Rebuilding the American economy

Part 1: Optimists vs. pessimists

 

We have just weathered the most bitter and divisive presidential campaign in decades, featuring two fundamentally different views of the future of the American economy.

To Hillary Clinton, today’s economy predicted a bright future for the large majority of Americans. After an unusually brutal recession, unemployment rates had returned to near-normal levels, and family incomes had finally begun to rise. From Secretary Clinton’s perspective, more work needed to be done, but the country was basically on the right track.

Mr. Trump had a far more dystopian outlook. America’s best days were behind it, unless we somehow “made America great again” by pushing back against globalization, reinstating international trade barriers and recreating the well-paying blue-collar jobs that had allowed the remarkable growth of the middle class in the decades following the end of World War II. He ridiculed Secretary Clinton’s view that the country was on the right track and dwelled on the loss of manufacturing and mining jobs lost to outsourcing and unnecessary concerns regarding the environment, respectively.

In the end, Mr. Trump won the electoral college handily (even though he lost the popular vote), and he is now the president. There has been no shortage of explanations about why the polls — the great majority of which predicted that Secretary Clinton would win — were so spectacularly wrong.

It is fair to assume that many factors contributed to Mr. Trump’s victory. Even minor changes in one or two of these factors might have led to a different result. But the danger in such analyses is that we might miss — or at least greatly underestimate — the significance of one hugely important factor: the role that the perception of individual voters’ own economic success (or lack thereof) played in determining how they voted.

Mr. Trump won 26 of the 30 states with the lowest average family incomes. He won more than 2,600 counties that collectively generate 36 percent of the country’s economy. Secretary Clinton, on the other hand, won higher income states but fewer than 500 counties — and yet these counties collectively generate 64 percent of the nation’s economic activity.

An analyst from the Brookings Institution noted that “the Democratic base [was aligned] more to the more concentrated modern economy, but [with] a lot of votes and anger to be had in the rest of the country.”

In other words, the areas of the country (and the people in those areas) that had successfully transitioned to become the workplaces and workforce of today’s economy were prospering, and therefore were more likely to support the political status quo, whereas those most affected by the loss of 5 million manufacturing jobs in the past decade were struggling economically and therefore were more inclined to vote for a new direction for the country.

So James Carville’s famous dictum from the 1992 presidential campaign — “It’s the economy, stupid” — was true again this year.

Or is it quite that simple? Is the economy the lowest common denominator, or is there something that is even more fundamental? I submit that the economy is just a reflection of the true core. I think that the true core is the level of educational attainment of individuals in a particular community or region. If the counties of each state were ranked by average family income, the rank order would very closely correlate to the percentage of adults in each county with a four-year degree — that is, the more educated the population, the wealthier the county.

The earnings premium of a college degree relative to a high school diploma has long been recognized, so it should not be surprising that counties with many highly educated adults have higher family incomes than do those with relatively few college graduates. But emphasizing the link between economic prosperity and educational attainment is important for the most practical of reasons: It illuminates the easiest pathway forward for enhancing the economic well-being of families and of the country as a whole.

During the recent presidential campaign, both Bernie Sanders and Hillary Clinton proposed dealing with income inequality primarily by increasing taxes on the very rich. Not for the first time, this proved to be a politically unpopular solution. Many people of average means do not wish to redistribute income in this way.  They do not blame the rich for being rich. Rather, they aspire to be rich (or at least richer) themselves. They believe in growing the economic pie, not in re-slicing a pie of constant size to make the slices more even.

Growing America’s economic pie means augmenting the average educational level of its people. As we continue to transform from a manufacturing economy to a knowledge-based economy, there will be an increasing premium on educational attainment. No amount of rejiggering the tax system can overcome that stark reality.

So the question is: How does our country ensure that we are once again growing the middle class? Is it by trying to recreate the well-paying blue collar jobs of the past? I believe the answer is: By ensuring that the richest country on earth becomes once again the world leader in the percentage of adults with college degrees or other post-secondary certifications. But how do we achieve that outcome?

In Part 2, we will analyze and evaluate the educational pipeline, from kindergarten to the college diploma.