Donald Trump was elected President because of strong blue-collar support. Many blue collar workers feel left out of the American dream because of stagnant incomes and/or job loss.
At the same time there is a huge national focus on the high cost of college and the associated huge student loan debt. But student loan debt is a fixable problem and is not what is holding our economy back.
Take a look at the two charts below from recent issues of the Wall Street Journal, here and here.
The first chart shows the last four growth cycles and how wages eventually tick up as unemployment continues to fall. Missing this time is hardly any growth in wages towards the end of the cycle (Of course, the current cycle won’t be over until we have the next recession).
The second chart shows that there are now more job openings (6 million) than job hires for the first time since 2001. Furthermore there were only a low of 138,000 jobs added in May with an average of 121,000 per month for the past three months. This suggests that employers are having a hard time finding qualified workers.
Obviously, what is badly needed is a renewed emphasis on workforce training. Interestingly enough, the Business Roundtable has just issued an extensive report detailing what many major corporations are doing to close America’s skills gap.
Conclusion. Lots of people, certainly including President Trump and the Republican Congress, would like to see faster economic growth. Clearly there are practical and useful ways to achieve this and many people are already trying to make it happen.
It is well known that the cost of higher education is increasing much faster than inflation and even faster than the cost of healthcare. In turn, student debt is also rising rapidly and creating a financial burden for lots of young people.
The New York Times writer, David Leonhardt, has an article in Sunday’s paper showing that most states have reduced their funding of higher education since 2009, some quite dramatically. This is not surprising since higher ed has to compete with K-12 education, Medicaid, prison operations, public employee pensions, etc. and states have to balance their budgets. But it means that the cost of tuition will continue to rise even faster than usual.
However, except for a few specific fields such as computer programming, high school STEM teaching and nursing, there is no overall shortage of college graduates to keep our economy going. In fact there is a surplus of college graduates in many non-technical areas.
But there is a growing labor shortage more generally, first of all for construction and agriculture workers which can be filled by unskilled immigrants. Furthermore, there are now millions of job openings for middle skill workers which are going unfilled for lack of qualified applicants. Training for such jobs as emergency medical technician, robot-heavy factory worker, and wind turbine technician is where states and localities should invest more public resources.
The huge demand for middle- and high-skill blue collar workers provides an opportunity to put laid-off middle-aged (Trump voting!) factory workers back to work in high paying middle class jobs. A little ingenuity at the local and state level should be able to figure out how to do this. Conclusion. A college education is not the only path to a productive and satisfying middle class life. In fact U.S. economic growth is being held back by a lack of qualified middle- and high-skill workers.
In many respects things are going quite well in the U.S. at the present time:
The economy is chugging along at 2% annual growth, not spectacular but better than in most other developed countries. In fact a rather severe labor shortage is developing in some industries such as construction and agriculture. More specialized guest worker visas would help relieve these shortages. Better career and vocational education in high school as well as targeted job retraining programs for the underemployed would help prepare workers for the millions of high-skill manufacturing jobs going unfilled.
Pesky foreign policy problems are under control. ISIS is being squeezed in the Middle East. China appears willing to help contain the North Korean nuclear threat. Iran is mostly abiding by the 2015 nuclear agreement.
Congress is inching its way towards resolution of the healthcare stalemate, by repairing Obamacare rather than repealing it. It’s not clear how much tax reform will be implemented this session but there is at least a consensus on lowering the corporate tax rate to encourage multinational companies to bring their profits back home.
Deregulation efforts by the Trump Administration will give the economy at least a small beneficial boost.
But there is one huge problem which is constantly being swept under the rug or being kicked down the road by both parties in Congress and by Democratic as well as Republican presidential administrations alike. I am referring, of course, to our massive national debt, now sitting at 77% of GDP (and growing) for the public part on which we pay interest. Right now this debt is essentially “free” money because interest rates are so low. But it’s really a ticking time bomb because sooner or later interest rates will return to more normal levels and then interest payments will skyrocket causing a huge fiscal crisis.
Conclusion. It is imperative for Congress to reform entitlement programs to make them less costly to the federal budget and to otherwise restrain discretionary federal spending across the board. The future of our country depends on our national leaders exercising much greater fiscal restraint. They need to get much better at doing this!
The Bureau of Labor Statistics has just reported very good news in its monthly Job Openings and Labor Turnover Survey. For the first time since 2000, the number of job openings now exceeds the number of new hires, as shown in the chart just below. This means that wages will start to grow faster as employers have to compete harder for new workers. This is an early indication that our economy will likely soon resume a faster rate of growth than its average of 2.3% since the end of the Great Recession in June of 2009. There will be many benefits. The unemployment rate should continue to keep heading downward from its current level of 5.5%. More unemployed and underemployed workers will be able to find satisfactory jobs. The labor participation rate should start to head back up from its historically low current state.
The Federal Reserve is likely to begin raising short term interest rates sooner rather than later in order to keep inflation in check before it has a chance to heat up. In other words we may be breaking out of the ambiguous state of slow-growth secular stagnation in which we have been trapped for six years.
All of this is very good news as long as Congress realizes that it is now even more urgent than ever to put our massive public debt of $13 trillion on a downward path, compared to the total economy, before interest rates begin to rise substantially and eat us alive with interest payments on this huge debt.
In this regard the Budget Plan approved by Congress just this Spring, which will lead to a balanced budget over ten years, looks very attractive indeed. It will be a mammoth job to achieve such a milestone in fiscal restraint, but doing so will lead to a more secure and prosperous future for all Americans.