The Once and Future Worker
How the Consumerist Consensus Led America Astray, and How to Recover
Oren Cass discusses his book, The Once and Future Worker: A Vision for the Renewal of Work in America
Heritage Foundation, November 14, 2018
David Azerrad, Heritage Foundation Director of the Simon Center for Principles and Politics: Good afternoon, ladies and gentlemen. My name is David Azerrad. I’m the Director of the Simon Center for Principles and Politics, as well as the AWC Family Foundation fellow here at the Heritage Foundation and I would like to welcome you to our program today. We are very pleased to have here with us Oren Cass for the launch of his important new book, The Once and Future Worker: A Vision for the Renewal of Work in America. The book is already the talk of the town and I suspect it will remain so for the foreseeable future. In fact, Oren has sold out. So the copies we have available there are the only ones available. Otherwise you need to wait one to three weeks on Amazon.
Oren is part of a small group of thinkers who are calling into question the bipartisan consensus in Washington, that the solution to all our problems is more growth and more redistribution. I’m very eager to let you hear his argument, and I just want to get out of the way. So with his permission, I will give a very brief introduction. Oren will then present the argument of his book. And we’ve reserved plenty of time for questions.
Oren is a senior fellow at the Manhattan Institute in New York where he focuses primarily on strengthening the labor market. He’s outlined conservative policy solutions on poverty, climate change, the regulation and international trade. He’s briefed members of Congress and congressional staff in both the house and the Senate and his essays and columns have appeared in the New York Times and the Washington Post and the Wall Street Journal and National Affairs and City Journal and various other prestigious outlets. I have found him someone who is always worth reading, especially when I disagree with him.
Before he joined Manhattan, Oren worked as the policy director for Mitt Romney’s 2012 presidential campaign, as an editor for the Harvard Law Review. And before that, as a management consultant in Bain & Company’s Boston and New Delhi offices. Please join me in welcoming Oren Cass.
Oren Cass, American Compass executive director: Thank you all very much for coming. I should mention you can buy the Kindle today and it shows up instantly. So there’s always that choice. Thank you, especially to David. I don’t know where I picked up the affect of saying to people you’re a gentleman and a scholar, usually extremely tongue in cheek. David more than anyone I know truly is a gentleman and a scholar and I appreciate him having me. Really appreciate the Heritage Foundation for hosting me and also just want to thank Manhattan Institute for supporting this work that I’ve been doing.
I’d like to actually start by complimenting the New York Times, which is hopefully the most controversial and heterodox thing I’ll say today. The New York Times actually ran a very interesting feature recently where they looked at personal income and the share of personal income that comes from transfers. They had a map of the entire country and they’d shaded each county by what share of personal income had come from transfer payments. And in 1970, you had sort of a light beige map with a few splotches of pink to red where you were getting up toward 20, maybe even 30% from transfer payments. And then they had the map in 2014 where essentially the entire map was pink to red and you had some dark purple sections where literally a majority of all income in the county was coming from transfers.
And I think this is essentially a Rorschach test for where we are as a country and how we feel about our economic policy, because from one view, this is actually a quintessential reflection of the success that we have had. The model of economic development we have pursued for several generations, which is captured in the concept of the economic pie, is that we’re going to grow the economy. And then if we need to we’ll redistribute so that everyone can have more than they did before. And that’s in fact exactly what we’ve done. GDP is three times what it was at the time of the earlier map and redistribution is about four times what it was. So from one view that bright red map with all those purple splotches is success. That is in fact exactly what we were promised and what we said we were going for when we said we’re going to grow the economic pie. And as long as on net we win, we can always compensate the losers. The darker the red, the more compensating of losers is going on.
I think at the same time, most of us would say intuitively and virtually all of the evidence about where we are as a nation would tell us that this is not success, that this is actually deeply problematic. And so, I think the right analogy is to kind of movies about, the classic romantic comedy where the trailer intones about the lead figure, she had it all or so she thought, right? She has the apartment and the car and the cool job, and yet she’s not happy because these superficial things turn out to be what has not mattered most in life.
