Although they disagree on much, there is one thing on which President Barack Obama and Mitt Romney, the presumptive Republican candidate for president, seem to agree. That is it is time to renew America and the American Dream.
President Obama made his view explicit on his Afghanistan visit when he proclaimed, "Let us... reclaim the American dream that is at the heart of our story." The president called for unleashing innovation and creating new jobs as part of his formula for reclaiming the dream. Later, after the Bureau of Labor Statistics announced that 115,000 jobs were added to the workforce in April, candidate Romney called for the economy to create 500,000 jobs a month and an unemployment rate of 4 percent.
The bottom line for both men is that, in spite of the fact that the economy as measured by GDP has been in recovery mode since mid-2009 and has created 4 and ½ million jobs in that time period, the results to date have been insufficient. That's because what is needed to complete the turnaround of the American economy and the American dream is renewal rather than recovery. Let's look at why.
The paradoxical nature of our current situation is best portrayed by the perspectives of journalist Daniel Gross and economist Paul Krugman. In the cover article for the May 7 issue of Newsweek, Gross comments that the United States has made significant economic progress since the collapse of 2007 and is well-positioned against the rest of the world. Krugman, in contrast, in his new book titled, End This Depression Now, asserts that, while we are not technically in a recession or depression, the economic conditions for many Americans are similar to those experienced in the 1930s.
Who is right? Both -- it all depends where you want to put your focus. Do you want to look at things through a macro-economic or a micro-economic lens. We made this point initially, in our book, Renewing the American Dream: A Citizen's Guide for Restoring Our Competitive Advantage, released in July of 2010.
At that time, we observed, "GDP was never intended to function as an indicator of well-being and GDP is insensitive to the distribution of income within a country." We went on to quote Nobel Prize winning economist, Joseph Stiglitz who said, "No single measure can capture what is going on in a modern society, but the GDP measure fails in critical ways. We need measures that focus on how the typical individual is doing."
That analysis was relevant almost two years ago. It is even more so today. Consider the following.
Many corporations across the industry spectrum have reported record profits over the past several quarters and the United State as a nation is the most productive that it has ever been. Still, there are 5 million fewer workers employed now than prior to the recession. Hours worked remain flat, wages have been stagnant and income inequality is increasing. There is a significant disjuncture between recovery at the macro level and renewal at the individual or micro level.
Laura D'Andrea Tyson, professor and former chairwoman of the Council of Economic Advisors under President Clinton, explained the source of this disjuncture in a recent economix posting for the New York Times titled "Structural Unemployment and Good Jobs" in which she writes, "Despite several quarters of growth in private sector employment, the American economy is still far from full employment. The primary reason is weak aggregate demand, the painful and predictable consequence of a deep balance-sheet recession."
Professor Tyson goes on to note that there is no evidence of a "larger-than-usual mismatch between employer needs and worker skills." But, that there has been a significant decline in middle skill jobs that has been especially harmful "to the earnings and labor force participation of workers without a college degree, especially men."
In an earlier New York Times column, on July 29, 2011, Professor Tyson noted, "Like many economists, I believe that the immediate crisis facing the United States is the jobs deficit, not the budget deficit." Although we are not economists, we agree unreservedly with that assessment.
That's because when it comes to renewing America as opposed to continuing a slow-motion recovery, it's about the econometrics, stupid. It is a matter of straightforward economics and the fundamental laws of supply and demand.
Supply-side economics is fine as an abstract concept. Demand-side economics, however, drives real-world economic growth and positive results for individuals. In America, historically there have been three critical levers that have stimulated demand: a plentiful supply of jobs, decent wages, and a national psychology of upward mobility and opportunity. Those levers are not present today.
More importantly, we are engaged in two national debates that divert our attention from addressing these root causes of our economic problems on the demand side. The one is about our budget deficit. The other is about income inequality.
Some, who have made the budget deficit discussion central to our national dialogue for well over two years now, would have us believe that all we have to do to improve the economy is to curb rampant governmental spending by embracing an austerity agenda. There is no question that we need to bring government spending under control.
There is considerable question as to whether this would do any thing to make the average citizen's economic circumstances better. It might make the rating agencies and the financial industry happier. It might make the expense side of the nation's balance sheet look better.
But, we are not aware of any economic model, however, that predicts improvement in individual economic well being will caused by reducing the nation's deficit and debt problem. Without improvement there and on the revenue side of the balance sheet, it will impossible to restore economic stability for the country and prosperity for its citizens.
We would also argue that the current focus of the discussion on income inequality is misplaced. Many are contending that addressing income equality is a matter of fairness. In our opinion, this frames the issue incorrectly.
There is certainly a fairness concern to income inequality. But, that concern tends to be philosophical and revolves around the type of society and nation we want to be. The pragmatic concern with income inequality is that mal-apportionment of wealth and resources diminishes demand and reduces the tax base.
All of the recent data shows that in the United States today, we have a few have-a-lots, some haves, many more have-a-lot lesses, and many have-nots. The populous in general has less disposable income and far less discretionary income. As long as this condition continues and consumption is constrained, a robust recovery cannot occur and America and the American dream cannot be renewed in a manner that matters.
We are at a pivot point. We need to develop economic measures for the 21st century that examine the connection and build the crosswalk from a nation's overall productivity and output to the Individual Economic Well-being (IEW) of its citizens.
Economists need to continue to study and help us make new inferences and develop insights on the interrelationships between growth in GDP and IEW. Economics does not create jobs or improve the human condition directly. However, data from economic studies can be used by government and business decision makers for that purpose.
We need to realize that it's the econometrics, stupid. If we do not, we will continue to develop, promote and implement policies, plans and programs that are mediocre at best and counter-productive at best in terms of what they do for renewing America and the American dream.