlement programs.

Our national leaders need to do more than tell us the good news about the economy, we need to start explaining to every American that we all have to take more responsibility for our own futures. And that means thinking about how to manage real risk. I mean unleashing market forces to rein in rising healthcare costs, build our savings and, yes, ultimately raise our wages.

Anxiety is understandable. But the gap will close between economic growth and our paychecks, and we can solve the rest.

RYSSDAL: Glenn Hubbard used to be the chairman of the Council of Economic Advisors for President Bush. He’s now the dean of Columbia University’s Graduate School of Business.

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