So, what have we gotten wrong? I think it comes all the way back to something Adam Smith wrote and I’ll read the quote because it’s really quite striking. “In the wealth of nations,” he writes, “Consumption is the sole purpose of all production and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that over the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it.”
Now as a rule of thumb, when you say your maxim is so obvious you don’t have to prove it, that’s a bad sign for your maxim. But in particular, this is actually the perspective that we’ve embraced. We’ve embraced an exclusively consumer-welfare focused view that says that as long as consumption is rising, as long as living standards are improving, people are going to be happy. And that ultimately is this thrust of the idea of the economic pie that does reflect the centrist thinking of our country. It reflects the Wall Street Journal editorial board and the New York Timeseditorial board talk about economic policy. You can find left of center think tanks and right of center think tanks talking about it. Virtually every president since Truman has used the metaphor.
And what the economic pie misses—to stretch the metaphor much too far—is it ignores who’s baking the pie. It says as long as you get big enough slice, everybody likes pie, so everybody’s going to be happy. But in fact we know in a sense that that’s not what people care about most. And so the focus of the book and what I want to talk to you about today and try to persuade you of is what I call the working hypothesis. I actually wanted to call the book the working hypothesis. I thought it kind of had a cool, edgy, spy thriller kind of feel. And then everyone else said it has like a wonky, nerdy, boring book kind of feel.
So, The Once and Future Worker it is. The introduction is still called the working hypothesis because you get to name your own chapters. That’s it. By the end of the book process, you’re kind of like, what can I still control? And it’s like, well, they’ll let you name your chapters. So I have that going for me.
The working hypothesis is this. It’s that a labor market in which workers can support strong families and communities is the central determinant of long-term prosperity, and so it should be the central focus of our public policy. And so the three things I want to try to persuade you of today are first of all that this really is different from how we have been thinking about economic policy. Second, that it’s true. And third, that it has some important implications, both conceptually and then in a whole host of policy areas that we should think about.
First of all, how is this different? How is it different to talk about the labor market and workers as the group that we are concerned about instead of focusing on consumers and consumer welfare? Well, I think it plays out in a bunch of ways. One is what are we optimizing for? If your focus is consumption, if this economic pie, or what I would call economic piety, is the way you’re thinking about the world, we’re optimizing for growth. Whatever produces the most growth is at the end of the day going to be best for anybody.
If you take the working hypothesis seriously, you’re actually more interested in self-sufficiency. You ask, what share of the population is able to achieve self-sufficiency and how are we moving that share up or down over time? You think differently about net versus gross effects. If growth and economic piety are what you care about, then you always just look at the net effect of your policy. And you say, as long as the gains to the winners exceed the losses to the losers, that is welfare enhancing.
If you take the working hypothesis seriously, you actually focus much more essentially on a floor below the losers. You say, you know what? Some policies, even if they’re going to create bigger gains for the winners than they create losses for the losers are not actually good for us as a society. And there’s a formal economic way to think about that, which is that at the margin, yet more wealth for the wealthy might not actually be worth as much to them as more pain for the poor. And there’s a more conceptual way to say it, which is that, once you’re past a certain threshold of wellbeing, you’re not really who we should be focusing on as we formulate our policy. Whereas for the folks who are struggling further down the income ladder, their absolute position actually matters quite a lot.
This dichotomy has an important effect for how we think about economic growth relationship to society. So I think a lot of the focus that we have had on economic growth presupposes that economic growth is the foundation of a healthy society. If we have the economic growth, if we have the rising material living standards, then all of the other things that we want in terms of a strong and stable and healthy society will follow from that.
If you take the working hypothesis seriously, you realize you actually need to flip that on its head. That it’s not that economic growth brings you everything you want, it’s that actually those basic necessities of a healthy society, of strong families and communities, that’s the non-negotiable foundation and the economic growth that we want is actually the emergent property that you get when you actually have the healthy society. And so in crass terms, because every economic talk must now refer to iPhones in one context or another, the question is, which do we care about more; having an iPhone or getting to make the iPhone?
