This is In Real Terms, a weekly column analyzing the latest economic news. Comments? Criticisms? Ideas for future columns? Email me, or drop a note in the comments.
When President Obama won the presidency in 2008, there was no doubt what his economic priority needed to be: Stop the bleeding. Three days after Obama was elected, the Bureau of Labor Statistics reported that the U.S. had lost 240,000 jobs the month before, a figure that was later revised to a loss of 473,000 jobs. More than 1.5 million more would follow before Obama even took office.
There is no similar crisis greeting the winner of Tuesday’s election. The economy has added jobs for an unprecedented 73 consecutive months, and the unemployment rate has fallen below 5 percent. The jobs report, which brought such bad news eight years ago, on Friday showed solid hiring and, at long last, rising wages.
But while the crisis may have passed, the next president will inherit a long list of economic challenges, many of which predate the 2008-09 recession. Economic growth is slow; inequality is high; education and health care are expensive; entrepreneurship is falling. The problems Obama faced when he took office were immediate, an economic heart attack in need of emergency intervention. Today’s problems are chronic — slower moving but perhaps no less severe, and possibly the cause of further heart attacks in the future.
Presidents have little control over the short-term direction of the economy. But they can have an impact on the kind of longer-run challenges now facing the U.S. So to figure out where the next president should focus her or his attention, I spent the week on the phone with economists across the political spectrum. Unsurprisingly, they didn’t agree on much when it came to the policies the new president should adopt. But there was much more agreement on the problems that need solving. Here are five of the biggest:
Jobs and wages: With unemployment low and pay rising, it is tempting to declare the job market fully healed from the recession. And indeed there are some economists who believe the U.S. is at or close to “full employment,” meaning that pretty much everyone who wants a job either has one or can find one quickly.1 But the balance of the evidence suggests that there is still room for the job market to improve. In October, 78.2 percent of Americans in their prime working years, those ages 25 to 54, had jobs, down from 79.7 percent when the recession began in December 2007. That’s a gap of close to 2 million people. Another nearly 6 million are working part-time because they can’t find full-time work.
“In my mind we still have a very incomplete recovery,” said Josh Bivens of the Economic Policy Institute, a liberal think tank.
Perhaps even more concerning are the various groups that seem to have been left behind not just by the recovery but by the modern economy as a whole. The unemployment rate for Americans without a high school diploma was 7.3 percent in October. For young black men ages 25 to 34, it was 8.9 percent. In some rural areas, unemployment rates are still in the double digits. For those people, even a strong national recovery is unlikely to bring relief; helping them will require policies that specifically target places and groups that have in many cases been struggling for decades.
Slow productivity growth: Productivity — in its simplest form, the economic output the average worker can produce in an hour — is a more esoteric concept than jobs or wages, but it is central to a well-functioning economy. Productivity growth is the reason that incomes and standards of living are able to keep rising without everyone just working more hours. But in recent years, productivity has been rising more slowly than in previous decades; on Thursday, the Bureau of Labor Statistics reported that U.S. productivity in the third quarter was unchanged from a year earlier.
Many economists see slow productivity growth as the root of many of the nation’s other economic challenges. It’s part of the reason wages are rising slowly — if workers aren’t producing more, companies can’t afford to pay them more. It’s part of the reason that many economists worry about the national debt — if the economy is growing more slowly, the debt will be harder to pay off. “In the long run, it’s certainly as important and probably more important than job creation,” said Martin Baily, a former chairman of the Council of Economic Advisers under Bill Clinton and now a senior fellow at the Brookings Institution.
The trouble, Baily said, is that no one is sure why productivity has slowed, which makes it hard to revive it again. Some economists, such as Northwestern University’s Robert Gordon, think recent technological innovations, such as the internet, just aren’t as significant economically as earlier gains such as the invention of the steam engine. Others, such as Harvard professor and former Treasury Secretary Larry Summers, see low productivity growth as stemming from a broader, global economic slowdown. Still others question the notion of sluggish productivity and suggest we are measuring it wrong.
In the absence of a clear culprit, some economists suggest a kitchen-sink approach: Try a wide range of policies that theoretically could increase productivity — investment in infrastructure, early childhood education, scientific research — and hope that some of it works.
“Everything we do in terms of economic policy essentially needs to be thought of as buying lottery tickets for productivity,” said Adam Posen, president of the Peterson Institute for International Economics. “The payout is so large.”
