The idea of economic tradeoffs is strangely difficult to grasp for policymakers and the public alike. Rising home prices are frequently treated as though they were an unmitigated good, which they are — if you already own a home. If you’re looking to buy a home, rising home prices are an expense. But homeowners — older, wealthier, more likely to vote — are politically more powerful than prospective buyers, who are generally younger, less wealthy, and less likely to vote. If you hew to the conventional wisdom that dominates policy thinking at the Fed and elsewhere, a little inflation in the economy, or even more than a little, is an excellent thing, a contributor to growth. Even assuming that that is the case (the contrary view is a distinctly minority inclination), inflation still imposes real costs on consumers.
The question, then, is whose interests are being served by current policies?
The so-called core Consumer Price Index, which excludes from its calculations a number of factors more prone to showing the effects of inflation, rose last month more quickly than it has since 2011; the general Consumer Price Index is up twice what economists had expected; the Meat, Poultry, Fish, and Eggs Index — a.k.a. your grocery bill — is at a record high. It could be the case that this inflation is associated with economic-stimulation policies that encourage growth and thereby leaves most people better off, but that does not seem to be the case at the moment. The economy did not register strong growth in the first quarter — in fact, it contracted by 1 percent. The growth that drives real prosperity is in retreat.
That being the case, it is no surprise that while workers’ wages are up on average about 49 cents per hour over the last year, that increase has been more than matched by inflation, with the result that workers’ real wages — that is, wages adjusted for inflation — are lower today than they were one year ago.
Shrinking economy, declining real wages, big grocery bills — you do not have to be a raging populist to register the fact that whatever Washington is doing vis-à-vis the economy, it is not working for the average American household. On the other hand, the S&P 500 is up about 18 percent in the past year; corporate profits, though trending lower in the last quarter, remain strong; it’s not a great time to be a recent college graduate, but recent graduates’ unemployment still is about half that of young workers as a whole, meaning that non-graduates are taking an absolute beating in the job market.
Public policy is only one factor in economic performance; public policies that change from president to president or from Congress to Congress are an even smaller factor. Destructive policies, such as the ones that contributed to the housing bubble and subsequent financial crisis, or the ones that encourage businesses to park their profits in overseas jurisdictions, tend to change relatively little from administration to administration. Perversely, voters do not generally support radical changes in those policies, even though their negative effects cost them dearly. Ask President Romney how voters feel about major changes in those policies.
But policy is not the only factor shaping economic performance. As the economist Tyler Cowen argues in Average Is Over, economic realities ranging from globalization to increasingly effective automation — his “genius machines” — ensure that while the technologically sophisticated and highly skilled elites will continue to thrive, living better than they ever have, things look rather grim for everybody else.
The factors that Professor Cowen considers are not especially responsive to policy. We are neither truly able to nor inclined to legislate away technological progress in our own economy or the development of competitive productive capacities in the rest of the world’s economies. The antiglobalism of the Occupy Left and the economic nationalism of the Buchananite Right are nothing more than a will-o’-the-wisp, exercises in sentimentality and wishful thinking.
But what policymakers can and should do is to work to take into consideration those new developments — to accommodate reality, in other words. Not everybody is going to be a technology entrepreneur or a financier — nor does everybody desire to be — but, at the same time, machinists are in short supply. And though they may work long hours at demanding work, machinists can do quite well, earning above-average incomes that occasionally stretch into the low six-figure range. Those working in relatively specialized areas of highly productive firms such as Boeing enjoy very comfortable incomes. The same is true for a great many other occupations that do not require a college degree, and yet our policymakers still treat the four-year degree as the benchmark of performance. High schools are evaluated in part by what share of their graduates go on to college — never mind if they complete college, and never mind (never even ask!) if they learned anything useful in high school.
Technology is changing the way we educate, but our policymakers resist those changes rather than making use of them. While California’s union-goon teachers are fighting like rabid badgers to defend the medieval institution of tenure and seniority rules built on a 19th-century model, Starbucks is helping its baristas pay tuition at Arizona State University’s innovative online bachelor’s degree program. One of those business models has a future — and one does not.
Similarly, there is a reason that U.S. pharmaceutical giants keep trying to acquire competitors in order to change their legal domiciles to Ireland, home to seven of the world’s ten largest pharmaceutical companies. There is a reason for that, and it isn’t the cuisine, the climate, or jolly shamrocks. If your response to that is sitting on your butt and complaining about “greed,” you aren’t taking things seriously. True, all good populists hate global pharmaceutical conglomerates — until they get sick. Try having Barack Obama give a speech at your rheumatoid arthritis and see how that works out for you.
Even the most committed partisans of the government-stimulus model of economic policy understand that such policies are at most a short-term fix. Long-term growth comes from investment. Sometimes that’s in the form of factories, sometimes that’s in the form of research-and-development projects, and sometimes that’s in the form of improving the skills and productivity of workers. For the Left, the story of capitalism begins with the Triangle Shirtwaist fire and ends with the Fair Labor Standards Act. The Democrats are committed to a 1930s model of government and a model of education that would be familiar to Bismarck. In 2012, Barack Obama’s big economic idea was Teddy Roosevelt’s “New Nationalism,” a 1910 vintage that was a generation behind the times even a century ago. Republicans are sometimes accused of wanting to take the country back to the 1950s. Even if that were true — and it’s not — running against the 19th century should not be too terribly difficult.
Herbert Hoover promised a “chicken in every pot” in 1928. Eighty-odd years later and we have record-setting chicken prices. This isn’t working.
— Kevin D. Williamson is National Review’s roving correspondent and the author of The End Is Near and It’s Going to Be Awesome.