Presented to the Executive Education Programs for Senior Executive Fellows and Emerging Leaders
Dean Douglas Elmendorf
November 7, 2017
In many respects, the United States seems to be doing very well. Unemployment is barely above 4 percent, inflation remains quite low, and national output and income have been growing fairly steadily for 8 years. Serious crime in this country is near its lowest level in decades. We face some significant international security threats but are nearly safe from foreign attacks within our borders. Looking at these indicators of well-being from afar, one might predict that Americans would generally feel pretty good.
Yet, that seems not to be the case for many people. Many Americans are frustrated about their lives, disappointed in their country, and angry at their leaders. They were frustrated, disappointed, and angry enough during last year’s presidential campaign to turn away in large numbers from traditional public leaders toward Bernie Sanders and Donald Trump in the primaries and then toward Donald Trump in the general election. These Americans rejected the political establishment and criticized people they viewed as elite for being out of touch and self-serving. They showed a profound lack of confidence in the American economic and political system.
In my view, the most important priority for our elected leaders today is to restore the trust of millions of Americans whose lack of trust has become so clear. Those people’s unhappiness with our system has arisen from a combination of economic, social, and political factors, and a combination of remedies will be required to address those factors. Let me begin by highlighting three sources of unhappiness that seem especially important, and then I will turn to some remedies that I think we should pursue.
The first challenge to people’s confidence in the American system is that living standards for many lower- and middle-income Americans have improved only slightly during the past few decades. Official statistics understate the true increases in people’s incomes because of various measurement problems, but incomes of people across most of the distribution appear to have increased fairly little during the past few decades and certainly have increased much less than incomes of people at the top of the distribution. Moreover, underlying economic forces will make these problems worse over time. For example, there are roughly 3½ million drivers of taxis, buses, and delivery vehicles in this country. Many of those drivers are men without college degrees, and many are earning enough to put them in the middle class. But the rise of autonomous vehicles will probably cut the number of those jobs substantially over the next few decades. Similarly, the number of manufacturing jobs will not rebound to any great extent, regardless of our policies on international trade, because the primary cause of the decline in those jobs has been technological advances in manufacturing. As a result of these and other forces, there will be further downward pressure on compensation for less-skilled people.
We can see the consequences of a lack of economic opportunity for many Americans in other measures as well. The labor force participation rate for men without college degrees has fallen sharply relative to the participation rate for men with college degrees. Long-lasting trends in life expectancy have diverged sharply by education level during the past few decades. We now have a frightening surge of deaths from opioid use. And more.
A second factor that has weakened confidence in the American system for some people is rapid social change. For example, people born outside the United States now represent a larger share of the population than at any time in roughly a hundred years. For myself and for many Americans, immigrants bring a wonderful diversity of cultures, languages, foods, and more that greatly enrich our society. But we should not be surprised that, for some Americans, the changes are jarring. As another example, some communities have been devastated by a loss of jobs stemming from technological change and a surge in imports from some countries. The loss of those previously vibrant communities has not only an economic cost but also a profound social cost. As a third example, women, members of racial and ethnic minorities, and others who previously had been pushed to the edges of our society are now moving toward their rightful places in the middle of society. Those changes are long overdue, and we must firmly and unambiguously reject any attempts to reverse them. But we should not be surprised that people who are not in those groups want their concerns still to be recognized as well.
A third factor that has reduced confidence in the American system is a decline in the effectiveness of our political process. Our political system is designed to distribute power among people with different perspectives—and therefore to require civil discourse and compromise. But too many of our elected leaders are demonizing their opponents and accusing them of advancing views that are not just misguided but are threatening to the essence of our society, and too many leaders are refusing to compromise with each other. Some rhetoric and behavior of that sort has always been present, but we have seen much more in recent years than in the preceding decades. Vitriolic rhetoric may offer short-term tactical advantages, but it is damaging to our system in the long term by stoking fear and anger and by discouraging compromise: Compromising with someone you disagree with seems reasonable, while compromising with someone who you claim wants to ruin the country does not.
Moreover, our political system depends on more than our elected leaders—it depends on many norms and institutions. Our system depends on a free and vigorous press, an independent judiciary, facts and evidence, effective administration of government programs, engaged citizens participating in public life, and more. Too many of our elected leaders are attacking those norms and institutions for short-term tactical advantage, and in the process are causing long-term damage.
Because of those three factors and others, too many Americans have lost confidence in our economic and political system. What can our elected leaders do to restore that confidence? Let me offer four recommendations.
First, we should empower people to get, and hold onto, well-paying jobs. One part of achieving this goal is to increase public investment in education and training for people who do not have good access to education and training today. When the development of new tools and techniques in farming put agricultural employment on a downward trend in this country, we moved toward universal high school education. Now that manufacturing employment has fallen to less than 10 percent of total employment, and jobs for less-skilled people in the services sector are under pressure, we should help people who are not receiving good education and training today to get what they need: That means more preschool education, more support for primary and secondary education in low-income areas, more slots at community colleges, and more mid-career training.