Now, why would it be true that the working hypothesis is correct? I think there are two dimensions to this. One is focusing on why work is so important. And then the second is understanding why policymakers actually need to attend to it. So, why is work important? Well, I think we know, and virtually all of the evidence tells us that work, that productive activity that contributes to society, to one’s own wellbeing, to one’s family, is actually much, much more important to life satisfaction than is level of consumption.
We know that work, and particularly having a job, is closely tied to self-esteem, it’s closely tied to mental health, is closely tied to happiness. And I tend to be someone who is very skeptical of happiness studies. I think it’s a pretty squishy way of doing things a lot of the time. But good happiness studies look at the same people over time. So now you have a control, you have a real baseline. And one striking finding is that most people have kind of an underlying level of happiness. Some of us are just happier than others and that’s how it goes.
But one thing we find is that life events create temporary changes in happiness, but not permanent ones. So births, deaths, marriages, divorces, even permanent disability will create a blip up or down in your level of happiness, but within a relatively short period of time you essentially get used to it and return to the level you were at. The only exception that we are aware of in the literature is joblessness. People do not get used to unemployment. People who were working and no longer work move to a permanently lower level of happiness. At least over the timeframe we’ve studied, they never recover from.
So, it’s deeply important to individuals in the sort of intangible life satisfaction respect. It’s also incredibly critical in terms of very tangible economic outcomes. Redistribution, making sure that everyone has enough to live on is a great way to maintain people at one level, but it also guarantees that they’re never going to move anywhere. You can’t get a second job if you don’t have a first job. You can’t develop skills, you can’t build a life if you are dependent on transfers. And so work also is critically important to individuals opportunities.
Work is equally important to family. And here work seems to have a particular importance for men. For men, having work is critically important to family formation, and we should expect that given both the economic and social rationales that drive family formation in the first place. Equally work is critically important to family stability. Again, for men, unemployment is a key predictor of divorce and drives divorce rates extraordinarily higher, relative to the kinds of effects you would typically see in social science literature.
And work is critical for children. Children have better outcomes in families where at least one parent is working and even more strikingly from the work that Raj Chetty does looking at the overall characteristics in different regions. Just being in a community where people are working actually turns out to be very important to the outcomes of all of the children in that community. So work’s important for individuals and it’s important for families. It’s critical to communities themselves. Communities in which people are working and contributing to the economic vibrancy of the community are ones where you’re going to have more investments in everything from housing stock to public goods, to engagement in social activities.
In a lot of communities, work is itself a nexus of community. Work is what gets everybody out of the house and to a place where they’re interacting with other people every day. And just to pause on that point, one question that comes up a lot when singing the praises of work is well, but aren’t there other great things that people do when they aren’t working, right? So you look at all the men who are out of the labor force, someone will always ask, well, aren’t they taking care of kids or sick relatives or in school? Well, no, actually we have very good time use data from the census. Women who are out of work are doing many of those things. Men who are not in the labor force are sleeping and watching TV, and video games is a subset of TV there.
So that’s what people are doing when they’re not working. And obviously that’s not conducive to community. And there’s a very real concrete economic implication for communities, which is that while it is fashionable to pretend that we just sort of have this nostalgic attachment to manufacturing, it actually has very important economic implications to make something that other people in the world want. Most of the things that the community wants need to be sold to it from elsewhere in the world: cars, electricity, medical devices, medicines, you name it. The community needs to have something it can send in return. You can’t all just serve each other coffee.
And what you find in communities that no longer have those kinds of industries and the capacity to produce tradables to send to the rest of the world is that they literally have to export need. What does exporting need mean? It goes back to that purple chart. If you don’t make anything, the only source of income from the outside world to acquire things from the outside world is transfer payments from the government. So you can drive around an incredibly depressed region of the country and find just a fantastic, shiny new occupational therapy office. That is literally the community’s exporter. It is exporting care of the people on disability in the community to the taxpayers of the rest of the country.
