The question at the core of America’s upcoming election isn’t merely whose story most voting Americans believe to be true – Mitt Romney’s claim he can pull it out of its stall because he’s a businessman who has turned around failing companies, or Barack Obama’s claim the economy is slowly mending from the worst downturn since the Great Depression because his approach is working.
If that were all there was to it, Friday’s report from the Bureau of LaborStatistics showing that the economy added only 96,000 jobs in August,would appear to bolster Romney’s assertion that the economy is in a stall. Since January, the United States has added an average of only 139,000 jobs a month, compared to last year’s average of 153,000 a month. Second quarter growth was a weak 2.2 percent, down from 4 percent last year. In other words, the economy isn’t improving.
The deeper question is what should be done starting in January to boost a recovery that by anyone’s measure is still anaemic — and on this neither candidate has offered specifics.
At last week’s Republican convention in Tampa, Florida, Romney produced nothing more than a vague and predictable set of Republican bromides: cut taxes, reduce the budget deficit, and get government out of the way. On Thursday night at the Democratic convention in Charlotte, North Carolina, President Obama provided little more, but from an opposing perspective: reduce the deficit by increasing taxes on the wealthy rather than cutting programs the middle class and poor depend on (such as Medicaid), give tax incentives to companies that create jobs in the United States, and invest in education.
The lack of detail about how to reignite the economy is understandable. Political reality militates against specificity. Winning depends more on firing up likely supporters with rhetoric they want to hear than convincing the very few who haven’t made up their minds that you’ve got the better detailed plan. Besides, bold new ideas at this stage are only likely to provide fodder for opponents eager to show why they won’t or can’t work, or are downright dangerous.
But another explanation for why neither candidate has come up with a concrete plan is profound disagreement even among experts about what’s gone wrong, and a paucity of credible ideas for righting it. Keynesians want more government spending but can’t come up with a convincing scenario for what happens after the pump is primed. The big stimulus in 2009 and 2010 had a positive impact but hardly enough to rescue the economy. Some Keynesians call for more spending, but how much more before credit markets begin to scream? Some want the Fed to keep interest rates near zero, but it’s kept them near zero for almost three years – along with two rounds of “quantitative easing” – with little to show for it.
So-called supply-siders want lower taxes and fewer regulations but can’t come up with a convincing argument for why American businesses would hire more workers under those circumstances. After all, much of their current profitability has come from cutting payrolls — either by substituting computers and software or outsourcing the jobs abroad. Why would they hire additional workers, especially when American consumers – whose spending is 70 per cent of the nation’s economic activity – are holding back? Deficit hawks, meanwhile, want to raise taxes and reduce public spending but have no idea how to do this without bringing on another recession as long as private spending remains in the doldrums. And if the economy contracts, the government debt only worsens in proportion. Markets are already spooked by next January’s “fiscal cliff”.
Noticeably absent from this interminable debate is the damage to the economy from America’s increasingly concentrated income and wealth at the very top. Mr Obama alluded to this Thursday night when he said the “basic bargain” that once rewarded hard work and gave everyone a fair shot had come undone. But, notably, he did not say, as he did last December 6, in Osawatomie, Kansas, that that basic bargain had eroded because “fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success” while “those at the top grew wealthier from their incomes and investments than ever before.”
Neither Keynesian pump-priming nor any other remedy is likely to work if the vast middle class doesn’t have enough income to keep the economy going. As Mr Obama said last December, “this kind of inequality – a level we haven’t seen since the Great Depression – hurts us all” because “middle class families can no longer afford to buy the goods and services that businesses are selling.” He noted then that “countries with less inequality tend to have stronger and steadier economic growth over the long run”.
But Thursday night in Charlotte, the President made no mention of inequality. Perhaps he and his advisors thought the topic too provocative to raise nine weeks before Election Day. That may be the case. But if he’s reelected, Mr Obama will have to tackle the problem head on if the United States is to return to the robust growth it once enjoyed — when the “basic bargain” linking wages and productivity was still at the core of the American economy.