The Economy Is Not Doomed

The 2016 election might seem like a death knell for liberals who dream that the United States might eventually come to resemble one of Europe’s social democracies. The Republican Party now controls the White House, both houses of Congress, and the majority of governorships and state legislatures.

But America’s youngest cohort of voters remains an underrated force for leftist economics. Burdened by student debt and the rising cost of housing and health care, this younger generation embraces a larger role for government. If, in a decade or two, today’s young liberal revolutionaries become the mainstream force in U.S. politics, Trump will have been a nativist paroxysm that merely delayed the inevitable evolution toward American social democracy.

To understand how the U.S. might get from here to there, I spoke with Jeffrey Sachs, the renowned economist, an adviser to Senator Bernie Sanders, and the author of the new book Building the New American Economy. The following transcript of our conversation has been edited for clarity and concision.

Derek Thompson: In the middle of your book, there was a sentence that stopped me cold. You write: "There is nothing more important for our economic future than the federal budget.” I can imagine a lot of people disagreeing vehemently with this statement, particularly in the conservative business world but also in Silicon Valley. Make the case.

Jeffrey Sachs: Markets can only do certain things. They cannot ensure fairness. They cannot help the poorest of the poor. They cannot save the environment, or provide for modern infrastructure. But America has forgotten that in the last 36 years. We’ve been on one long privatization jaunt. The result is an economy that is quite rich but quite unequal, with decrepit infrastructure. The problem is not a shortage of technology but a shortage of common action.

Thompson: That is one of the book’s largest themes. The U.S. doesn’t suffer from scarcity, but rather from the unequal distribution of its abundance. So, there is little in the U.S. economy that cannot be fixed by more taxes, more planning, more spending, and more redistribution. But do any voters really want to hear that message?

Sachs: Millennials do. Bernie Sanders’ campaign showed that a message of economic redistribution can work. Words that used to be horrifying in the American political context, like socialism and social democracy, are commonplace among Millennials. They say government should have a larger role in health care and climate change. So I think the tide is turning.

But back in the 1960s, you wouldn’t have supposed there was too much difference between the social democracies of northern Europe and the U.S. under Kennedy and Johnson. The real divergence took place in the 1970s and in the 1980s. The northern European countries and Canada passed value-added taxation to increase the overall size of government with a focus on universal services like health care and child support. But Ronald Reagan, who was the single most important definer of our politics, told Americans that government was the problem and that began a non-stop period of tax cuts. Both parties have basically been in tax-cutting mode since 1981.

Thompson: I’m curious why you think Americans are against social welfare more than Europeans. I think some might argue that it all comes down to racism in the U.S., where white voters consistently reject programs that seem to help minorities. I also wonder whether the World Wars made Europe more receptive to socialism than the U.S., which jailed socialists and waged a cold war against communism while leftists gained influence throughout Europe. Finally, in the U.S., I think you have this hypnotizing effect of the American Dream, which passes down the lesson that all success is earned. That hurts the case for welfare.

Sachs: America’s social fabric is different because of diversity and race. A former doctoral student of mine, the economist Alberto Alesina, has made lots of points along your lines.

Thompson: To be honest, I was just paraphrasing Alesina there.

Sachs: Yes, he has done wonderful work showing that in places where there is a higher African American population, there is less support for public goods. After the war on poverty, you had the Civil Rights Act and changes in the immigration code, which led to the Southern strategy, white identity politics, and a backlash to the civil rights movement.

Beyond that, American politics is much more penetrated by big money, especially after Citizens United. Big money has changed our politics, so that we have the politics of the billionaires. Even Trump, in an unbelievably crass bait and switch, attacked Hillary for her connections to Wall Street and turned to Wall Street to run his economic policy.

Thompson: This is one of my biggest fears about the future of the country: Are multiculturalism and redistribution fundamentally opposed to each other? It seems to me that the countries and local governments with the most generous social policies are white and homogenous. As they become more diverse, the social trust necessary to sustain a welfare state seems to break down. You see this not only in Europe today but also in places like Minneapolis-St. Paul, whose affordable housing policies have become more conservative as the city has become more heterogenous.