And as you move up to a higher and higher share of a community’s income coming in the form of transfer payments, it becomes need, it becomes enrollment in government programs that is actually now what the community has to rely on for its economic vitality. And you get to the point where under the Obama administration, the USDA was actually promoting food stamp enrollment as good for your local economy because every dollar in food stamp benefit you spend creates a multiplier effect within the local community and for the retailers. So that’s the direction community heads when you don’t have work.
And finally work is critical to the economy over time. Even if we want to focus on growth as the end all be all focus that we have, we have to recognize that whatever’s best for consumer welfare in the moment is not necessarily what is best for the trajectory of the economy over time. That the industries that are likely to be sources of productivity gains, that are going to have spillover effects into other industries, that the capacity of children to grow up and become productive contributors themselves; all of those things are tied to communities and a country that works, that not just some people are working that everybody’s working, and that’s working in the kinds of industries that are going to foster that growth. And so for all of those reasons, I think work rather than consumption is actually the most important place for policymakers to focus.
Now, that still begs the question, especially now that we’re in the economy, we’re talking about a labor market, why isn’t the answer just let the market work and you’ll get what you want? And here I think it’s important to emphasize, I love free markets, and I think that markets as the way to organize most things in society either is ideal or certainly better than any other tool that we have. But the thing that’s critical to recognize about how economists talk about markets is that markets are neutral processing mechanisms. Markets take the conditions in which they operate, and they spit out an efficient result. And in most circumstances, that’s exactly what you want. The whole point is to find out how much things should cost, how many of them we should be making.
The exception to that is the labor market. And the reason that the labor market is the exception is because people aren’t products. And I don’t, I mean, it is important that in the moral sense people aren’t product. But I mean here in the very concrete economic sense, people aren’t products. For one thing, the supply of people is not responsive to market signals, right? I mean, once you get past the sort of subsistence agriculture level where literally the population you can support is dependent on the labor market functioning, we are going to have the people we have in the society, and roughly speaking they are going to have the aptitudes they have, right? Chemists have been earning very large multiples on what cashiers earn for a very long time. And that does not allow families to shift their production line from cashier to chemist. We have the mix of people that we have, and that’s not going to change.
The second related point then is that we care where the labor market lands. If the efficient outcome that the labor market is giving us is one that says, actually, a pretty significant share of the population doesn’t have a lot of very productive things to contribute or can’t earn high wages, we can’t say, well, great, thank you for telling us that. We actually have to say, no, that’s not acceptable. And so that’s the moment where we have to take a look at our free market ideology and combine it with a view that says, well, when it comes to the labor market, we want the market to work, but we care how it works and we care where it lands.
And there’s a lot that we can do as policymakers to affect that. Not in ways that interfere with the market, not in ways that say we can trump the market, but in ways that look at those underlying conditions. Let’s say if where the market is landing is somewhere where we’re not happy, then we have to go beyond the standard right of center view that says, well, wherever the market landed was right. We have to resist the left-of-center view that says, well, we’ll just yell at it until it does what we want. We have to actually look at those underlying conditions and understand why is it landing where it is and under what conditions would it land somewhere different.
And so that’s this third point I want to talk about, which is: What does it imply, the working hypothesis? If we say that this should actually be the primary focus of our public policy to have a labor market that lands in a place where workers, regardless of their aptitudes, regardless of where they are, can find jobs that are going to support their families and their communities, how should we actually be thinking differently? So I want to mention a few conceptual things and then we’ll talk about some concrete policy, which I know is the part everyone’s most excited for.
The first thing that I think is conceptually really important, especially for the right-of-center to grapple with is to recognize that this is a place where we are going to have a fault line between libertarians and conservatives. What we call right of center or conservative economic policy in this country is almost exclusively libertarian. And libertarians and conservatives I think have achieved a great deal by finding common cause in fighting things like communism. And in general, recognizing that pursuing for your markets is going to produce better social outcomes as well.
But if you reach a point where the free market, where it lands is actually creating problems for our social infrastructure, for the stability of our families and communities, for the ability of people to flourish, libertarians and conservatives are going to part ways there. Libertarians are going to say, “No, but that’s where the market landed. That’s freedom.” Sorry, I’m not a libertarian, I’m going to poorly describe why it is that freedom is automatically always the right answer. And conservatives are going to look at that and they’re going to say “Well, but no. If just leaving everything to go its own ways is eroding the ability of our society to flourish, then we have to do something about it.”
