Friday, June 09, 2017

Living in the past: Trump’s putatively populist economic nostalgia program



Donald Trump’s economic plan (as inferred from his budget proposal), such as it is, looks backward with overweening nostalgia, believing that “one of the greatest achievements in all of economic history,” namely, the “Great Leap Forward of the American level of labor productivity that occurred in the middle decades of the twentieth century,” can be attained once more, hence his singular and inordinate fondness for “industries that powered the American economy in the mid-20th century, particularly manufacturing, fossil fuel extraction, and construction.” His campaign slogan to “Make America Great Again” (which first appeared in Ronald Reagan’s 1980 presidential campaign), makes literal or at least sub-conscious reference to this period of economic history, the budget plan enshrining both socio-economic nostalgia and messianic yearning. According to Robert J. Gordon,
“… [T]he year 1970 marks a distinct break point between faster and slower growth.* The ten decades between 1870 and 1970 deserve their accolade … as the ‘special century.’ The inventions of the second industrial revolution gathered momentum between 1870 and 1920 and then between 1920 and 1970 created the most rapid period of growth in labor productivity experienced in American history, bringing an utter change from 1870 in most dimensions of human life. The inventions of the third revolution, though revolutionary within their sphere of influence—entertainment, communication, and information technology—did not have the same effects on living standards as had electricity, the internal combustion engine, running water, improving life expectancy, and the other Great Inventions of the special century, not to mention the improvement in the human condition as work hours declined from 60 to 40 per week.
By definition, growth in output per person equals growth in labor productivity plus growth in hours worked per person in the population. Starting in the late 1960s, there was a distinct slowdown in labor productivity growth. However, growth in output per person avoided suffering a similar slowdown until after 2000, because its growth rate exceeded that in labor productivity by the contribution of rising hours of work per person. This occurred as women shifted from house work to work in the market, meaning that each woman who made this shift raised average hours of market work for the population as a whole. Since 2000, we have seen a sharp decline in growth output per person and its two components—growth in productivity and in hours of work per person—after corrections for the ups and downs of the business cycle. [….]
The aggregate record across all sectors of the economy shows that productivity growth slowed down markedly after 1970 and experienced a brief revival during 1996-2004 that most analysts attribute to the influence of the invention of the web, search engines, and e-commerce, as well as to the sharp spike of investment in information and communication technology (ICT) equipment. In the past decade, productivity growth has been even slower than it was between 1970 and 1996. This story of slowdown, revival, and further slowdown, as told by the economy-wide data, conceals substantial differences in performance across sectors of economic activity.” [….]
Today we are in the midst (perhaps even the downside) of a “third industrial revolution” (IR #3) that began with the first mainframe computers in the 1950s and now “encompasses the digital age of information and communication technology” (its principal benefits for ‘productivity growth’ having occurred between 1994 and 2004). The kind of growth during this period is conspicuously different, quantitatively and qualitatively, from the prior “special century” which, as Gordon says, “changed everything.” To be sure, changes have and are occurring, but they’re of the bleaker kind:
“The problem created by the computer age is not mass unemployment but the gradual disappearance of good, steady, middle-level jobs that have been lost not just to robots and algorithms but to globalization and outsourcing to other countries, together with the concentration of job growth in routine manual jobs that offer relatively low wages. The gradual slowing of economic growth … combines disappointing productivity growth over the past decade with a steady rise of inequality over the past three decades. …[H]eadwinds … have intervened to prevent most Americans from enjoying real economic gains equal to the growth of economy-wide output per hour. These headwinds constitute barrier to the equal distribution of productivity gains, including the effects of rising inequality, educational stagnation, declining labor force participation, and the fiscal demands of an aging population. [….]
The combined effects of growing inequality, a faltering educational system, demographic headwinds, and the strong likelihood of a fiscal correction imply that the median disposable income will grow much more slowly in the future than in the past. When combined with the implications of a smaller effect of innovation on productivity since 1970, there is little room for growth at all. When all the headwinds are taken into account, the future growth of real median disposable income per person will barely be positive and fall far below the rate enjoyed by generation of Americans dating back to the nineteenth century.” — Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton University Press, 2016).
Which brings us back to Trump’s economic plan, apparently crafted within the presuppositions, assumptions, and parameters of another economic era, one decidedly behind us:
“Rusty lever won’t lift U.S. economy”
By Ronald Brownstein for the Los Angeles Times, 9 June 2007 (Brownstein is a senior editor at The Atlantic)
“[Trump is] attempting to restore the primacy of industries that powered the American economy in the mid-20th century, particularly manufacturing, fossil fuel extraction, and construction. In the process he is sublimating—if not opposing—the needs of the sectors driving growth today: information technology, professional services, clean energy, entertainment, education, tourism, and healthcare.
With decisions such as last week’s blustery withdrawal from the Paris climate accord, Trump is betting on industries whose greatest contribution to American prosperity is behind them. [….] When Trump talks about the economy, manufacturing and fossil fuel production usually take first billing, followed by construction—the target of this week’s infrastructure proposals. [….]
… [E]ven if you count Trump’s approach as an unqualified benefit for his favored industries, he’s still banking on sectors that have been shrinking for decades. [….] Measured as a share of total U.S. employment, Trump’s three favored industries have plummeted precipitously. In 1965, manufacturing, mining and construction provided about one in every three non-agricultural jobs. Today, it’s fewer than one-in-seven jobs. [….]
The entire article, as of this writing, not available on the Los Angeles Times website, can nonetheless be found here.
* This has considerable bearing on the Trump administration’s projections of economic growth under his proposed budget plan: “The Congressional Budget Office (CBO) projects that, under current laws and policies, the economy will grow 2.3 percent this year but growth will average just 1.9 percent a year over the coming decade (i.e., between now and 2027). As a candidate, President Trump boasted that his economic plan ‘would conservatively boost growth to 3.5 percent per year on average  . . . with the potential to reach a 4% growth rate.’ And Secretary Mnuchin has said that under President Trump’s policies, economic growth will pick up to ‘3 percent or higher.’”
Further reading: For a “global” dimension missing from Gordon’s argument, please see the following, a couple of which I’ve cited several times before on this blog (our authors have different perspectives on this ‘dimension’):

  • Arrighi, Giovanni. The Long Twentieth Century: Money, Power and the Origins of Our Times. London: Verso, 2010 ed.
  • Brenner, Robert. The Economics of Global Turbulence. London: Verso, 2006.
  • Desai, Meghnad. Marx’s Revenge: The Resurgence of Capitalism and the Death of Statist Socialism. London: Verso, 2002.
  • Harvey, David. The Enigma of Capital and the Crises of Capitalism. New York: Oxford University Press, 2010.
  • Offe, Claus. Disorganized Capitalism: Contemporary Transformations of Work and Politics. Cambridge, MA: MIT Press, 1985.
  • Robinson, William I. A Theory of Global Capitalism: Production, Class, and State in a Transnational World. Baltimore, MD: Johns Hopkins University Press, 2004.
  • Shaikh, Anwar. Capitalism: Competition, Conflict, Crises. New York: Oxford University Press, 2016.
  • Žižek, Slavoj. Trouble in Paradise: From the End of History to the End of Capitalism. Brooklyn, NY: Melville House Publishing, 2015 (Allen Lane, 2014).

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