Raising our standard of living

Michigan Future’s work started with the question “where do we want to go from here?” Our answer: a high-prosperity Michigan – a place with a per capita income consistently above the national average in both national economic expansions and contractions. A Michigan once again with a broad middle class.

At the core of our work is the basic belief, since we were founded more than two decades ago, that globalization and technology are mega forces that are transforming the economy. And that those forces are far more powerful than politics and policy. That there was little that Washington or Lansing can do to stop – or even slow – the fundamental changes brought on by these mega forces. So the inescapable conclusion we reached was that what made Michigan prosperous in the past is no longer a path to prosperity. Either we adjust to the new realities or Michigan would get poorer.

New York Time columnist David Leonhardt writes about the importance of raising the country’s standard of living in a terrific new column. He writes: “Many of the bedrock assumptions of American culture — about work, progress, fairness and optimism — are being shaken as successive generations worry about the prospect of declining living standards. No question, perhaps, is more central to the country’s global standing than whether the economy will perform better on that score in the future than it has in the recent past.”

Leonhardt too finds that globalization and technology – not politics – are at the core of our standard of living decline. He writes:

By last year, family income was 8 percent lower than it had been 11 years earlier, at its peak in 2000, according to inflation-adjusted numbers from the Census Bureau. On average in 11-year periods in the decades just after World War II, inflation-adjusted median income rose by almost 30 percent. … The causes of income stagnation are varied and lack the political simplicity of calls to bring down the deficit or avert another Wall Street meltdown. They cannot be quickly remedied through legislation from Washington. The biggest causes, according to interviews with economists over the last several months, are not the issues that dominate the political debate. At the top of the list are the digital revolution, which has allowed machines to replace many forms of human labor, and the modern wave of globalization, which has allowed millions of low-wage workers around the world to begin competing with Americans. …  In particular, job growth and wage growth have been weaker in sectors exposed to global competition — especially from China — than in sectors that are more insulated. Automation creates similar patterns. Workers whose labor can be replaced by computers, be they in factories or stores, have paid a particularly steep price. The American manufacturing sector produces much more than it did in 1979, despite employing almost 40 percent fewer workers. Workers with less advanced skills have also suffered disproportionately. The pay gap between college graduates and everyone else is near a record. Despite the long economic slump — and the well-chronicled struggles of some college graduates — their unemployment rate is just 4.1 percent.

What policy makers can do to counteract such powerful forces which tend to drive wages down is unclear.  Leonhardt finds unconvincing many of the solutions offered by candidates from both parties. As Leonhardt notes this is a global, not American challenge. Across the globe policy makers are struggling to come up with those policies.

Developing a new agenda about how to raise personal income in the context of a flattening world should be the priority. This is different than just lowering the unemployment rate. As Leonhardt notes clearly increased education attainment and faster economic growth are imperatives. Beyond that the answers are not obvious.

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