It isn't exactly news that the incomes of most Americans have been stagnant or slipping for the past couple of decades. Politicans, including all the candidates for president this year, promise to reverse this trend. Although trade has entered the debate this year and undoubtedly has played a part in the problem, the debate between Democrats and Republicans centers on how to expand the economy. Republicans believe that smaller governnment and lower taxes will spur growth, leading to an improved labor market. Democrats believe that government investments in education, training and infrastructure will make American businesses and workers more competitive, and that measures such as increasing the minimum wage will increase demand and stimulate the economy.
Maybe they're both wrong, for two reasons:
1. Economic growth alone no longer lifts all boats. The benefits of what growth we have had in recent decades have flowed mostly to the top. I will leave this topic for another day, except to say that it is in part due to worldwide economic trends that seem to be beyond anyone's control, and to U.S. tax and economic policies during the past generation that have favored the rich and large corporations.
2. No one really knows what government can do do spur significant economic growth. We last saw strong growth in the late 1990s, and that was due in no small part to the Internet and stock market bubbles. Since then, growth in both the United States has been unspectacular at best. In most other advanced countries it has been worse.
So maybe our government's approach ought to center on the idea that for the foreseeable future, our economy isn't going to grow enough to raise most people's incomes significantly. I know that sounds pessimistic, even un-American, and is not what people want to hear. But it is, most likely, the truth.
The good news is that there are many things, other than goosing the economy, that the government can do to improve people's economic lives. One approach is redistribution. Traditionally this is opposed at least in theory by most Americans. But there seems to be growing support for steps such as increasing some taxes on the rich and for expanding Social Security. And of course, resdistribution is often an effect of programs that are not explicitly for that purpose, such as Obamacare.
But here's another idea, one I have never heard any politician expouse: Helping Americans improve their economic status by cutting their cost of living. One example of how this could work is directing more infrastructure spending to mass transit. If improved transit allows a household to make do with one less vehicle, the savings could amount to thousands of dollars a year.
Based on the experience of other advanced countries, moving to a single-payer health insurance system could eventually save our country four our five percent of GDP, translating to thousands of dollars in reduced costs to each U.S. household. Bernie Sanders has tried to make this argument but hasn't been able to overcome Republican demoguery that rails about the additional costs to the government without admitting to the savings in premiums paid to private insurers.
There are numerous other examples where changes in laws and governement programs could put more money in people's pockets without incraeasing their incomes. This might not be the easiest idea for a politican to sell to most Americans, but it's more honest than saying "I know how to grow the economy and when I do, your income will grow as a result."
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