Gordon: What presidential candidates miss about the economy

WASHINGTON – Stagnant pay and a shrinking middle class — a focus of a new book by Robert Gordon, a Northwestern University economist — are among the key issues fueling the insurgent presidential campaigns of Donald Trump and Bernie Sanders.

But Gordon’s answers to those problems couldn’t be more different from theirs.

Gordon proposes fixes for the U.S. economy that mix liberal and conservative solutions. He supports a higher minimum wage, for example, and the deregulation of labour markets. He’s dismissive of Trump’s call to restrict immigration.

Yet he doesn’t believe that more government spending is needed to fuel innovation, a cornerstone of Hillary Clinton’s platform.

Gordon’s book, “The Rise and Fall of American Growth,” argues that a slowdown in innovation since 1970 has hampered growth in productivity. That means that U.S. workers aren’t becoming more efficient as fast as they did in the past. And that, in turn, means that pay is likely to remain sluggish.

Gordon discussed his proposed solutions in an interview, which has been edited for length and clarity:


Q. We’re seeing voter anger and a rise of outsider candidates in the current presidential election. Do you see the slowdowns in growth and innovation as a reason for these developments?

A. Yes, indeed. I think there’s extremely justifiable frustration at the wage stagnation, which is a byproduct of both slow productivity growth and the rising inequality — the fact that much of the income growth is being enjoyed by people at the top.

There are 10 policy recommendations at the end of my book. Some of them have bipartisan support, (such as) increasing the earned income tax credit, which appeals to Democrats because it helps poor people. And it appeals to Republicans because it provides an incentive for poor people to go to work.

There are other recommendations that come right out of the Republican play book. For instance, ending what are called tax expenditures — the deductions and exemptions that all so often go to the upper-income groups. No more articulate spokesman for getting rid of these loopholes is Harvard’s Martin Feldstein, who was the head of Reagan’s Council of Economic Advisers.

Another recommendation that appeals to conservatives is to get rid of onerous regulations, the ridiculous red tape that requires unnecessary training to enter various occupations.

Or the barriers to real estate development that are so evident in places like San Francisco and New York that drive up the price of housing.

But there is plenty on my plate for the Democrats as well, starting with the direct confrontation of inequality. The most important single federal government initiative is moving to copy other countries that have universal pre-school, often not just for 4-year olds but for 3-year olds. So there is a lot for both sides of the political aisle to grapple with for the existential problems we face.


Q. What about more spending on basic research and infrastructure?

A. We have a uniquely effective venture capital industry that stands ready to throw money at almost any promising new idea. That’s why I don’t see the government needing to shovel money into the innovation process or into technological change. Indeed, some of the early development of the Internet was sponsored by the Defence Department. But now, I think our invention process is self-sustaining on its own.


Q. Do you think most people intuitively understand the phenomenon that you see, or do you think this will require massive adjustment?

A. What I find unfortunate is the tendency of voters to blame the government for both the rise in inequality and the slow productivity growth, when my diagnosis is that it emanates from decisions in the private sector.

You can’t blame the government if the opportunities for invention just aren’t there the way they used to be 10 or 20 or 50 years ago.

And the same goes with inequality. We’re not going to prohibit people from inventing Facebook and becoming a super multibillionaire or inventing Microsoft. That would be totally non-productive.

But we can use policies that essentially force the winners of the technological race to share some of the benefits that they have received from society in the form of these super high incomes and stock market valuations. Share them with the rest of the economy though a top bracket, higher tax rate for millionaires and people making more than $10 million.

My policy recommendations are a mix of Bernie Sanders for taxes, with Martin Feldstein, a Republican at Harvard, for getting rid of tax loopholes, with the American Enterprise Institute, a conservative think-tank , for getting rid of restrictive regulations.