And I think we are now at a place in our country where that is what is happening in practice. And one way to understand what happened in 2016 is that Donald Trump, despite not being a libertarian or a conservative necessarily, really sort of jammed his thumb right into that wound. And I think a lot of what we are grappling with ideologically at this point is what to do at this point. And so obviously the debate about who ultimately is right libertarians or conservatives is a much broader one than we will have at this moment, but I think it’s important to understand it in these terms and to recognize that how we feel about something like labor market outcomes, we are going to disagree within the right despite sort of always take for granted that we would agree on it.
A second really interesting conceptual point is that pluralism matters. What I propose in the book as an alternative to this economic piety, based on the working hypothesis, is what I call productive pluralism. Part of which is the productive piece. This point that actually getting to be a productive contributor is important. But equally important I think is the idea of pluralism, that we need to preserve options in society. And to offset against a little bit of a strong man, but not too much of a strong man, one response to all of our troubles is to say, “Well, everyone should become a welder and move to Houston.” Like the labor market would work fine if you just moved there and did that particular job.
But that doesn’t align especially well with what people want. One of the changes that happens when you go from consumer to producer as a lens is you realize that what people want is actually very complicated. With a consumer lens, with the obsession with GDP, one of the really convenient things is it treats just everybody as a homogenous group moving in lockstep. Money is fungible. As long as we give you all money, you can buy whatever you want. If we’re taking a lens that focuses more on what kind of work are people going to get satisfaction doing and be good at doing, what kind of family lives do they want to order, what kind of communities do they want to live in? Then we have to be attendant to whether we’re managing to maintain options that are going to align well with where people want to live. That’s going to produce much higher levels of prosperity regardless of what material living standard you might find everybody at.
And so that’s a tough principle because I, my editor wisely cut this, but I called this the astronaut princess challenge, which is: How do you define options that are important, that we should preserve, without moving into sort of unconditional wish fulfillment. “But I would be happiest if I did X. So society owes me that.” And I think that is a hard question. I don’t have a perfect answer to it. The principle that I would say we should start from is that—and this move is in a very conservative direction—we should have a bias toward preserving options that have existed in the past and that have proven their viability.
So, if a man with a high school degree could support a family of four in a thriving community 40 years ago, and now he can’t, we should be very suspicious that that represents a great success for growth. If rural and urban and ex-urban and suburban communities in all parts of the country could be flourishing communities, and now despite how much wealthier we are, a lot of them can’t, we should feel like there’s something wrong with that. That doesn’t mean every single silver mining town in the Mountain West is permanently viable, but generally speaking, the kinds of configurations that have been successful in our society are ones we should expect can continue to flourish. And at the same time, we should be able to look with a very skeptical eye at configurations that have never succeeded anywhere, and yet our policymakers continue to put all of their eggs in the basket of trying to achieve.
And here the obvious one is single parenthood. We have taken the idea that a single parent should be able to have a flourishing family and somehow elevated that to an object of public policy despite having no evidence anywhere in this country or any other country that that could plausibly work. Now, there are tradeoffs you have to make. If you’re willing to live very close to a lot of extended family, it will probably be easier to make it work. If you have a certain kind of job and career and are willing to outsource the care of your children, you might be able to make it work. But I think we can have a commitment to pluralism without opening the door to whatever social engineering people might be excited about and say that we now have an obligation to pursue that as well.
The final conceptual thing I want to raise is sustainability. And the concept of sustainability has essentially been captured by the left in the environmental context. But the actual definition of sustainability is a very important one. It’s that we can maintain the underlying endowments that are important to our prosperity over time even as we grow. It turns out that despite all of the talk about environmentalism, we’ve shown an incredible ability through technological innovation and so forth to grow in a very sustainable way that preserves the environmental endowments that our society relies upon.
