For all of its celebrated fog, economics can sometimes bring crystal-like clarity to a policy issue. It did just that in the case of the difference between what conservatives and liberals want as our economic policy.
President Trump’s economic policy elements have remained pretty much the same since his campaign. What was missing was a clear statement of the economic policy elements that will be pursued by his opposition.
Senate Minority Leader Charles Schumer has now filled that gap by providing a list of the primary economic policy goals of his party. Called “A Better Deal for American Workers,” it evokes the middle-class dream that characterized a time when ordinary people, through hard work and playing by the rules, could become home owners, put their kids through college, and retire with financial security.
What is truly remarkable about the statement was that it could easily be mistaken for a conservative campaign brochure. The differences between liberal and conservative economic policies become visible only through the methods and tools to be used.
Senator Schumer provides a convenient summary of the goals: “First, we’re going to increase people’s pay. Second, we’re going to reduce their everyday expenses. And third, we’re going to provide workers with the tools they need for the 21 st-century economy.”
While these economic policy goals are sometimes close enough to be indistinguishable from the conservatives’ views, there is a major difference in how each side plans to achieve them. The plan to increase people’s pay, for example, in the Schumer plan, would be achieved by mandating an increase in the minimum wage.
Reducing workers’ expenses would focus on drug prices and achieve its reductions by a larger federal footprint on the marketplace with regulations against price gouging and empowering Medicare as price negotiator.
Providing workers with the tools they need turns out to be a federally subsidized training program built around a tax subsidy for firms who train workers to fill existing jobs in their businesses.
One important factor not addressed by Senator Schumer’s “Better Deal for Workers” is our anemic economic growth rate. The growth rate is the engine that delivers economic opportunities and unless we can improve it all the plans to improve wages and restore the middle class, whether conservative or liberal, Republican or Democrat, will come to naught.
President Trump believes that rebuilding American manufacturing, rebalancing our trade agreements, and reforming the tax code will deliver a 3 percent economic growth rate. One group of economists think that this number is a ‘pipe dream’ and that we’d better be satisfied with 2 percent because that’s the new normal.
Another group, analyzing the president’s plan, believes that it can, in fact, deliver 3 percent.
Which side is correct? There are risks and rewards to both plans. A mandated increase in the minimum wage, for example, will raise incomes for some workers, but lowers the demand for labor. That will mean a rise in the number of people without jobs, which, in turn, will raise taxes to pay for unemployment benefits and, if necessary, welfare payments. Rising taxes will lower the economic growth rate, almost certainly, and the higher wage level will likely increase investment in labor-saving equipment, and that will have significant long-term effects on jobs and employment levels.
The conservative plan to raise incomes is less direct. It would lower income tax rates both for the middle class and for the upper income class who provide the funds for investment.
The increased consumer demand and investment will boost economic growth and personal incomes for all.
In a similar fashion, an analysis of the president’s plan of rebuilding our domestic manufacturing industry reveals the risk of raising prices for consumer goods because of increased labor and material costs. This downside risk will be offset by
an increase in personal income, but whether the net effect will be positive or not remains a question.
There are some non-monetary effects too, such as increased national security, but these are difficult to fit into the equations of economics.
Since the economic goals are similar, what the Schumer plan has done for these economic policy questions is to clarify matters by removing the economics and presenting voters with a choice between two different political systems.
The liberal plan, as summarized by Sen. Schumer, would achieve its goals through the surety of a larger federal footprint in the economy, more government control and regulation, and, quite likely, higher taxes to pay for it. With a smaller government footprint, the conservative plan relies on the uncertainty of the free market effects of lower taxes to produce greater investment and increased incomes.
That will be the choice, and it’s an important one. The choice of an economic system always is.