Though our economy is doing better than that of most other advanced economies, the United States still has at least three major economic problems. There’s the macro problem of growth—especially productivity growth—that’s slower than we’d like. There’s the micro problem that any growth we have continues to leave too many people behind. And there’s the political problem that the Trump administration and Republican Congress propose to make these other two problems worse.
Each of these problems is easy to document. Productivity growth—a key determinant of overall living standards—averaged almost 3 percent annually between 1995 and 2005. Since then, it’s been growing at less than half that pace, and even slower since 2010. Though unemployment is low, wage growth remains tepid for too many workers. In fact, real weekly earnings are up less than half a percent over the past year for blue-collar workers. Finally, the Trump budget, if enacted, would cut a total of $2.5 trillion from programs that serve low- and moderate-income Americans, slashing total spending on these programs by 33 percent by 2027.
Solving this third, political problem will undoubtedly be a heavy lift. But if we can convince our lawmakers to start doing the right thing—either in the present or, perhaps more plausibly, the future—we’ve got a way to address at least one and possibly both of the other two problems. By investing deeply in anti-poverty programs and long-neglected public goods (that is, doing the opposite of what the Trump budget proposes), we can both improve the life chances of millions of disadvantaged people and attempt to push back on stagnant growth.
Let us explain.
A few years ago, economist Larry Summers revived an old label—“secular stagnation”—to describe our macro problem. A simple definition is this: Even at very low rates of interest, there’s not enough investment to generate faster growth.
Why is investment too weak, even with cheap capital? Explanations abound, including the idea that the investor class just doesn’t see much in the way of projects that promise high returns. The income inequality that’s embedded in our economy likely plays a role: Wealthy corporations and their investors don’t need to engage in a lot of new investment to keep getting richer.
But hold that thought for a moment while we tell you about a set of smart, promising investments you may not know about, or at least not have seen in that light. It turns out that many of our safety-net programs don’t just help people eat, or keep a roof over their heads, or have better health care today. They have lasting benefits for children who grow up in families that receive such assistance. That is, safety-net programs are not just consumption programs; they also work like investment programs, with the investments being in poor kids’ health, well-being, and future opportunities.
In the case of the Supplemental Nutrition Assistance Program, formerly known as food stamps, for instance—a program very much in the crosshairs of the Trump budget—researchers have studied outcomes of children who grew up in places that adopted food stamps earlier than others. Their findings are striking: Women who lived in areas with food stamps were less likely to have low-birthweight babies, and kids who grew up with access to food stamps were less likely to suffer health problems as adults. Those kids were also 18 percent more likely to finish high school than their counterparts who didn’t have access to the program. Talk about return-on-investment!
The story is similar with Medicaid, the efficient, successful health-care program that Republican proposals would effectively destroy (the Trump budget would eventually cut its spending by nearly half). Having access to Medicaid when growing up is associated with reduced mortality, an increased probability of completing college, and, for women, earning higher wages later in life. The evidence on the long-term impacts of the Earned Income Tax Credit, housing vouchers, and early childhood education programs ain’t too shabby, either. The research that demonstrates how unconditional cash transfers improve recipients’ outcomes in the long run (both in the United States and around the world) is also very strong.
To be clear and appropriately humble, we’re not saying: invest in poor children and watch GDP growth double! Given all the moving parts in modern economies, we’re talking basis points (hundredths of a percent), not percentage points. But when rich investors look around and see not much in the way of robust returns-on-investment, that’s partly because they’re not thinking about investing in the safety net or, for that matter, physical public goods (infrastructure). And why would they? The returns-on-investment in question here flow to the least well-off in society, not into the coffers of the already wealthy.
If secular stagnation results from the belief that there’s nothing great to invest in, that’s only because our scope is too narrowly focused on private, as opposed to public, investments. We’re too focused on Standard & Poor’s and not enough on the living standards of the poor. As we’ve noted here and in other venues, the investment agenda should include these safety net programs, along with direct job creation, Medicare for All, and a child allowance.
Of course, the mechanism by which we make such investments is the budget, and that’s where the politics come in. Far from investing in these programs, the Trump budget hacks away at them—while delivering gigantic tax cuts to the rich. That’s a recipe to exacerbate poverty and economic immobility, not to mitigate secular stagnation and spur growth. After all, the wealthy and the corporate sector already hold trillions of dollars in excess savings that they’re not putting to productive use. Raising their after-tax wealth won’t change that.
But by investing in nutritional support, housing assistance, jobs, income support, and health programs that offset the stagnant opportunities facing too many disadvantaged Americans today, we would help millions of people on the micro level and potentially give the macroeconomy a nudge as well.
If that all seems like a faraway dream given today’s political realities, then it’s our job to make that dream the new reality.
Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives’ age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren’t made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.