But our society also relies on a whole host of social endowments. And there when we look at growth, we need to ask, are we growing in a sustainable way? Are we growing in a way in which the next generation is going to have at least as strong a set of social endowments in terms of its communities, in terms of the environments in which children are being raised, to ensure that they in fact will have even greater opportunity. As of this current generation I think we would have to say we failed on that. I think we would have to say we have pretty conclusive evidence that for a significant share of the population, we are not able to extend to children opportunities to earn significantly higher incomes than their parents, or to have the kinds of opportunities their parents had. And if the pattern of growth is one that goes in that direction, then we have to say that that’s actually a problem both in the moment and for the vicious cycle that you might worry it would set off.
So finally, some concrete policy implications. I will touch on them briefly here, happy to jump into any that the group is interested in in the Q&A, but the approach to policy I’m describing is to focus very heavily on these conditions in which the labor market operates. So what are the choices we have made? And these aren’t necessarily more government versus less government. In fact, typically they’re not. They’re about the choices we’ve made about how we have configured our society and what they mean for how the market operates.
One that looks a lot closer to a lot of conventional right of center policy is the need to reduce environmental regulation. That debate has been going on for a long time, but I think this consumer-versus-producer lens actually provides an important new way of looking at it, which is to recognize that environmentalism is focused entirely on consumer welfare. The entire premise of cost-benefit analysis is to take something like cleaner air, convert it into a dollar amount, and then claim that people get to consume it.
And so when we do cost-benefit analysis now, what we do, and EPA has literally said the Clean Air Act is producing trillions of dollars of value for households, thanks to marginally cleaner air. And then on the cost side, EPA will literally tell you, we do not consider costs in terms of jobs, investments in industries, wages; either because we have this bizarre theory that our regulation has no effect on those things, or more importantly because that doesn’t count as part of consumer welfare. And so we’re counting all of these things that consumers get in terms of cleaner air and the cost on the other side is just literally the cost of installing the pollution control equipment.
That aligns very poorly with lived experience and how we should actually be thinking of the tradeoffs that we face. And we know that because you can just go out and look at a community and see when heavier industry wants to invest in the area, do they try to chase it away or do they throw tax breaks at it, right? Especially struggling communities throw tax breaks at it. So that tells you that actually the social benefits, as perceived by these communities, greatly exceed the social costs. And if we have an approach to environmental regulation that says, no, the greater environmental quality is always worth more to people than the industrial activity, then we’re getting it wrong.
A second area that I think is very important is education. I would argue an environmental regulation is essentially the demand side of the labor market. How are we influencing which kinds of industries, which kinds of jobs investment is flowing toward and away from? On the supply side, we have to look at what kind of workers are we investing in, creating and supporting. And a very logical corollary of economic piety is our obsession with college for all. Anyone who looks impartially at the data would say college for all is a terrible idea for a large share, maybe even a majority of the population. Most Americans don’t earn even a community college degree today, and yet we’ve oriented every stage of our education system to push as many people as possible through at least a BA. And essentially it allowed everyone who falls out along the way to just be people who fell out along the way.
That’s actually a pretty great way to produce growth because you get some very productive people at the top. But coming back to those kinds of dichotomies that we thought about, if we’re concerned more about the floor under the people who are struggling, it’s the wrong focus. In fact, the people who aren’t completing college should be our primary focus. The education system should give them at least as much attention.
And so one place to start would be to say we really need a second track in our education system that’s focused on people who are not headed towards success in college, that gets at least as much attention in our secondary schools, that gets more funding at the post-secondary level. And by the way, I don’t mean let’s just create a whole bunch of new funding. I mean, let’s stop funding the kids who are going to college because they are headed toward higher wages and instead give the funding to the person who’s not going to complete college.
And so the thought experiment that I always offer to people is, we don’t like tracking in theory, but isn’t it bizarre that we’ve allowed every town to have a college prep public school and if you want a vocational education, you can kind of go three towns over or something. And if there’s a tradeoff to be made, it’s actually probably a lot more important that every town have a really great vocational program. And if you want college prep, you can go three towns over or pay more.
