Housing prices rise, stock markets up, companies express optimism, GDP down less than predicted, jobless claims below peak: these and other indicators have convinced many observers that the recession has finally hit bottom. The next stage is unlikely to be growth; more likely, it will be a period of up to a half year of stability, followed by low rates of growth in 2010 and beyond. Obama and the Democrats will claim that their policies pulled us out of a nose dive of hapless policies piloted by President Bush. But the CBO has already indicated that their policies will have the effect of reducing rates of growth later.
It would be a further tragedy if bottoming of the recession distracted the nation from remaking the fundamentals of its economy. For the recession demonstrates much that is wrong with the economy, not just the issue of capital requirements for banks and investment houses and the confusing complexity of derivatives. In particular, the recession demonstrated that de-industrialization, retreat from manufacturing, and devaluing of research and invention have so weakened the nation that our future prosperity is in jeopardy. The shift of the economy to high paid, high financial return, but unproductive, service sectors like medicine, finance, government, and education has eviscerated the wage-earning labor class and has transformed salaried white collar labor (the lower middle class) into proletarian piece work. Both classes have been knocked off the ladder of (occupational, economic, and social) mobility, separating them from the historic promise of American life. To support these classes (and, I would argue, to hide what national policies have done to them), the federal and state governments have turned them into welfare classes. The result is that perhaps the lower 40% of American households are sequestered into a separate, underclass subeconomy, where their only hope for economic improvement is to vote for and convince the Democratic Party to increase their welfare benefits. This is an appalling situation. It is like a degenerative disease that will spread upwards further into the middle class. It is a cancer that will destroy the body politic.
Conservatives would be remiss if they did not take the lingering opportunity of this economic crisis, while people might still listen, to sketch out a national re-industrialization policy.
- Slow or halt the growth of government sector employment;
- Loosen the regulations, restrictions, and tax burdens that hobble the private manufacturing sector;
- Loosen the regulations, restrictions, and tax burdens that limit new business formation;
- Re-establish a vigorous manufacturing sector here in the US;
- Make investment in manufacturing as financially remunerative as investment in the banking sector;
- Re-establish the cultural importance of invention;
- Give the working classes paths of upward mobility through work, as well as formal education;
- Reduce taxation on the wealthy so that the upwardly mobile workers and entrepreneurs will not be discentivized by high tax rates on their earnings as they move up;
- Make individual advancement sufficiently successful and rewarding that incentives to unionize manufacturing work forces are lessened;
- Increase manufacturing and physical product exports
- Reduce the national import-export balance;
- End the nation's current economic strategy of basing prosperity on consumption debt.
Policy changes such as these, above, would go a long way to bringing manufacturing back from Asia and inventing new modes of and products for manufacturing. The goal of a national industrial policy should be to return manufacturing productivity to its historic, central role of being the driver of national economic growth.
August 1, 2009. Joel Kotkin makes the same point.