As I like to remind my readers from time to time, I am a non-ideological fiscal conservative. I simply want to solve our two most fundamental fiscal and economic problems:
Slow economic growth, averaging just 2.1% since the end of the Great Recession in June 2009,
Massive debt, now at 76% of GDP (for the public part on which we pay interest), the highest since the end of WWII,
by whatever means it takes.
Donald Trump won the presidential election contest because he convinced blue-collar white voters that he would do something about their declining economic prospects. But can he actually deliver for them? Yesterday’s New York Times has an excellent analysis of this problem by the economic journalist, Eduardo Porter, “Where were Trump’s votes? Where the jobs weren’t.” Mr. Porter points out that, in fact, Hispanic, Black and Asian workers have all done much better than white workers since November 2007 (see above chart). He also points out that all three of these minority groups live primarily in metropolitan areas where jobs have been growing much faster than in nonmetropolitan areas (see above chart).
He further points out that while the number of manufacturing jobs has been flat since 1978, the number of service jobs has been increasing rapidly and that most of these new service jobs are in the cities where minorities are clustered (see below). The question then is what Mr. Trump (or anyone else!) can do to help his largely rural blue-collar constituency? Mr. Porter recognizes that faster economic growth will have to come from investments in technology and human capital. But he thinks that this will happen mostly in the cities and thus help minorities proportionally more than whites. Conclusion. Helping blue-collar whites is Mr. Trump’s fundamental economic problem. Faster overall economic growth will help to some extent. Trade restrictions will not help. Immigration restrictions might help but could also hurt the overall economy if employers can’t hire enough workers. Better education and vocational training will help in the long run but not immediately. This is a very tough problem to solve!
GDP growth has averaged just 2% since the end of the Great Recession in May 2009.
The Federal Reserve has taken unprecedented steps to keep interest rates low in the meantime but these efforts aren’t boosting GDP and, in addition, have quite harmful side effects.
Wages are growing and consumers are spending money but business investment is shrinking and productivity growth is slowing.
This means that the problem is supply side rather than demand side, contrary to what many economists are saying.
At least part of the problem is a lack of skilled workers. Two articles in today’s Wall Street Journal, here and here point out that:
America is now home to a vast army of jobless men, seven million of them age 25 to 54, who are no longer even looking for work. This is 15.6% of the traditional prime of working life.
Openings for manufacturing jobs this year have averaged 353,000 per month up from 311,000 per month in 2015 and 121,000 per month in 2009.
According to the Manufacturing Institute, 8 in 10 manufacturing executives say that the growing skills gap will affect their ability to keep up with customer demand.
As shown in the above chart, at the present time there are only an average of two unemployed manufacturing workers for each job opening, way down from the level in 2010.
Conclusion. Speeding up economic growth requires new business investment in order to increase worker productivity. But a lack of skilled and trained workers will greatly hamper this effort. The solution here is better vocational and career training in high schools and at community colleges.
The former CEO of Nucor Steel Company, Dan DiMicco, has written a book, “American Made: why making things will return us to greatness” describing why and how U.S. manufacturing dominance has shrunk in the past 50 years and how it can be restored. Nucor is the largest American steel company and has never laid off an employee in its 42 years in existence, even during the recent recession. Here is Mr. DiMicco’s prescription for a return to industrial greatness:
Build public-private partnerships to restore the manufacturing base. For example, only $60 billion out of the $765 billion stimulus bill in 2009 was devoted to infrastructure spending. As another example, the corporate income tax rate should be significantly lowered.
Level the playing field in international trade. When Germany and Japan built up huge trade surpluses in the 1970s and 1980s, the Reagan Administration responded with the Plaza Accord in 1985 outlawing foreign currency manipulation. Since then China especially has adopted a strongly mercantilist trading policy, subsidizing key industries, exporting as much as possible and importing as little as possible. No president since Reagan has insisted on equitable rule-based trade agreements where the rules are enforced. This would help immensely.
Rebuild the nation’s infrastructure. Mr. DiMicco would be willing to increase deficit spending for such needs as highways, bridges, fiber-optic lines, mobile networks, and urban wastewater systems.
Develop our energy resources. Go all out on natural gas production by fracking. This will lower our carbon footprint and has the potential to make us completely energy independent, thereby greatly reducing our trade deficit.
The skills gap myth. It would help if the U.S. had better career education for high school students unlikely to go to college. But Nucor sponsors cooperative training programs at all of its locations and has no trouble finding workers.
A strong revival of U.S. manufacturing has the potential to create 30 million new jobs and thereby revitalize the American middle class. Mr. DiMicco’s prescription makes a lot of sense.