In the ten years since the founding of Public Discourse, massive economic changes have occurred. New technologies and new policies have dramatically altered the ways in which people live, work, and connect with one another.
Americans today are anxious—not just financially, but socially. Rates of suicides and drug overdoses are increasing. Our happiness is decreasing. We’re increasingly isolated, both individually and in small groups with others who already share our worldview. This isolation, in turn, leads to further divisions—the so-called “scissors graphs”—across a whole range of issues from life expectancy to educational attainment to economic opportunity. We are lonely even though we are more connected than ever before. We despair even though we are materially better off than at any other time in human history.
How Did We Get Here?
Part of this story began with the onset of the Great Recession. During that time, the unemployment rate skyrocketed to 10 percent and the stock market plummeted by 50 percent. While uncertainty ran rampant about the extent of the market failure, consumer confidence plunged. Over the course of the next several years, families would lose their homes and their nest eggs. The Federal Reserve would expand the monetary supply by buying up bad assets to the tune of $4 trillion, while the Congress and executive branch under Presidents Bush and Obama would enact nearly $1 trillion in fiscal stimulus programs. The monetary and fiscal stimulus amounted to approximately one-third the size of the entire American economy (as measured by GDP) at the time. Over the next several years, two more pieces of legislation, the Dodd-Frank bill and the Affordable Care Act, were passed. Both would have long-lasting effects on two major economic sectors: banking and finance, and health care. Parts of these bills would take effect, while other parts were repealed in the early years of the Trump administration.
So, where are we now, ten years after the Great Recession? What has a decade of expansionary monetary and fiscal policy meant for the average American? And what will it mean for Americans in the decade ahead?
Growth in Federal and State Deficits
In economic terms, we largely appear to be better off. According to the Bureau of Economic Analysis, as of the end of the second quarter of 2018 (the latest data available as of this writing), the annual real GDP growth rate is 4.2 percent. The stock market has enjoyed the longest bull run on record. And the unemployment rate, 3.9 percent, reached a fifty-year low at the end of July. Although these are positive signs, there are more troubling trends as well. In particular, the growth of the regulatory state during the past decade has been immense.
One metric used to measure the size of the state is to look at federal spending—and federal debt—in relationship to GDP. According to the Congressional Budget Office (CBO), “debt held by the public, which has doubled in the past ten years as a percentage of GDP, [will approach] 100 percent of GDP by 2028. This amount is far greater than the debt in any year since just after World War II.” One of the primary reasons that the forecast is so grim is due to outstanding commitments to social welfare programs, many of which were introduced in the wake of the Great Depression, expanded in the 1960s with President Johnson’s Great Society programs, and expanded again in the wake of the Great Recession of 2008.
Analysts warn that this level of public debt is unsustainable. Leon Panetta, former secretary of defense and director of the Office of Management and Budget, has argued that the growth in the federal debt presents a strategic threat to the nation.
In addition to the growth in federal debt levels, many states face chronic and acute budget shortfalls, with education programs, health-related spending, and state-funded pensions representing large shares of unfunded current and future liabilities. Unlike the federal government, states cannot inflate their way out of debt by “printing money.” Because it is politically unpopular to attempt to reform education programs or modify public pension systems, many states will seek to raise additional revenue through tax increases, which are ultimately passed on to all consumers. This revenue-raising strategy may work in the short run, but it will constrain economic growth in the long run.
It is not clear how we will resolve the public debt crisis in ways that are politically palatable and economically sound. We will be called upon to ask difficult questions about the nature and extent of state-sponsored programs, to address the purpose and means of carrying out a variety of social welfare programs.
Home Ownership and Student Loan Debt
In the run-up to the housing crisis that set off the Great Recession, well-intended bureaucrats held interest rates artificially low and waived loan requirements. These policies encouraged marginal borrowers to purchase more expensive homes than they could afford. When the market collapsed, the foreclosure rate climbed and the rate of homeownership returned to its historical average.
As one would predict, in the wake of the Great Recession, many people returned to college and graduate school to bolster their credentials, hoping to stay in the workforce or to re-enter it after being laid off. Federal student loans were marketed to prospective students as a “cheap” way to increase their employability, and many students took on massive debt burdens.
Student loan debt now stands at more than $1.41 trillion. It is one of the reasons that young people are delaying marriage, buying their first home, and starting families. We tell ourselves that we’re going to work to “get ahead” until we’re financially secure, but then, seemingly out of nowhere, the economy tanks. Unable to find steady work, twenty-somethings move back in with their parents and return to school for another degree paid for with student loans. Those lucky enough to find a job remain there for an average of only four years before moving on to something new, to something better. Some—somewhere between 10 and 30 percent of the workforce—try the gig economy to see if they can get ahead. Others drop out of the workforce altogether, becoming dependent on the social safety net for essentials such as housing, food, and health care, without a clear path toward financial independence.
Nobel Prize-winning economist Friedrich von Hayek would describe this problem—whether or not to go to college—as an example of the knowledge problem. Incentivized loans distort market signals that would otherwise convey information to individuals, signaling whether to go to college. Government officials simply cannot know how many students ought to go to college today, for they cannot know the preferences of employers tomorrow. The market, however, can reveal the preferences of employers through their hiring and promotion practices. Time will reveal whether college entrance (up 6 percent between 2000 and 2016) and completion rates (60 percent) will revert to their norm, following the government’s decades-long, easy-lending practices for students.
Questions about access to educational opportunities and the benefits of a college-educated citizenry to the larger community will continue unabated until we are able to come to some agreement about the role that the government should play in educating our young people.
The Great Divide
Another tangible effect of the Great Recession has been to create artificial divisions between Americans. Modern discourse about economics largely oscillates between two poles: the so-called “haves” and “have-nots.” Or, put differently, between the top one percent and the great majority of Americans. The “Occupy Wall Street” movement and supporters of Bernie Sanders latched on to this notion, making public enemies of the titans of industry and ratcheting up their rhetoric in support of the working class. Donald Trump followed suit as he was elected on a populist wave. Businesses, meanwhile, began to stake out positions on a whole range of social issues that had nothing to do with their core business proposition. These choices—either this or that—present a false dichotomy to the average American.
With increasing politicization across many areas of private and public life, we risk no longer being able to engage one another and to debate the best paths forward. This leads to a decline in the vibrancy and health of our local communities and in our real-life relationships with other people. We become isolated and lonely. In his newest book, Them: Why We Hate Each Other and How to Heal, Ben Sasse (R-NE) argues that this increased fracturing contributes to loneliness, the public health epidemic of our time.
In To Change the World, sociologist James Davison Hunter argues that “politics has become so central in our time that institutions, groups, and issues are now defined relative to the state, its laws and procedures,” which become the “predominant framework by which we understand collective life, its members, its leading organizations, its problems, and its issues.”
One way that business and economics can help thwart tribalistic tendencies is by encouraging people to work together in pursuit of common goals. For example, Adam Smith argued that free trade is a viable solution to isolationism at the national level. Free trade encourages market participants to engage with others who harken from different regions, ethnicities, religious backgrounds, and socioeconomic classes. How we, as a nation, elect to define and pursue our common goals reveals much about what we consider to be the most important elements of our shared life.
The most interesting conversations in business and economics are intimately connected with our understanding of human nature, our place in the world, and the ways in which we recognize our shared commitments to one another. These debates do not—should not—occur at the margins, for their effect is far-reaching. Public Discourse aims to facilitate conversation and debate about the principles and policies that undergird a thriving society and contribute to human flourishing.