Where is the U.S. Economy Going? IAM 36 th Grand Lodge Convention Cincinnati, Ohio Barry Bluestone Northeastern University Boston, Massachusetts September 21, 2004

The Bush Economy

Four More Years? If George Bush gets another four year term, how might the economy look in 2008? To answer this question, we project the next four years based on Bush’s first three and a half years... using data from his own Council of Economic Advisers.

Clinton Bush

Clinton Bush

... this means another That means another 3.5million fewer workers with jobs at the end of Bush’s Second Term

By 2008, another 2.4 million manufacturing jobs lost

The Manufacturing Crisis Production workers hardest hit Primary Metals -20.6% Industrial Machinery -20.8% Aerospace-27.2%

... a 21 cent hourly wage increase over 8 years (2.6 cents per year)

.... with hours down, no growth in weekly earnings at all over 8 years

.... but Corporations are doing very well

... another reduction of $50 billion in corporate investment in their U.S. operations

Medical Care costs up by 32% between 2001 and 2008

Energy Prices up by 51% between 2001 and 2008

Consumer Debt up by 49% between 2001 and to $2.5 Trillion

Another Bush term will raise the federal debt to nearly $10 Trillion.... an increase of 71% since 2001

.... the Trade Deficit could balloon to nearly $800 billion by nearly double the current deficit

... U.S. assets owned by foreigners could swell by 83% in a second Bush term

What Policies Do We Need to Rebuild American Prosperity?

A Little Bit of History tells an Important Story

The Post-War Glory Days Rapid GDP Growth in the U.S.: 1950s: 3.9% 1950s: 3.9% 1960s: 4.4% 1960s: 4.4% 1970s: 3.2% 1970s: 3.2% Real Family Income doubles (+104%) Declining Unemployment Unemployment Rate declines to 3.8% -- Unemployment Rate declines to 3.8% Rising Incomes for Most Families

Glory Days

Why the U.S. Grew So Fast

Y= C+I+G+X-M Consumer Boom Pent up Savings & Pent up Demand Union collective bargaining gains Investment Boom Conversion to Civilian Production Government Spending Boom State & Local Spending on Urban Renewal, New Suburbs, New Regions Cold War Export Boom - Marshall Plan Import Implosion - Legacy of WWII

An End to Affluence What Happened to the U.S. Economy from ?

Declining Growth Rates

Rising Unemployment

Increasing Income Inequality

So Why Did the U.S. Growth Engine Sputter in the 1970s? Oil Crisis in the 1970s Business forced to focus on energy efficiency, not new products or new technologies Corporate Myopia and Arrogance in face of new competition Little emphasis on productivity, quality, and innovation Global Competitors stepped in Imports clobbered the economy

Plummeting Productivity

Surprise, Surprise! Prosperity Regained …

So Why did the U.S. Grow Again? The New Conventional Wisdom: The Wall Street Model

Wall Street Model Keep inflation under control to help keep interest rates low Raise national saving rate by having federal government run a surplus Low inflation and high savings leads to low interest rates Low interest rates redirect funds into stock market and lead to more corporate investment

Wall Street Model Requirements Weak Trade Unions to keep wages and prices down Welfare Reform to increase labor supply, keeping wages and prices low Tight monetary policy to keep inflation under control and interest rates low Deficit Reduction/Surplus Generation to raise aggregate savings rate, lowering interest rates Free Trade to depress wages, force prices down, and keep inflation under control >>>>>> All leading to a stock market boom and new investment All leading to a stock market boom and new investment

So Who’s responsible for the economic boom of the late 1990s? Was it Bill Clinton … who got the deficit under control? Was it Alan Greenspan … who got inflation under control? Was it Ronald Reagan … who got government under control? Answer: None of the above.... None of the above.... Despite all the ballyhoo, the Wall Street Model does NOT explain the U.S. boom in the late 1990s

It takes a little bit of history to understand America’s new prosperity... Long Lags in Technology/Productivity Cycle

Productivity Rebound began in the 1980s

New Technologies that spurred Economic Growth Steam Engine …. 19th C. Electrification …. Early 20th C. Integrated Circuit …. Late 20th C. –Computer Hardware –Computer Software –Internet –e-commerce But each takes decades to impact productivity and growth

Where did the new technology come from for the 1990s Boom? The Missile Race following Sputnik (‘50s/’60s) The Space Race with Russia (‘60s/’70s) From Government Spending on Defense to the Private Sector in a Quarter Century It was hideously expensive, terribly wasteful, but in a peculiar way it paid off decades later So who’s most responsible for U.S. Economic Boom? Nikita Khrushchev Nikita Khrushchev

Public Sector + Private Sector Working Together Federal Government provided Basic Research funds Local, State, and Federal Government educated and trained a labor force to effectively use the new technology Private sector converted basic research to applied development.... and productivity soared.... and productivity soared

Public Investment in the 1960s, 1970s, and early 1980s... Basic Research Basic Research Education (after Sputnik) Education (after Sputnik) Public Infrastructure (Interstate Public Infrastructure (Interstate highways, airports, internet) highways, airports, internet)

The Bush Program

Key Bush Policies Massive Tax Cuts, mainly for the Rich Expansion of Free Trade Little help on medical inflation No help on energy inflation Limits on overtime NO MAJOR INVESTMENTS IN ECONOMY

RESTORING GROWTH WITH EQUITY

What We Need to Do Need a big, quick stimulus package – One year tax cut for working families – Large Revenue Sharing Package for the States – FED should NOT raise interest rates

Taxes & Investment Need to repeal tax cuts for the rich Use this revenue for Public Investment in –basic research –education –homeland security –infrastructure

Investments in Economy Federal Research Effort to assist U.S. Auto Industry become leader in Hybrid Vehicles - Make America Energy Independent Increased public investment in medical research to reduce drug costs and mount a bigger campaign against cancer, diabetes, AIDS, and other diseases Increased investments in basic science

2% 1%

0.4%

Reagan “Boomlet”

.75%.10%

Energy Crisis.12%.015%

.04%.02%

.05%

.25%.10%

Restoring Social Equity Higher Minimum Wage Labor Law Reform to Foster Unionization Fair Trade Invest in Public Schools Universal Health Care Coverage Expand Public Goods (e.g. Transportation, Day Care, Elder Care)