The Last Chapter Problem

By James Kwak

Like many analytically minded liberals, I’m good at identifying problems and less good at coming up with solutions—a common disease sometimes called the “last chapter problem.” I recently finished reading The Reconnection Agenda by Jared Bernstein (which you can even download from his blog), which takes the opposite approach.

The problem he addresses is one that we all know about—inequality, stagnant real wages, the divergence between productivity gains and living standards, etc. Bernstein recalls a meeting with a group of insiders in 2014, when a pollster interrupted a discussion of the post-Great Recession economic recovery to say:

If you mention the word “recovery” to people, they don’t know what you’re talking about. And they conclude you don’t know what they’re talking about. It’s not just that they feel disconnected from an economy that’s supposedly growing. It’s that they don’t think anyone understands or knows what to do about their situation.

And he aptly summarizes the state of inside-the-Beltway economic policy debate between “you’re-on-your-own” Republicans and Democrats:

The YOYOs run around arguing, unconvincingly to most, that government is the problem, while most Democrats nibble at the edges with YOYO-light, maybe sprinkling in a minimum wage increase. Everyone treats the private market economy like a delicate vase that mustn’t be bumped.

(That near-consensus on the magic of market forces is also the subject of my new book.)

But Bernstein, to his credit, gets the description of the problem out of the way in the first two chapters. He devotes the rest of the book to solutions: policy tools that can not only increase growth but, just as importantly, ensure that the benefits of growth are widely shared throughout the income distribution. Some are relatively standard Democratic fare, like expanding automatic stabilizers, spending more on infrastructure, universal pre-school, and maintaining a symmetric monetary policy—that is, not pretending you have an inflation target when what you really have is an inflation ceiling.

More generally, however, Bernstein focuses on the importance of using economic policy to change the pre-tax distribution of income—bolstering the bargaining power of workers so they can demand a larger share of the gains from increases in their own productivity. Among other things, that means making it easier for workers to form unions, subsidized jobs and apprenticeship programs to help people gain skills, and ban-the-box rules that help people with “criminal records” (which can mean just an arrest with no conviction) compete fairly for jobs. These are not policies that all Democrats support. But, as Bernstein writes, turnout by Democratic constituencies “may well hinge on whether they believe a candidate will try to implement a set of policies that convincingly relinks growth and their living standards.”

As I’ve written about previously, this presidential election has become a referendum on Donald Trump. But for Democrats to have any chance of maintaining our congressional gains in 2018, we have slightly less than two years to convince the public that we care about something more than fiscal responsibility and overall economic growth.

7 responses to “The Last Chapter Problem

  1. Ray LaPan-Love

    It is very telling that the Dems talk so little now about the ‘Employee Free Choice Act’ (EFCA). But of course Obama did talk about the EFCA some while campaigning, but then he must have forgotten about it, lol.

    The thing is though, the US leadership is doing everything possible to aid investors in buying up the world, so, until that strategy changes, wages will not be allowed to go higher than what is absolutely necessary. Plus, as our leaders learned during the Viet Nam turmoil, high wages interfere with military recruitment. So, the US has a paradox with at least two major factors restraining wages, each allowing our leaders to believe that low wages are in the best interest of the nation. To make matters worse too, US exports will suffer if wages rise, and there are too few jobs to begin with.

    But of course I don’t want to be accused of having ‘last chapter’ syndrome…so, my solution is to propose that wages must first rise globally. The best solution then might be the TPP.

    From the treaties’ section on labour:

    “TPP has the strongest protections for workers of any trade agreement in history, requiring all TPP Parties to adopt and maintain in their laws and practices the fundamental labor rights as recognized by the International Labor Organization (ILO), including freedom of association and the right to collective bargaining; elimination of forced labor; abolition of child labor; and the elimination of employment discrimination. It also includes commitments, again required for all TPP Parties, to have laws governing minimum wages, hours of work, and occupational safety and health. All these are fully enforceable and backed up by trade sanctions.”

    https://ustr.gov/tpp/#text

  2. Great that they realize something – they don’t even acknowledge the problems. Now, if they could only figure out that when you’re in a hole, stop digging.

  3. During Clinton’s and Obama’s first two years, the Dems had the presidency and both houses. They were useless. If they actually were a party for the working class, things would be quite different now. And expecting anything different is courting with Einstein’s definition of insanity.

  4. didn’t somebody just show that ban the box backfires, because employers discriminate against races / classes they think more likely to have records?

  5. Ray LaPan-Love

    The Dems have become a clever lot. It would have seemed impossible in the past to discuss ways to redistribute wealth, “pre-tax” or via market forces, while ignoring the laws of supply and demand. But now the Dems would have us believe that the labor markets are insensitive to oversupply, which is of course ludicrous, but yet here we are pretending that wages might somehow be leveraged upward while immigrants are pouring in to a nation with a falling participation rate that has had stagnant wages for decades.

    Naturally though, the Dems must overcome the dilemma of ‘appearing’ to be the party concerned about wages while also being the party that supports high levels of immigration. It is folly however to pretend that the laws of supply and demand might somehow be ignored.

  6. The real problem is neo-feudalism based on debt. The politicians are just doing what they’re paid to – and the payers are banksters, pharma companies, education for profit.
    Ivory tower policy prescriptions won’t fix this phenomenon.

  7. “I’ll put om my tennis shoes and walk with the Unions” -candidate Obama-

    …pretty much the same for all things finance.

    …the fools are the ones who believe that “feeling” and/or Kabuki politics (show business all the time, not politics). involve benevolent efforts to serve the common good…rethink RNC/DNC until they’re frightened.