Declining dynamism: The U.S. economy is in constant motion: People find jobs and leave them; companies are founded and go out of business; families pick up stakes and move for better opportunities elsewhere. Yet in recent decades, that motion has been slowing. Americans are changing jobs less often, starting fewer companies and moving less frequently.
Those trends worry economists because all that motion was a big part of what made the U.S. such a powerful economic force in the decades after World War II. Entrepreneurship helps drive innovation, and then spreads that innovation through the economy as other companies are forced to adapt or die. Job turnover helps match workers with the jobs where they are most productive. Geographic mobility helps make sure that workers go where the jobs are. An economy with less motion may be more comfortable for individuals and companies that are already well-established, but it provides fewer opportunities for those trying to break in, and it is less dynamic overall.
As with slowing productivity, economists aren’t sure what’s behind the decline in measures of economic dynamism. Conservatives argue unnecessary regulations discourage entrepreneurship and hiring. Liberals argue that corporations use their political and economic power to stamp out competition. (Though even their proponents see those as little more than partial explanations.) But there are points of agreement: Both Democrats and Republicans have raised concerns about the spread of occupational licensing laws, which can make it harder for workers to change careers. Reforming the patent system, originally intended to help promote innovation but which many experts now fear stifles it, is another effort that has drawn bipartisan support.
“It’s a lot harder to enter a new occupation than it should be, it’s a lot harder to start a business than it should be,” said Michael Strain, an economist at the American Enterprise Institute, a conservative think tank.
Low economic mobility: The presidential campaign has often focused on inequality (particularly on the Democratic side) and the stagnation of household income (particularly on the Republican side). Both those issues are important. But perhaps equally important is the less-discussed issue of economic mobility: how likely it is that a child born into poverty can rise into the middle class or above. Recent research from Stanford economist Raj Chetty and others has found that rates of mobility in the U.S. are low overall, and that they vary substantially from one part of the country to another — a poor child in Baltimore is much less likely to rise into the middle class than one in Boston. Though the U.S. has a self-image as a classless society, its mobility rates are lower than those in many European countries.
Mobility is harder to measure than many other economic trends; Chetty’s work was only possible because he was able to tap into a massive dataset of tax records from the IRS that allowed him to track individuals’ earnings over decades. And it could be politically hard to tackle as well. Richard V. Reeves, a senior fellow at the Brookings Institution, notes that mobility is by definition zero-sum — if it is easier for the poor to become rich, then it must also be easier for the rich to fall down the earnings ladder. Perhaps as a result, we don’t know much about what drives mobility. “This is an area where we really are needing more genuine experimentation and evaluation,” Reeves said. “We’re still feeling our way.”
Mistrust of government: The presidential campaign has laid bare Americans’ deep distrust of institutions — government, the media, the FBI, the Federal Reserve. Veronique de Rugy, a senior research fellow at the Mercatus Center, a libertarian think tank at George Mason University, argues that mistrust of government poses an economic challenge, not just a social one. Addressing the nation’s economic issues will require big changes, many of which will probably be unpopular. Reforming Social Security, fixing health care, overhauling the tax code — all of these will require sacrifices by some groups in order to improve things for the majority. That’s hard to do in an environment where people trust neither their leaders nor each other.
Last week at FiveThirtyEight
On Thursday, following up on last week’s column about immigration, I pointed to new research showing that undocumented immigrants are no longer growing as a share of the U.S. workforce.
Also on Thursday, Clare Malone took a close look at an Ohio county that has fallen on hard economic times — and that might help tip the state to Trump as a result.
Job growth is slowing, but Friday’s employment report showed that Americans are finally starting to see fatter paychecks.
Trump and Clinton both want to fix America’s infrastructure. Economists agree that’s a good idea. But dig a bit deeper, as Andrew Flowers did on Saturday, and that consensus falls apart.
Elsewhere
Trump often claims that economic data, especially the unemployment rate, is “rigged” to make President Obama look good. Patricia Cohen of The New York Times looks at how the government prevents political interference in U.S. economic data.
The unspoken assumption behind pretty much all economic commentary is that growth is good and more growth is better. Alana Semuels of The Atlantic asks whether that assumption makes sense.
Trump isn’t doing better in states or counties with lots of diversity. He’s doing better in places where diversity is rising the most rapidly, according to an analysis by Janet Adamy and Paul Overberg in The Wall Street Journal.