Donald Trump was elected President because of strong support from blue-collar workers in the battleground states such as Wisconsin, Michigan, Pennsylvania and Ohio. The American Enterprise Institute scholar, Nicholas Eberstadt, has explained clearly why this happened. It is largely a result of a slowdown in economic growth in recent years which has hit blue-collar workers especially hard.
Can this recent slow growth trend be reversed? The economist, Edward Lazear, has a positive answer to this question in today’s Wall Street Journal. According to Mr. Lazear:
3% growth is the long term norm. The annual growth rate in the 30 years preceding the 2007 recession was 3.1%. It has averaged just 2% annually since the end of the recession in June 2009.
GDP growth is the sum of two components: growth in productivity and in labor hours. Historically productivity has grown at a rate of about 2% per year and labor at about 1%.
Nonfarm labor productivity rose by a total of 7% between 2009 and 2016 which amounts to only 1% per year. It rose 18% between 2001 and 2008 or 2.3% per year.
Both President Trump and the House Republicans advocate business expensing (immediate tax write-offs for new investment) as an important part of tax reform. It has been estimated that just this one change in policy will induce an increase in GDP of from 5% to 9% over ten years. This would raise GDP from the current 2% annual growth to between 2.5% and 2.9% annually.
The Social Security Administration predicts no increase in the U.S. population age 20 to age 64 between 2020 and 2030.
But note that the labor participation rate fell during the recession by 2% among Americans between ages 25 and 54, the prime working age. Two drivers of this loss of workers are: 1) a large increase of the disability rolls and 2) the fact that the ACA will likely reduce the number of hours worked by about 2% between 2017 and 2024.
Eliminating burdensome business regulations will also help significantly.
Conclusion. There is clearly much that can be done to speed up both labor productivity and the number of hours worked by Americans. President Trump and the Republican Congress have a good shot at increasing economic growth to 3% annually.
Everyone is trying to figure out what Donald Trump is all about and I am no exception. My last two posts, here and here, compare his positives and negatives and what he is doing well so far and also not so well.
The American Enterprise Institute’s political economist, Nicholas Eberstadt, has an article in the current issue of Commentary, “Our Miserable 21st Century,” describing very cogently the economic and social conditions which have led to the election of Donald Trump as President of the United States. Says Mr. Eberstadt:
The year 2000 marks a grim historical milestone for our nation. The warning lights have been flashing for 15 years and now these signals are impossible to ignore.
First of all, the estimated net worth of American households has more than doubled between 2000 and 2016, from $44 trillion to $88 trillion (see below).
At the same time the recovery from the crash of 2008 has been singularly slow and weak. By late 2016 per capita output was just 4% higher than in late 2007. In effect the American economy has suffered something close to a lost decade (see below).
Then there is the employment situation. Between 2000 and 2016 the work rate for Americans aged 20 and older declined by 4% from 66% to 62%. To put this in different words: if our nation’s work rate today were back up to its start-of-the-century highs, 10 million more Americans would currently have paying jobs (see below).
Half of all prime working-age male labor-force dropouts (totaling 7 million men) take opioid medication on a daily basis, typically paid for by Medicaid. In fact, 53% of prime-age males not in the labor force are enrolled in Medicaid.
Of the entire un-working prime-age male Anglo population in 2013, 57% were collecting disability benefits.
Currently 17 million men in America have a felony conviction somewhere in there past. This amounts to one of every eight adult males in the country. It is difficult for felons to find work and therefore to become productive members of society.
Concludes Mr. Eberstadt, “The abstraction of inequality doesn’t matter a lot to ordinary Americans. The reality of economic insecurity does. The Great American Escalator is broken – and it badly needs to be fixed. With the election of 2016, Americans within the bubble (of affluence) finally learned that the 21st century has gotten off to a very bad start in America. Welcome to the reality. We have a lot of work to do together to turn this around.”
Our economy is doing a little better recently but not nearly as good as it could be. In my last post, “Men without Work,” I present Nicholas Eberstadt’s data that a significant part of the problem is the very large number (9.5 million) of prime working age (25 – 54) men who are unemployed and not looking for work.
Statistically, such men are likely to be un-workers if 1) they have no more than a high school diploma, 2) are unmarried and without dependent children, 3) are not immigrants and 4) are African American.
Two other relevant factors are 1) the huge increase in employment for prime working age women, from 34% in 1948 to 70% in 2015 and 2) the very high male arrest and incarceration rates for blacks and those without a high school diploma.
Obviously, it is highly detrimental to society to have such a large number of men who are idle during their prime working years.
Here are several ways to address this problem:
Revitalize America’s job-generating capacities. More businesses have closed than opened in each year since the 2008 financial crisis. Furthermore, the growing regulatory burden is not a recipe for encouraging entrepreneurship.
Reverse the perverse disincentives against male work embedded in our social welfare systems. The Earned Income Tax Credits should be extended to single adults without dependents. Eligibility for disability income should be tightened considerably.
Come to terms with the enormous challenge of bringing convicts and felons back into our economy and society. The huge increase in incarceration rates in recent years has coincided with a dramatic drop in rates for both violent crime and property crime.
Conclusion. One good way to speed up economic growth is to put more unemployed prime working age men back to work. There are several very concrete steps which can be taken to do this.