On June 6th the Center for American Progress hosted four economic experts for a panel discussing economic security in a modern context. Speaking on the panel were Jared Bernstein of the Economic Policy Institute; Paul Krugman, columnist for the New York Times and professor of economics at Princeton; Gene Sperling, former economic adviser to President Clinton and current senior fellow at the Center; and Louis Uchitelle, economics writer for the New York Times.
Central to the panel’s remarks was the idea that the dynamism of a rapidly globalizing and increasingly competitive economy challenges the American belief in shared prosperity. Sperling said that the United States is a country that doesn’t want a perpetual underclass or a perpetual elite. “A growing middle class allows for the values of this country to flourish.” But according to the participants, most Americans are getting lost in today’s economic landscape.
Bernstein termed the conservative vision of the economy as “You’re On Your Own,” or YOYO. That economic paradigm has lead to individuals taking on an increasing share of financial risks that are relatively low on a societal level. “The Bush administration,” Bernstein said, “is shifting economic risks from corporations and government to individuals and families.” As an alternative model he proposed “We’re In This Together” (WITT), which believes in a role for the federal government in solving large scale economic problems.
The fundamental idea is that economic security on many issues is substantially increased by “risk pooling”, or spreading individual vulnerabilities over a large group by acting collectively, something that a national government is uniquely positioned to do. Krugman pointed out that in healthcare, retirement, and unemployment, individuals are facing gratuitous risk. On aggregate those economic policy areas are more stable compared to the risks individuals face, meaning a societal model would produce a better outcome.
Responding to traditional conservative economics, which holds that decreased exposure to risk reduces individual incentives, Bernstein said, “We cannot accept any of this incentive nonsense at face value. It’s an empirical question and it’s never that simple.” For example, Canada, with its universal health care system, has added manufacturing jobs while that sector had been severely hit in the United States because companies are freed from paying for expensive health insurance.
The effects of YOYO economics have been severe. Job insecurity has become a major issue with real physical and psychological harms to the economy, according to Uchitelle. “We have reversed a long and honorable rise in job security in this country,” he said. “Men and women who have been laid off don’t want to go back into challenging jobs.” The panelists agreed that education and retraining, while important, are far from the only solution. Sperling said that we must have a better employment adjustment system to ease the impact of economic transition. On that issue, according to him, “We are worse than any other developed country.”
The panelists agreed that full employment should be the goal of the economy rather than maximum growth. “All the benefits of growth are going to the top one, the top one-tenth, percent,” said Krugman. More active and intelligent public investment, an improved universal employee adjustment system, greater company accountability for the impact of layoffs, and pro-market policies like the Earned Income Tax credit are potential steps for creating a more progressive economy.
The alternative, according to Sperling, is an economic system that will entrench a permanent elite by eliminating taxes on capital and shifting the tax burden to wage earners whose jobs are increasingly insecure. “A better economic plan would prevent the most privileged Americans from paying lower taxes on their investments than typical families pay on their wages, while encouraging savings and wealth creation for struggling workers.”