Another part of empowering people to hold down well-paying jobs is to put greater emphasis on buffering the adverse effects of international trade on some people’s incomes. Economists have known for a long time that greater trade generally raises a country’s average standard of living; we have also known for a long time that greater trade hurts some people’s standard of living. That second effect may or may not seem important if different people are being hurt at different times and if everyone’s income is rising briskly for other reasons. But it is surely important if the same people are being hurt over and over, and if those people’s incomes are also being depressed by technological change. That is what has been happening to many less-educated workers in this country. Therefore, as we set trade policies, we should make those policies good not only for the country as a whole but also for lower- and middle-income workers. That means giving more support for mid-career retraining, providing greater transition assistance of other sorts, and possible slowing changes in trade that would help the country as a whole but be hard on people whose economic and social circumstances are already shaky.
My second recommendation for restoring confidence in the American system is to focus government tax and spending policies on helping lower-and middle-income people. We can do that partly by maintaining the current scale of federal benefits for those people. I am not arguing that safety net programs are perfect as they stand; we can and should make changes to improve them. However, we should not pretend that those changes could reduce government spending significantly without hurting the people affected. It is true that cutting benefits would probably increase work by the recipients, but the evidence suggests that the increases would generally be small. We have both direct and indirect evidence of this point. As one piece of indirect evidence, I will note that the labor force participation rate of prime-age workers is lower in the United States than in many other developed countries, despite those other countries’ more expansive safety nets. Moreover, there is a growing body of evidence that children in lower-income families that receive certain government benefits do better in the labor market when they grow up than children in families that do not receive those benefits.
We can also focus government budget policies on lower- and middle-income people by strengthening federal investment in infrastructure. Under the current caps on annual appropriations, federal investment in infrastructure—such as highways, mass transit, and water treatment facilities—will soon be smaller as a percentage of GDP than at any time in at least 50 years. That is not forward-looking, growth-oriented policy. Just maintaining the traditional amount of investment relative to the size of the economy would require a substantial increase in the caps. Moreover, we should increase federal investment relative to its traditional amount, because interest rates are very low and will probably stay below their historical average for an extended period. Public infrastructure is especially important for the well-being of lower- and middle-income people because they are less able to use private substitutes for public services, whereas higher-income people can use private cars when mass transit is poor, they often have more flexible work schedules and can arrange for more deliveries when roads are congested, and they can buy private water when public water is unhealthy. So, poor infrastructure tends to divide well-off and less-well-off Americans, while good infrastructure brings us together.
We should further ensure that budget policies help lower- and middle-income people by rejecting approaches to tax reform whose benefits would flow primarily to higher-income people. The tax bills that are now being developed in the House and Senate fail this test.
My third recommendation for restoring confidence in the American system is to have elected officials—and all of us as citizens—respect and support the vital institutions of our political system. One such institution is a free and vigorous press. Elected officials often have complicated relationships with the press, tending to celebrate news coverage when it is favorable and to complain about unfairness when it is not. But elected officials should try to step back from their immediate interest. We too, as citizens, should try to learn from news reports we do not like.
Another critical institution is the court system. Again, elected officials tend to praise the wisdom of the courts when verdicts are helpful and to criticize the courts when verdicts are unhelpful. But all officials should, all of the time, respect the courts’ right—indeed, responsibility—to judge the legality of actions by elected officials and others. As citizens, all of us should show that same respect.
Other critical institutions are our federal, state, and local governments. Too often, elected officials and citizens show disdain for government employees like you and the work you do, without providing sufficient resources or flexibility for you to work more effectively. We need to demand high performance from our governments; make the structural changes needed to achieve that performance, such as reforming the federal Civil Service; and give high-performing government workers the respect and support you deserve. Addressing these nuts-and-bolts issues of governance is less glamorous than developing grand strategies, but no less important to rebuilding citizens’ confidence. Thomas Edison once said “Vision without execution is hallucination”; at all levels of government, we need better execution and less hallucination.
My fourth recommendation for rebuilding trust in our system is to build bridges between people of different race, gender, political views, religion, national origin, urban or rural lifestyle, coastal or midwest location, socioeconomic status, and other characteristics. We see every day at the Kennedy School that such inclusiveness is crucial to our ability to improve public policy and leadership. For example, one of my colleagues pointed out to me that, in our international development program, our students are taught by “three Americans, a Turk, a Pakistani, two Venezuelans, an Indian, a Brit, a Canadian, a Greek, a Cuban, and a Brazilian.” That diversity of background is a source of immense strength at the Kennedy School. We believe that inclusiveness is also crucial to the ability of societies to help make better lives for their people. The original national motto in the United States was E pluribus unum—“out of many, one”—and although the original focus of that motto was a union of states, we should interpret it today as a union of people and we should make it our goal.
I do not mean that we should all be alike or think alike. There is a wide range of perspectives and opinions in this country, and we cannot wish away those differences or expect them to disappear. What we can and should do is to listen to each other better, try harder to understand each other, treat each other with respect and civility, and find more ways to solve problems together despite our disagreements. Those are important attributes of a society, and too many of us are not good enough at that now. As one important example, liberals and conservatives tend to get their news from different sources, live in different counties, and prefer that their children not marry someone of the other political persuasion. Those factors and many others diminish how much we listen to people with different views from our own, which can cause us to forget that other people of good will see the world very differently than we do.
Those four proposals are my basic list for restoring confidence in the U.S. economic and political system. I am curious to hear your reactions to my ideas as well as your own ideas. Thank you.