Economy 2010 Part 1

There was an interesting economics debate at Salon this week. First up was their columnist Michael Lind, asserting that the Clinton boom of the 90s was essentially an illusion, and its premise--that a better educated workforce in knowledge jobs with high tech information infrastructure (the Internet, etc.) was creating a prosperous New Economy--was wrong. That's important, because in many respects, it's what the Obama administration is promoting to revive the economy now.

Lind writes that the productivity gains were overestimated by as much as 20%, with much of the rest accounted for by the tech and housing bubbles. Most gains were made by the top 1% of earners anyway--with the middle class losing ground. Lind's prescription for actual prosperity is: "The most effective way to raise wages at the bottom would be to increase the bargaining power of workers, by unionizing the service sector and by tightening the labor market through restricting unskilled immigration. That would probably spur genuine productivity growth over time as employers substituted technology for more expensive labor." He suggests that the corporate backers of the "middle way" Democrats discourages this, and so the Democratic party doesn't get behind such an effort.

A day or two later, Will Marshall of the Progressive Policy Institute disputed Lind's thesis and conclusion. He argued that productivity did increase in the Clinton years, and that economic gains were felt across all income levels. He also cites economic data showing "strong positive returns to educational attainment," so "it seems perverse to argue that Clinton and his allies, as well as President Obama, are mistaken in wanting to see more Americans attend college. "

As usual with these things, they often argue past each other. Marshall writes that steep drops in union membership is due to the fading industrial sector, but doesn't mention Lind's argument that unionizing service workers should be a priority. Lind seems to ignore the structural changes involving information tech that Marshall cites as transformative. Finally, there's no reason that the country--or the President--should have to choose between advocating better educational opportunities and more and stronger unions.

Still, it's an interesting debate. I don't know if Lind's economics is right, but it makes sense to me that stronger and more widespread unions are needed to get working Americans a just wage, and (along with more reasonable--that is, higher--corporate taxes) return this country to the economic and social balance as well as the prosperity of the 50s and 60s.

On the other hand, Marshall is right about changes: neither the economy nor society resembles or could resemble the 50s and 60s in important respects. Putting aside for a minute the new reliance on the service economy, the information technology aspect is only part of the relevant equation. The corresponding part, which neither Lind nor Marshall mention, is energy. U.S. prosperity was fueled by cheap fossil fuel energy, and an energy grid that is now deteroriating and obsolete, even without the need to replace fossil fuels.

President Obama has emphasized that jumpstarting a new economy and creating jobs requires emphasis on new clean energy technologies, and both the manufacturing and service companies and jobs to create a clean energy industry. He's advocating, he's envisioning, and he's devoting chunks of the Economy Recovery and Reinvestment Act money to such projects.

There are lots of pieces to this puzzle, though. There's the question of markets and market share, and whether the U.S. will innovate and lead in this area as it did to a debatable but substantial degree in information technology. So far, the evidence isn't entirely favorable, as countries in Europe and South America as well as Japan and China are in some ways ahead. Given our dependence on the global marketplace, this is probably a big deal--especially if the transformation of the U.S. itself relies on foreign-made systems. Can't happen? Ask General Motors about that.

A clean energy boom might help to restore some manufacturing to the U.S. economy mix, and some better wages. The idea that the service economy can remain so dominant requires such elements as robust government spending (politically unlikely, especially in the states) and foreign slave labor manufacturing (unlikely to continue, as the places where that's economically feasible are declining, even apart from the moral depravity of the practice.)

The debate has been raging for years now on just when fossil fuels are going to become so expensive that solar, wind etc. become competitive. As limitations on coal become part of the equation, and as oil is a finite resource, it seems inevitable. One aspect of this that fascinates me is that those on the left, right and center who are totally in love with the Internet and cellular networks and all the new devices using them, manage to not think about all the energy they use. (A few years ago, George Gilder projected that Internet computing would soon require as much power as the entire U.S. economy did in 2001). As well as all the toxic chemicals they use and electronic garbage they create and to make them (author Hunter Lovins estimates the manufacture of a laptop computer creates 4,000 times its weight in waste. Cell phones are being discarded in the billions.) These are going to be enormous problems. We can't go on forever, advocating an end to greenhouse gas pollution, while using fossil fueled electricity to say so.

What nobody wants to talk about is more of less, of the enormous waste built into this consumer economy that is unsustainable. Or the distinct possibility that there are no models for what's happening, and neither Lind nor Marshall, nor any oft-quoted economist, has anything like an accurate idea of what's ahead.