Friday, October 7, 2016

Robert Rubin on long run growth

 October 5 at 7:41 PM
Robert E. Rubin, co-chair of the Council on Foreign Relations, was U.S. treasury secretary from 1995 to 1999.
The progress our economy has made since the financial crisis is real. So, too, is the sense that our country is adrift. Faith in institutions is eroding. Income inequality, job insecurity and sluggish wage growth — even with 2015’s improved performance — are fraying our social fabric. Technological development and, to a lesser extent, globalization contribute to productivity and growth but also put pressure on wages and jobs. The poverty rate is unconscionably high. Many feel that the American promise of hard work leading to a better life is out of reach.
The United States, however, still holds the world’s best long-run hand. The question is how we play our cards. We need a policy regime that effectively promotes growth, widespread income gains and greater economic security in the context of an economy undergoing transformation. These three objectives are interdependent and mutually reinforcing and, taken together, constitute one overarching goal: inclusive growth, which could, in turn, restore a sense of common purpose, confidence in our future and much-needed social cohesion.
An inclusive growth agenda would address three broad categories of challenges: first, public investment; second, structural reform and innovation; and, finally, our intermediate and longer-term fiscal outlook.
Public investment should begin with overdue action on infrastructure, including addressing deferred maintenance estimated at more than a trillion dollars. Repairing and expanding bridges, railways, airports and ports would create jobs immediately, tighten labor markets to improve wages and increase the productivity and capacity of our economy for years to come. Economic success also requires increased funding for basic and applied research, broadened access to high-speed Internet and other targeted investments in our future.
Next, we need structural reform in many critical areas, often in conjunction with public investment. Twenty percent of our children live in poverty — that’s a moral disgrace and highly counterproductive economically. Breaking the intergenerational cycle of poverty through early family intervention, transitional public employment to provide jobs and workforce readiness, and other policy interventions could significantly reduce social costs and increase long-run productivity.
Likewise, our nation’s criminal-justice policies fail us morally and harm us economically. Alternatives to incarceration for many nonviolent crimes, shorter sentences, better rehabilitation in prison and vastly improved re-entry programs could produce great direct cost savings, including from reduced recidivism, and substantial productivity gains from better equipping released prisoners for the workforce.
Reform should also include immigration measures that provide a fair path to citizenship and recognize the immense contribution of both high- and low-skilled immigrants. We also need to level the playing field for workers to opt for collective bargaining; apply a sensible balance of costs and benefits to regulation; address climate change; improve K-12 education; and develop innovative measures to address ongoing wage and job pressure from transformative technological development. Those measures might include public employment, free or low-cost lifelong learning, effective retraining and a substantially expanded earned-income tax credit.
Finally, to achieve inclusive growth, we must address our unsound and economically harmful intermediate and longer-term projected fiscal conditions. Our current trajectory is likely to increasingly undermine business confidence, both by creating uncertainty about future policy and by exacerbating concerns about Washington’s ability to govern. And it diminishes our resilience in the face of another economic or geopolitical crisis; reduces our capacity to fund public investment and national security; crowds out private investment when it recovers; and, at some future point, could trigger financial market or economic destabilization. To a certain extent, some of these risks are already materializing.
A constructive fiscal regime would pair immediate public investment to boost current demand and future productivity with measures to effectively address our longer-term trajectory. That would require increased revenue, which should be raised progressively, and putting our social insurance and federal health-care programs on sustainable financial footing. We should also rigorously scrutinize both the defense and nondefense sides of the budget to improve programmatic efficiency and relevance. The longer we wait to address these challenges, the greater the effects and the harsher the measures that will be required.
But the fundamental challenge, upon which all else depends, is reestablishing a willingness among members of Congress to engage in principled compromise across policy and political divides, to make difficult decisions and to focus on facts and analysis, while recognizing that politics will always be involved. If they do this, we can achieve broadly shared economic success. If they do not, we languish.
For too long, we have been caught in a vicious cycle: Failure to achieve inclusive growth has undermined the public trust and Congress’s commitment to governing that, in turn, is necessary to achieve inclusive growth. If we act on the policies that promote inclusive growth, we could restore support for governance and initiate a virtuous cycle, spurring further constructive policy. All of us can contribute to this positive outcome, even when we have very different policy views, by using all means available, from emails and social media to campaign contributions, to insist that our elected officials engage in making our system work.
Inclusive growth offers an economic vision that reflects and reinforces our country’s broad values. The policies exist to achieve it. Now it’s up to us to make it happen.

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