It’s the Economy, Stupid?

This morning, Hillary Clinton gave arguably the first 21st-century economic stump speech in American presidential politics. Issues that had been festering for years, hidden behind a veil of partisan language and confusion, were finally called by their names. Deep problems with the way the economy works, not just the results it produces, were addressed at long last. But despite the trailblazing tenor of her oration — the candidate is fond of alliteration — I left the auditorium at New York’s New School University feeling unfulfilled.

Clinton took on a slew of the economic issues I hold most dear. She said that inequality in America was largely a phenomenon of globalization and technological change, exacerbated by the erosion of workers’ bargaining power. She accused a culture of short-termism of ruining American businesses and fiscal policy by making long-term investments impossible — and pointed out that social investments by companies needn’t be just charity. She pledged to bring together public and private capital to renew the nation’s infrastructure. She proposed giving companies tax credits for training workers and also lamented the millions of talented Americans being left on the sidelines of the labor market because of inequality. She warned about the lack of oversight and accumulation of systemic risks in the shadow banking industry, and she said corporate criminals had to be held personally responsible for their misdeeds rather than being shielded by their employers.

It was like hearing my greatest hits of the past 15 years read back to me, except the applause was for someone else. Not that I minded — Clinton deserves acclaim for bringing economic dialogue into the present day. A constant theme of her speech was the necessity of evidence-based policymaking, and it certainly sounded like she and her team had sifted through their share of economic evidence. Yet a few big things were missing.

The first was an acknowledgment of the place of the United States in the global economic order. The American economy is not a closed system, so policies aimed at changing the behavior of its businesses and households can have unintended effects. For example, several of the proposals Clinton mentioned as solutions to the problem of stagnant wages — restoring unionization, raising the minimum wage, cracking down on the classification of regular workers as contractors — might just encourage firms to move more jobs abroad. She also said she wanted to prevent American multinationals from keeping their profits overseas, but that might only push them to move their headquarters out of the United States.

Actual mentions of international economic policy were few and far between, too. Though Clinton identified immigration as an engine of economic growth, she offered only a quick applause line on trade and nothing on the global financial system, not even easy targets like rigged interest rates or tax shelters for American companies. Perhaps more on these topics would have been heavy lifting for a lay audience, but it’s worth reminding any audience — particularly given the economy’s reactions to tumult in Greece and China — that the United States does not make economic policy in a vacuum.

Also absent from Clinton’s speech was a consistent underpinning of economic logic. For instance, one of her few new proposals for increasing wages despite labor’s dwindling bargaining power was to foster profit-sharing by firms. Though this sounds like an overdue redistribution of income from shareholders to workers, it is in fact an extremely dangerous proposal for workers. Replacing steady salaries with pay that rises and falls with a company’s fortunes adds risk that many workers can’t afford, especially when they’re already living close to the limits of their budgets. Moreover, tying an individual worker’s pay to the entire company’s profits doesn’t necessarily create an incentive to perform, unless that worker is a top executive. Again, it was a case of right question, wrong answer.

Clinton also came close to some economic contradictions. She disdainfully referred to arbitrary targets for growth — an obvious jab at the Republicans’ growth numbers arms race — though it was obvious she, too, thought the economy could grow much faster. And she excoriated Jeb Bush, a leading Republican candidate for president, for suggesting that Americans needed to work longer hours, but she also said that more women needed to enter the workforce; in both decisions, there is an element of choice as well as the constraints of family and other obligations.

The last missing component was, as so often with stump speeches, answers. Instead, Clinton ended the main portion of her speech with a series of questions: “How do we respond to technological change in a way that creates more good jobs than it displaces or destroys? Can we sustain a boom in advanced manufacturing? What are the best ways to nurture startups outside the successful corridors like Silicon Valley?”

These are some of the questions I’ve grappled with in my writing and teaching throughout my career — and the same goes for many other economists. But on each problem, Clinton was short on solutions. Instead, she exhorted the public to join with her and do its part to meet the challenges. It’s true that crowdsourcing is a big deal in the 21st century, but she may have to pull a bit more weight herself.

Full disclosure: Hillary Clinton’s husband wrote the preface to a book co-authored by Daniel Altman, and Altman has been consulted (without pay) by the Clinton Global Initiative. He has also written that he expects to vote for Hillary Clinton in 2016 and 2020.

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