Sachs: Bernie didn’t define by race. He defined by class. That was the opposite of the approach of the modern Democratic party. I’m a Detroiter, born and raised. When I was young the base was American union workers. A lot of them went for Trump because the Democratic party lost the class aspect. That’s to Bernie’s great credit. He ran on economic issues. He helped people understand something that cut across racial identity.

That approach is natural for young people who have grown up in an incredibly diverse country. There is a certain nostalgia—although that’s too nice a word for it—among Fox News-watching Americans thinking we used to be a white country, so what happened? That was clearly a part of Trump’s message. But young people don’t have that nostalgia. Young people understand that America has a lot of diversity, and that seems natural to them. Instead, they’re thinking: There’s debt on our backs, and there are rich people who have ripped us off.

Thompson: Another phenomenon you address in the book is the possibility of automation replacing a significant number of workers. Today, unemployment is under 5 percent, and other measures of the labor force have been improving. But you like me are still worried about automation. When do you think the effects of technology will be more visible in the labor force?

Sachs: I think they are already visible. Look at wages which have been flat for decades as national income has soared. Wages of larger and larger classes of workers are stagnant right now. If you look at the automotive sector, the income is going to the robots, essentially. Lower skilled men are withdrawing from the labor force.

More broadly, we've been automating jobs for 200 years. Some say that new jobs were always created. But that’s only partly true. We also invented retirement. That idea is only about 75 years old. We extended education for young people [who used to work]. Women used to work non-stop in a non-monetized labor capacity. Now they don’t. So for 200 years we’ve been on a path of declining work.

When I go to poor countries I see people doing physical labor and they can’t take a break or the crops won’t get weeded or harvested. But my own job is part work and part consumption. It’s not physically arduous. It means spending lots of time talking to lots of interesting people, and the time happens to be remunerated. That’s what a wealthy society should do.

Thompson: In an economy with mass automation, you would have tremendous national wealth with tremendous inequality. In that scenario, the federal government’s moral need to transfer money from the rich to the rest would make it an even more important force in the economy.

Sachs: The automation of the economy could be, on the whole, very beneficial but with significant redistribution consequences that need to be addressed. It might require more income transferred from the wealthy and old to the young and poor. I think a kind of “reverse social security" might have to be on the agenda.

Thompson: Finally, I have to ask you about global poverty, a cause which seems rather hopeless at a time when so many Americans seem uninterested in any human life that didn’t happen to start in America. I know no moral order which tells us that a baby born one mile north of the Texas-Mexico border is worth an order of magnitude more than a baby born one mile south of it. And yet that two-mile distance defines our politics and economics.

For example, NAFTA really, really helped Mexico and had mixed effects for American consumers and workers. But what politician dares to say “NAFTA helped mankind, and it falls to the U.S. government to sort out the distributional effects among our workers?” Without that sentiment coming from Washington, solving global poverty seems utterly hopeless.

Sachs: Yes it's important to state that NAFTA benefited aggregate U.S. productivity, yet was net-net negative for workers in states like Indiana. There are so many policies that can expand the pie but change the income distribution. Trump’s basic argument was that if you’re hurting we have somebody outside our borders to blame. That has been the big lie of too many rich Americans: 'We’re not going to talk about redistribution, so we’ll find somebody else to blame.'

Thompson: More generally, the question for Americans is: Should we help people in distress, even if they live abroad?

Sachs: There are three components to the question “should we help people who live abroad?”

First, a nation has its own selfish reasons. We say you shouldn’t thumb your nose at people who are suffering because you might need them later. We say it is absurd to let dangers grow in a dangerous world far away, because they could soon become our dangers. We can say we should treat diseases abroad so they don’t end up as ebola on our shores.

Second, there are things we can do with small costs and huge returns. People can’t imagine this to be true, but it is: A tiny amount of help from us, a few bucks a year per American, could save vast numbers of lives in Africa and reduce suffering vastly. And we wouldn’t even notice the cost to us. For a few bucks from each of us, we could bring malaria deaths to zero and we could save hundreds of thousands of lives.

Third is our morality. We are at a time in our vast wealth, especially those of us who enjoy affluent lives in the richest time in history, that says the end of our purpose cannot be to accumulate more and more while neglecting people in need. My view is the answer to your question is yes, we can and will find a way. And I have generally been of the Churchill view of America. We do the right thing after exhausting all other possibilities.