The Rock and the Hard Place of Future Economic Growth

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Responding to Lane Kenworthy, who thinks that the Fed is unlikely to pursue full employment policies anytime in the near future, Jared Bernstein pushes back:

I’ve often stressed that progressives cannot give up on the “primary distribution”—market outcomes—and hope to fix everything with redistribution. Not only is that an incredibly hard lift, but as market outcomes continuously deteriorate from the perspective of the middle class and the poor, we’ll have to continuously ratchet up the redistributive function. Good luck with that.

This is one of the key economic questions—maybe the key economic question—for liberals these days. On the one hand, it’s plain that the best way to raise middle class wages is to engineer a tight labor market. It’s best for the workers themselves, who would prefer to earn wages rather than receive handouts, and it’s best for the economy, since it keeps our productive capacity at its peak. But over the past 30 years, we’ve only managed to engineer an unemployment rate under 5 percent twice—both times during bubbles, and both times for only a couple of years. There’s very little reason to think we know how to do this on a sustainable basis going forward absent some kind of massive change in our fundamental approach to economic policy. That level of change is pretty unlikely on its own merits, and when you factor in the headwinds from steadily improving automation, it’s all but inconceivable.

On the other hand, the prospect of simply accepting that (a) full employment is no longer a policy goal, (b) median wages will therefore be stagnant for the forseeable future, and (c) we should therefore massively ramp up redistribution—well, as Bernstein says, good luck with that.

But those are the alternatives. There is a third alternative, of course: shrug our shoulders and decide that stagnant or falling living standards for the working and middle classes is just one of those things that we can’t do anything about. This is Paul Ryan’s alternative, and I assume it has no takers among my readership.

So that leaves us with two choices: figure out how to engineer full employment (unlikely) or figure out how to persuade the top 20 percent to subsidize the rest of the country on an ever increasing basis. Anyone have any good ideas on this score?

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