Donald Trump’s 2016 call to “Make America Great Again” suggested that the country’s economy is paling in comparison to prior times and can be reignited toward a renewed economic prosperity. In the same year, noted economist Robert Gordon published “The Rise and Fall of American Economic Growth.”
Gordon argues that the century from 1870 to 1970 was unique. Imagine the improvement in quality of life due to water and sewer systems, public transportation, electricity; provisions of privacy; and time saved, particularly for women.
In the 1880s the typical rural family was essentially isolated. In the early 20th century, the radio brought news into their homes, automobiles and the telephone permitted daily contact with others, and electricity meant the day did not end at sunset.
Finally, child labor began to disappear. The proportion of young adults who had a high school degree more than doubled. Significant productivity change in industry, greater capital intensity, and safety standards changed the industrial workplace dramatically, as did newly important unions.
From 1880 to 1945 middle-class America was essentially born, nurtured, and entered adulthood. New products, enhanced safety, and health gains are frequently missed by data that measure economic progress. Yet according to Gordon’s work, even typical economic data show real per capita output increasing by an annual average of nearly 3 percent, doubling in just 24 years.
In the last 50 years, however, real output has grown much more slowly. Productivity change that augments real incomes has been modest. As a result, in the last 20 years, per capita real median income has been rather stagnant, at best requiring more like 80 years to double.
Can Donald Trump or anyone else provide the fuel to recharge the U.S. economy? Major challenges exist.
Gordon identifies four principal headwinds that deter economic growth. To date, neither Donald Trump nor any other serious politician has provided a compelling agenda that addresses all four: increased economic inequality, our lagging and checkered educational system, reductions in work hours owing to demographic changes, and federal debt and fiscal challenges. To Gordon, addressing these four issues is a necessary but maybe not even sufficient condition for stronger growth.
For a variety of reasons from government policy to international trade, income distribution in the United States has become less equal in the last forty years. Middle class jobs with solid incomes have been disappearing, while increased returns to capital and to highly skilled labor have swelled the incomes of the top five percent. Progressive taxes and income redistribution are vital to reinvigorating the consumer economy. Is Trump prepared to advance such a progressive agenda?
Our educational system produces bimodal results. The best affordable education in the world can be had by combining the public schools of high-income suburbs with elite public universities. Concurrently, some of our inner city school systems are totally failing low-income students. New pedagogies, reformed policies, better paid teachers, and a major redistribution of educational expenditure are required. Has Trump called for these changes?
The retirement of baby boomers and the reduced participation rates of younger people in the labor force are leading to reduced aggregate hours of employment and reduced output per person. In the 1940s, both aggregate labor hours and capital equipment per unit of labor were rising, swelling per capita output upward even while the average work week was falling towards 40 hours. Addressing the current dilemma may require welcoming a significant immigration of younger potential workers, not exactly a Trump-like policy.
With low interest rates our near 20 trillion dollar national debt has not yet been burdensome; that can and likely will change. Refinancing this debt at higher interest rates coupled with the rising deficits in entitlement programs will likely mean increased federal interest payments, possible reductions in private investment, and reductions or limits on entitlements. Can Trump generate the type of bi-partisan consensus needed for these sensitive policy changes?
Donald Trump’s charge “To Make America Great Again” is more grounded in our economic history than he receives credit for. The bigger questions are whether Trump really has any clue how to address that charge and, then, whether he has the will, the finesse, and the legislative and political support to accomplish the needed policy changes.
Ross is the Frontis W. Johnston Professor of Economics at Davidson College.
[Professor Robert J. Gordon will deliver the annual Cornelson Distinguished Lecture in Economics at Davidson College, Tyler-Tallman Hall in the Sloan Music Building, on Wednesday, March 29 at 8:00 p.m.]