Commentary

Who’s got the right plan to boost growth?

Marketplace Contributor Sep 12, 2012
HTML EMBED:
COPY
Commentary

Who’s got the right plan to boost growth?

Marketplace Contributor Sep 12, 2012
HTML EMBED:
COPY

It’s fewer than eight weeks to Election Day and neither party has put forward a truly convincing plan for reviving job growth. That’s largely because neither of the standard remedies our parties cling to — Keynesian fiscal stimulus by the Democrats or supply-side tax cuts by the Republicans — will work.

This isn’t your normal recovery because what we’ve experienced hasn’t been your normal up-and-down swing of the business cycle.  The fundamental structure of our economy has changed.

For 30 years, median real wages have barely increased, and over the last decade they’ve dropped — even though the productive capacity of the economy has soared. And that disconnect — between what the economy can produce at full employment and what people can spend without going into unsustainable debt — is the core problem. Since the debt bubble burst in 2008, that problem can no longer be avoided or wished away.

Keynesian pump-priming assumes that at some point consumers will take over. Once the government has spent enough, consumer spending will then keep the economy going. But the middle class doesn’t have enough money to take over where the government leaves off because its share of total income keeps shrinking.

For their part, supply-siders assume business leaders and entrepreneurs will create more jobs if they’re adequately rewarded with tax cuts. But they won’t create more jobs without more customers. And as real wages continue to drop, most people can’t and won’t buy more.

We’re caught in a trap of our own making that defies the standard remedies. Neither Keynesian stimulus nor supply-side tax cuts — nor even the Fed keeping interest rates near zero — will restore buoyant job growth.

The fact is that unless we can get the economy back to the balance it achieved 30 years ago, when the middle class and those aspiring to join it received a much larger share of the economy’s gain, we simply can’t get back on track.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.