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The Gang of Eight Bill: Bad for the Middle Class, and the Economy?


In an interesting blog post, Mickey Kaus yesterday outlined three possible responses to challenges faced by so-called low-skill workers and how these challenges might be exacerbated by the Gang of Eight bill:

1. “Cato, the Club for Growth, the Wall Street Journal editorial page,”  Grover Norquist, etc, value markets and dynamism. If society overall gets richer, they don’t much care how it is distributed or whether it creates nasty social divisions (not just rich vs. poor, but skilled vs. unskilled, smart vs. not-smart, lucky vs. unlucky).  Those divisions may even create a powerful incentive to acquire valuable skills ( if you can).

2. Obama and the Democrats don’t like the distributional and social effects of open borders, but plan to handle them with a bigger web of government income transfers, social provision of benefits, training, and counseling (the  cost of which is what Heritage is estimating), and by spreading unionism in the private sector. Also they need Latino votes.

3. Amnesty opponents (NumbersUSA, Frum, National Review)–the “bitter enders” : Would like to avoid the problem, perhaps at some cost to GDP, through the simple, traditional expedient of enforcing a border. That would tighten up the labor market at the bottom and give basic workers now in this country a shot at a middling income without relying on a more elaborate web of government transfers and services.

Will all due respect to Kaus (who himself chooses Option No. 3), there might be a fourth response, one that incorporates aspects of 1 and 3. Over the past decade or so, the working and middle classes have been hollowed out, struggling with diminished wages, depressed opportunity, and increased expenses (especially in the health-care sector). Perhaps it is no coincidence that, along with the decline of the economic middle, there has grown an increasingly complex web of government services and also a dismal fall-off in GDP growth. Real GDP per capita increased only 7 percent between 2001 and 2011; between 1990 and 2000, it increased by over 23 percent. While the Great Recession has influenced that number, it is not the only explanation for that diminished growth. The average annual real GDP growth per capita during the economic expansion of 2001–2007 was a little over half the average annual growth of the 1990s.

Due to the complexity of economic feedback loops, assigning causality can be a challenging task. Still, it perhaps is at least somewhat plausible that the stagnation of the middle has caused significant drag on the national economy as a whole. (And to those readers who see the growing web of government services as the primary source of this drag: A declining middle makes it much more likely that government services will be radically expanded.) If that is the case, there might not be such a trade-off between gains for the economic middle and gains for the economy as a whole, and a policy that harms the interests, incomes, and opportunities of the middle and working classes in the name of greater economic growth might end up being a self-defeating enterprise. So Kaus’s Option No. 1 (which prioritizes growth) can be synthesized with No. 3 (which prioritizes a tighter labor market to secure higher pay for workers). Strengthening the incomes of the middle class might go hand-in-hand with prioritizing economic growth.

And even those who are disciples of free-market growth at all cost might also acknowledge that the Gang of Eight bill is far from a paragon of laissez-faire principles. As Yuval Levin and Byron York have explained, the Gang of Eight’s bill is larded with anti-market provisions. It creates a new government bureaucracy to manage the employment and wages of guest workers and to assess the hiring needs of the nation as a whole. It is full of special set-asides. It could create a two-tier labor market. Such central-planning provisions would seem to run offend supporters of a fluid free market.

Skeptics of the Gang of Eight’s bill’s effects on the bottom 90 percent of Americans might not just have moral, political, fiscal, and social arguments against this bill; they might have an economic one, too.