It’s The Economy Stupid

Former President Bill Clinton voiced the words “It’s the Economy Stupid” in his 1992 election bid against George H W Bush. Bill Clinton was able to characterize Bush as out of touch with the woes of the average American. Hillary Clinton now may face a second bite of that apple, this time defending against Donald Trump”s “Make America Great Again”. Will she do better than Papa Bush?

In most comparative measures the US economy is doing well and could still boast of being overall the best in the world. Americans, however, are not feeling that love the way they think it should feel. Why?

Trump has tapped into the average Americans dissatisfaction with government in general and frustrated by stagnated wages and the scarcity of higher paying ones Trump is selling the message that he will fix everything when he is President. Can he save the economy?

Hmmm, unlikely.

Globalization has changed everything. The price of labor for unskilled or low skilled work is what ever is the going rate in Southeast Asian countries. Either a company pays that wage or it will simply be uncompetitive in the market place. Exception to this rule are jobs which are immune to outsourcing, like building roads and houses, or providing nursing or landscaping services. But immigrants (legal or otherwise) who are willing to work for less drive the pay for these “safe” jobs down too. Understand better now about building a wall?

So, if the economy were growing at a faster rate, who would be the winners. Business owners, restauranteurs, office supply dealers, real estate agents etc would do even better than they are today. But guess what? All the low skill or unskilled jobs will pay no more than before regardless of how fast the economy is growing.

Now it should be clear that a growing economy is better than one that is shrinking. And to a degree, an economy growing at 2% is preferred to one growing at 1%. So would an economy growing at 10% each year be Trump’s target if it were possible?

It might be but it shouldn’t.

China has been growing for over 10 years at 10% or greater. Economically this is unsustainable because the country will outgrow its ability to expand and most likely increasing customer demand will dry up. The sweet spot is growth where both trading parties grow.

How can Hillary Clinton deliver a message which says “the US is on a desirable growth path and I will continue to maintain it”?

Clinton will undoubtably promise “jobs”, “education and training”, and policies which promote growth. Clinton will also (with much more difficulty) underscore the pitfalls of trade barriers like tariffs and duties. Clinton could point to numerous economists and their projections of what a trade war with China would look like or what a repeal of NAFTA would bring on, but with Bernie Sanders having made a strong case of protectionism, Clinton may be cautious.

All economies cycle through growth and contraction. When government stimulates an economy when the economy is growing, growth explodes. The problem is that sooner, rather than later, the economy contracts. The difference between the heights of growth and the lows of contraction impact the average person far more than low steady growth with an occasional contraction.

So with Donald Trump hammering at his business experience and implying that is all that is necessary to improve the lot of the average American wage earner, what should Hillary be thinking and saying?

The long term winning economic position will be around taking advantage of globalization and building an educated, skilled work force which could demand higher wages compared to ordinary manufacturing jobs. This will involve policies favoring worker training, education, and government policies favoring export industries.

Clinton may also need to push for an increase in the minimum wage and recommend tax reforms which encourage owners to share increased productivity with workers rather than just holding their wages down and pocketing the profits (little chance for reform with the current GOP).

Explore posts in the same categories: 2016 Presidential election, Barack Obama, congress, Democratic Party, Donald Trump, economic growth, economy, GOP, Hillary Clinton, Republican Party, Uncategorized

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