The outcomes of the presidential primaries held so far are unlikely to calm either financial markets jittery about US growth prospects or the economic anxiety expressed by millions of Americans. Indeed, the economic plans from some of the candidates should make us all nervous. Discussing an economic plan that works would be a big step forward.
In the GOP race, Donald Trump has tapped into two rich veins of legitimate voter concern: Can America resume growth in living standards with broadly shared prosperity? And can mainstream politicians answer this question? The heated rhetoric seems to suggest the answers are “no.’’ The Democratic race also offers little cause for cheer. Democratic Senator Bernie Sanders’ agenda represents legitimate frustration with mainstream Washington’s lack of attention to concerns of middle-income Americans, but his solution is an implausible European welfare state.
But expressing or channeling anger is not the same as solving problems. That requires a different kind of leadership and an economic plan to match. Two underlying currents reinforce the importance of choosing candidates best able to address economic challenges and opportunities as president.
First, the nation’s challenges and opportunities are large. The United States is on an economic path to be a past-oriented economy, since federal debt service and entitlement spending will increasingly dominate the budget, crowding out investment in defense, infrastructure, research, and education and training. These budget choices are exacerbated by policies that have weakened economic growth. The best thing to do to raise average incomes is to increase future long-term growth.
Second, the objective of frustrated voters to ‘‘send a message’’ to mainstream politicians will result in further frustration and economic harm to those very voters. Policy default positions are stuck in the wrong place and require strong presidential leadership to reset. Social Security, Medicare, and Medicaid are badly in need of structural reform to improve their longevity, but the programs are on a default course of budget shortfalls and benefit cuts. The Affordable Care Act, without repair or repeal, is on a default course of higher spending and subpar choices for middle-income Americans. Changing possibilities for growth requires policy changes in the tax code, financial and product market regulation, and in opening up global markets for American businesses and workers. The defaults, without presidential leadership, are firmly stuck in no-reform gear. And the losses from these stuck policy gears are unevenly shared. The slow recovery has harmed the incomes and opportunities of lower- and middle-income Americans particularly.
These points — that the economy’s stakes are high and the default positions are actually stacked against economically anxious voters — sound like a diagnosis for an incurable disease. And some plans would hasten and deepen problems. Trump’s proposals against trade and immigration would reduce GDP growth and incomes. And the larger deficits and debt levels his tax and entitlement plans portend would lead to higher taxes, again limiting growth. The burden of this slower growth will fall disproportionately on low- and middle-income households, as it has the past several years.
But, rhetoric aside, the economy is not facing an incurable disease. A change in leadership toward support for a future-oriented economy can reset the dials. It requires an economic plan that emphasizes opportunity, foundations for individual success, and implementation of “what works.’’
A plan for opportunity includes lifting barriers, not stoking resentment; education reform that increases learning and performance; access to training for job transitions; tax reform that makes work pay and America the place to invest; welfare reform that sees meaningful work, and not dependency, as the end game.
Establishing foundations for success requires a strong national defense and pro-growth policy tilt. Those elements are connected, of course: A robust economy must be secure, and securing the nation and its role in the world requires resources. A pro-growth policy must include reform of the tax code, regulation, and energy policy with raising living standards as the key objective.
Successful economic plans — think the Reagan economic plan or welfare reform — emphasize what works, in contrast to the “wall that Mexico will pay for” and “Medicare for all” slogans of this campaign. We need health care reform and reform of Social Security and Medicare to ensure that these programs work today and in the future. We should return more control to states — both as closer observers of individuals’ needs and as laboratories for experimentation.
The economic stakes are high for this year’s presidential election, and a change in leadership direction is needed to escape policy defaults biased against growth and opportunity. Financial markets and individual anxiety rightly pick up on these bad policy defaults. The way to a future-oriented economy, and a less anxious one, calls for a plan that works — not a sound bite. Voters should start on insisting on one.
Glenn Hubbard is dean of Columbia Business School. He was chairman of the Council of Economic Advisers under President George W. Bush.