POLITICO – 2016 Elections: It's Time for Candidates to Get Serious About the Economy

Glenn Hubbard op-ed in Politico MagazineOur economic debate is stuck in the 1950s.

The recent GOP debate drove home a big point: From an economic perspective, elections have consequences. The policy climate helps shape the current outlook, the path of economic possibilities, and the distribution of the fruits of that outlook and those possibilities. This is no abstract point: New figures from the Commerce Department out Thursday showed that economic growth continues to falter, a full seven years after the crash of 2008. The 2016 election debate, now so consumed by bluster and fringe ideas in both parties, needs to pivot to a discussion of growth to propel the nation to a bright economic future over the next generation. Instead of a policy discussion on a path to the 2050s, we are stuck in a debate about a return to the 1950s — preserving union jobs for some, generating less competition in business for others and failing to modernize Social Security and Medicare.

The situation calls to mind a joke from a few years ago: “Republicans want to go back and live in the 1950s. Democrats want to go back and work there.” In this unusual primary season, the partisan lines in the joke are blurred, but the nostalgia is featured in the themes of front-runners in both parties. This is unhelpful: Economic policy, now as always, must look forward — it must be about the future, not the past. One element of the 1950s makes sense for the present debate but is largely absent from it: growth.

Growth matters. Advisers to former Secretary of State Hillary Clinton tell us that America’s pace of economic growth is consigned to be slow, a “secular stagnation” with an advance of no more than 2 percent per year. Some pessimists even see the possibility of 1 percent growth. Thus far, Clinton is running on a policy mix to match that sluggish growth. Her tax, regulatory and spending proposals are unlikely to increase productivity, work opportunities or aggregate demand. And her leading primary opponent promises democratic socialism, with a European growth rate and fiscal outlook ahead.

But we can do better, in fact and in debate. Better tax and regulatory policy — fundamental tax reform and a shift to cost-benefit analysis in regulation — can increase the rate of growth to 3 percent per annum, and the embrace of further trade liberalization and a smart immigration policy that makes the United States a magnet for global skilled capital only solidifies this upside. And the difference matters. By 2035, a 3 percent economy has incomes 21 percent larger than a 2 percent economy (and 48 percent larger than a 1 percent economy over that period); by 2055, it is 48 percent larger than a 2 percent economy (and 119 percent larger than a 1 percent economy by that date). This possibility of faster growth and what it would take to achieve it deserves center stage in a debate over domestic policy. But it’s mentioned rarely even among Republican candidates.

Former Florida Gov. Jeb Bush in particular has pushed this discussion forward with serious ideas to reform business and individual taxation; modernize Social Security, Medicare and Medicaid; use economic tools for smarter regulation; and bring market-based principles to the health care reform opportunities that the Affordable Care Act failed to address. He would also use tax reform to enhance opportunities for work for low-income workers, secondary earners and seniors. Ohio Gov. John Kasich wisely reminds voters that the nation’s long-term fiscal challenges remain great. Florida Sen. Marco Rubio’s tax plan has pro-growth elements, though it would sacrifice some punch by using higher marginal tax rates to fund expanded tax credits. Donald Trump’s economic plans — on trade and immigration and with an obvious lack of grasp of fiscal challenges — have strong anti-growth policy elements. Retired neurosurgeon Ben Carson’s economic statements are either incoherent or deeply flawed (e.g., a 10 percent flat tax to pay for a federal government vastly larger).

Prospects for economic opportunity are also enhanced by growth. This link reflects both economic and political factors. From an economic perspective, a more innovative, higher-growth economy offers more opportunity to create a business, invest and hire workers, advance in a job, and participate in the gains of new and better goods and services. From a political perspective, faster growth reduces the potential backlash of nativism and zero-sum policy that slow growth often engenders, as Harvard professor Benjamin Friedman argued so clearly in an important 2005 book, “The Moral Consequences of Economic Growth.”

Accessing faster growth and better opportunity requires a shift in economic policy both from the short-term focus of the past several years and the slow-growth fatalism of the left. The past several years have witnessed a policy of repeated “stimulus.” The Obama administration famously focused on “targeted, timely, and temporary” policy actions instead of responding to the major shock of the financial crisis with policies that could change expectations about the economic future to reignite investment and job creation. We still have the need and opportunity to focus on structural changes that would both raise long-term growth expectations and improve near-term performance. Tax reform centered on reduced marginal tax rates on business income and work offers potent medicine, as does regulatory reform that limits negative consequences of regulation on investment, productivity and employment.

Improving opportunity requires a serious rethink and longer-term orientation of policy, too. As a nation, we need to strengthen our investment in basic research and practical training. Many jobs today were not imagined a generation ago; the same can be said for many firms creating those jobs. And we must improve the structure of primary and secondary education to advance the knowledge and skills needed for work in and citizenship in the contemporary society in which we live. Tax code changes — to the income tax, Social Security payroll tax, Affordable Care Act subsidies and the earned income tax credit — can offer strong support for and reward work. And a strong social safety net can cushion the buffeting from economic change for many Americans.

This shift in expectations is the antidote both to the statist vision of the Democratic left and the incoherent policy know-nothingism of some GOP candidates. “Make America great again” is a bumper sticker. A serious policy alternative to slow-growth sclerosis starts with real policy reforms that advance productivity in the service of faster growth, higher wages and greater opportunity.

While, again, history does not give us the chance to live or work in the 1950s, the loss is small for most of us. For most of us, today’s incomes, goods and services at today’s prices is a better deal than the 1950s mix. We will not have the same firms or jobs or domestic and global policy challenges to face as the nation did in the 1950s. Supportive policies can support a climate of business innovation, personal job advancement and wage growth, and greater opportunity to work. And America has not lost its economic power: Measured by gross domestic product, growth and the productivity frontier, the nation remains at the forefront of industrial countries. The policy task is to raise incomes and opportunity to fund the nation’s priorities for citizens at home and abroad. Faster economic growth will be needed if we are to fund a strong defense along with domestic priorities.

Economic policy is important, but the crossroads revealed by the primary election debates calls for leadership — the ideas to advance our dreams and goals and the skill to execute those ideas. In an important sense, growth and opportunity are a choice in this election. Whether they win is up to us.

This op-ed appeared in Politico.com on November 1, 2015.

Glenn Hubbard, dean of Columbia Business School, was chairman of the Council of Economic Advisers under President George W. Bush.