Must-Read: Back before 2008, too much conventional wisdom held that the state of the business cycle did not matter much for the standard of living of those who did not own much capital. If inflation was to remain constant over time, a high-pressure economy that pushed inflation up had to be offset by an equal and opposite low-pressure economy that pushed inflation down, and so there was no permanent first-order gain for the working class from working hard to try to improve stabilization policy performance.

This was, I think, always false. But now it is obviously false. It now seems very unlikely we will get any rapid growth of potential output without a high pressure economy. And, as Larry says: "Tight labour markets are the best social program."

Lawrence Summers: The Progressive Case for Pro-Growth Policies:

Tight labour markets are the best social programme, as they force employers to hire the inexperienced...

In the late 1970s, I was taught... that the shares of US total income going to profits and to wages, and to the rich and to the poor, was constant. All of this has changed. It is totally appropriate that widening inequality and the associated stalling of middle-class living standards should become an urgent political issue.... [But] the single most important determinant of almost every aspect of economic performance [is] the rate of growth of total income.... More growth means more employment. And with the college-graduate unemployment rate only 2.5 per cent, the newly employed are disproportionately less educated and disadvantaged. It can hardly be an accident that the decades of maximum growth, the 1960s and 1990s, also saw the most rapid job growth and most rapid increase in middle-class living standards....

How, then, can growth be accelerated? In an economy like that of the US, the vast majority of job creation and income growth comes from the private sector. If the next president is lucky enough to preside over the creation of 10m jobs from 2017-20, more than 8m of them will surely come from businesses hiring in response to profit opportunities. The question is not whether business success is desirable. The question is how it can best be achieved. At a moment when capital costs are close to zero, the stock market is at a record high and businesses are earning record profit margins, we do not need to bribe businesses to make investments that now do not seem worthwhile to them. There is no case for reducing already low corporate taxes or removing regulations unless it can be shown that these have costs in excess of benefits. What is needed is more demand.... This is the core of the case for policy approaches to raising public investment, increasing workers’ purchasing power and promoting competitiveness. That such policies also contribute to fairness is not a reason to lose sight of the central objective of promoting growth. Often in economics there are trade-offs. But not always. We can and must promote both fairness and growth.

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