The degrowth movement, which had a moment a few years ago, is over — and not a moment too soon. As nations in Europe and North America face mounting debt and aging populations, politicians are again talking about how to increase economic growth.
It is their only hope.
There is only one problem: No one is advocating policies that will actually work. Doing that would require embracing change, which is the last thing any politician beholden to populism wants to do.
Illustration: Mountain People
The best recent illustration is former US president Donald Trump’s interview last week with Bloomberg News editor-in-chief John Micklethwait. Trump argued that there was no need to worry about the debt created by his spending and tax-cutting plans because economic growth would bring in more government revenue. At the center of his plan are very large tariffs, which he argued would increase growth by encouraging more companies to produce goods in the US.
Most economists are skeptical. In general, tariffs cost consumers money and have a poor track record of boosting growth. Trump’s tariffs would be no different.
Even if his tariffs managed to bring manufacturing back to the US midwest — a big if — they would not increase growth, which comes from three sources: capital, labor and productivity.
It is tempting to look at China’s growth of the past few decades, buoyed by its manufacturing industry, and conclude that the US could get Chinese growth rates if it made more things, but the Chinese economy grew so fast because it was so poor to begin with. Only a few decades ago, it was a barely industrialized economy with a mostly unskilled labor force. Simply adding capital to its economy created many manufacturing jobs that were more productive than the ones its population previously had — agricultural work in rural areas.
As the Chinese government is now seeing, this strategy works for only so long. After a while, the benefit of adding more capital diminishes, workers stop becoming more productive and growth slows.
The US economy reached this stage of development decades ago. What manufacturing remains in the US is done with fewer people and is highly productive. Low-skilled manufacturing jobs have long been replaced by technology or moved abroad, in part because those jobs do not create enough economic value to pay well. (Just because service jobs do not produce things, does not mean they are not productive.)
It is unclear what kinds of manufacturing jobs Trump would like to see return to the US. His vice presidential nominee, US Senator J.D. Vance, has suggested that the US could use more toaster factories, which would mean more low-skilled, labor-intensive manufacturing jobs. And that could boost growth, but only under certain circumstances — say, if most workers were currently doing something less productive, such as 19th-century agricultural work.
Meanwhile, US unemployment is already low, so there is no glut of labor looking for low-skilled manufacturing jobs. If a lot of workers left their current jobs to make toasters, many would be less productive than they are now and that would lower US economic growth.
Vance would probably argue that unemployment does not tell the whole story, because the male prime-age labor force participation rate is down and getting more men to work would help growth (although not nearly enough to pay for Trump’s proposed debts). He is right that men dropping out of the labor force is a serious economic and social problem, but it is not clear that this is happening because there are no jobs. And reviving the economy of the 1960s would only bring the US back to the GDP of the 1960s.
So what will make an economy grow? When a country is as developed as the US or many European nations, there are only two things: more people and better productivity.
The first is unlikely in this political climate. On the second, the challenge is how to create conditions to allow innovation to flourish, as innovations — making new things, or making existing things using fewer resources — result in a more productive economy.
The US has historically grown faster than other rich nations for several reasons: deep capital markets, more spending on research and development, a more fluid labor market and an exceptional ability to innovate and adapt.
There is some debate about how directly involved in innovation the government should be. Some argue it should be the primary innovator. The Defense Advanced Research Projects Agency, a Pentagon agency, famously helped invent the Internet.
US President Joe Biden has attempted to steer innovations into specific sectors, through subsidies and tariffs that promote green technology, but the role of the private sector, which relies on market prices and the rewards from taking risks, is critical to developing innovations, bringing them to market and spreading them through the economy.
The government can facilitate market innovations by offering tax credits, say, or just getting out of the way by reducing regulations.
This year’s Nobel Prize was awarded to economists for their work on why some countries grow faster than others. Their work was mostly about developing countries, but it is also instructive for developed countries.
In both cases, institutions can encourage growth in the private sector and facilitate an economy that can better adapt to change — by promoting more flexible labor markets, for example, and bankruptcy laws that do not punish failure too harshly. European bureaucrats are scratching their heads at how to boost growth, but you only need to look to their efforts to stall the progress of artificial intelligence to understand why growth is not thriving there.
Another factor is culture, namely an openness to change and risk. Canada has institutions as good as those of the US, but it grows at a slower rate because it tends to be more risk-averse.
The populist surge in the US, with its desire to either return to the past or slow down the change of the present, is what threatens its growth. Trump’s tariff plan rejects what has made the US economy successful. Economic growth comes from embracing the future.
Allison Schrager is a Bloomberg Opinion columnist covering economics and is a senior fellow at the Manhattan Institute. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
The first Donald Trump term was a boon for Taiwan. The administration regularized the arms sales process and enhanced bilateral ties. Taipei will not be so fortunate the second time around. Given recent events, Taiwan must proceed with the assumption that it cannot count on the United States to defend it — diplomatically or militarily — during the next four years. Early indications suggested otherwise. The nomination of Marco Rubio as US Secretary of State and the appointment of Mike Waltz as the national security advisor, both of whom have expressed full-throated support for Taiwan in the past, raised hopes that
Whether in terms of market commonality or resource similarity, South Korea’s Samsung Electronics Co is the biggest competitor of Taiwan Semiconductor Manufacturing Co (TSMC). The two companies have agreed to set up factories in the US and are also recipients of subsidies from the US CHIPS and Science Act, which was signed into law by former US president Joe Biden. However, changes in the market competitiveness of the two companies clearly reveal the context behind TSMC’s investments in the US. As US semiconductor giant Intel Corp has faced continuous delays developing its advanced processes, the world’s two major wafer foundries, TSMC and
There is nothing the Chinese Nationalist Party (KMT) could do to stop the tsunami-like mass recall campaign. KMT Chairman Eric Chu (朱立倫) reportedly said the party does not exclude the option of conditionally proposing a no-confidence vote against the premier, which the party later denied. Did an “actuary” like Chu finally come around to thinking it should get tough with the ruling party? The KMT says the Democratic Progressive Party (DPP) is leading a minority government with only a 40 percent share of the vote. It has said that the DPP is out of touch with the electorate, has proposed a bloated
Authorities last week revoked the residency permit of a Chinese social media influencer surnamed Liu (劉), better known by her online channel name Yaya in Taiwan (亞亞在台灣), who has more than 440,000 followers online and is living in Taiwan with a marriage-based residency permit, for her “reunification by force” comments. She was asked to leave the country in 10 days. The National Immigration Agency (NIA) on Tuesday last week announced the decision, citing the influencer’s several controversial public comments, including saying that “China does not need any other reason to reunify Taiwan with force” and “why is it [China] hesitant
RSS