Another important area is how we draw boundaries around our labor market. And talking about trading immigration comes out very differently if you take this producer focus. Trade, in particular from a consumer welfare perspective, more trade is always good. It’s quite easy to prove that. From a worker perspective, it’s not true that more trade is always good and no economist would tell you that from a worker perspective, more trade is always good. And so we actually have to scrutinize that harder. I think more trade can be good, but we actually have to care about the balance.
We have to look at trade deficits and say, wait a minute. If we are engaging in arrangements where other countries make stuff for us and instead of us making stuff for them, we just send them assets. We send them our real estate equity. We send them treasury bonds, which are literally just IOUs that we’ll pay for at some other time. That’s not going to work from a worker perspective.
And then finally I think we have to look within the labor market. Organized labor is an area that conservatives have essentially celebrated the demise of because the 1930s-style unions that exist today are a disaster. But in theory, the premise of organized labor should be one that we’re excited about. We should want workers to be able to organize, to work for their mutual aid, to bargain collectively with employers. And there are other systems of organized labor in the world, some in Europe, some even flourishing kind of outside the traditional system in the US that point in the way in that direction and that we should be speaking positively about.
And then finally we have the option if you want more of something, you can subsidize it. If we need more low-wage jobs and we need them to pay better, it is perfectly within our capacity to put more money into people’s paychecks. And that doesn’t have to mean that the federal government spends more money. We spend more than a trillion dollars a year on the safety net, virtually all of which goes either toward things that actively discourage work or else ignore it entirely.
It would be perfectly within our capacity to instead say, just like we have a payroll tax that takes money out of people’s paychecks based on how much you earn, written under that on your pay stub is going to be a line that says work credit. And for low-wage workers, there’s going to be money going into those paychecks. And if you took our trillion dollars and said, a solid 200 billion of that, instead of running through benefit programs that subsidize not working and that go away when you start to work, a big chunk of that we’re actually going to put into paychecks. It would encourage the creation of more jobs. It would encourage more workers to come into the workforce and take those jobs. And it would make sure that those workers are getting closer to being able to support their families with their paychecks at the end of the day.
So obviously a tremendous amount to talk about. I think the conceptual debate in a sense where we need to start because there is, particularly in the right of center and I think in the country as a whole, there’s a tremendous amount of interest at this point in recognizing that we need to think about doing some things differently for the folks who have been struggling for so long. But beyond kind of the political talking points, I don’t know that we’ve gotten to a good enough explanation of what went wrong and therefore what we would need to do differently.
And so conceptually I think talking in producer or worker interest terms gives us a new place to start. And then if we can agree that we want to talk in those terms, there’s been a huge debate to be heard about every policy area, but I think it will be a better one for us to be engaged in.
Thank you very much. And I guess anyone who has a question should raise their hand. Oh, sorry. I’m supposed to bring a mic down, too.
Question: Just about all of the policy prescriptions you’ve advocated have been advanced by the despised Donald Trump. Therefore, I love them all. But I’d suggest one more, and that is bankruptcy, particularly with respect to the 5 or 6 million young Americans who are debt slaves by virtue of educational loans for an education which doesn’t give them jobs. What do you think of that?
Oren Cass: I think the college debt crisis is a really tough one because we don’t actually have a college debt crisis, we have a dropout crisis. And by that I mean if you look at what’s happening for people who actually complete college and successfully earn a degree, their debt burdens aren’t actually higher than their burdens have been historically. What they are paying as a share of their income, and especially as a share of the higher income that tends to accrue to the completed degrees, isn’t higher than it used to be. We also have a tremendous share of the population that has been pushed into college, told to accrue this debt, but doesn’t complete the degree and they now have the debt and they don’t have essentially the value on the other side of it.
So I think that’s the group that we should be attending to. I do think we need to find ways to offer them relief, but I would say we need to do it, A, in the context of broader reform, meaning we’re not going to do this relief while at the same time just manufacturing the next version of the crisis. And I would say we also need to do it in a way that has the institutions that collected all this money and didn’t produce any value in return somewhat on the hook and that part of the skin in the game and part of the solution, even if it turns out to be symbolic in dollar terms, needs to come from a haircut for the segment for the higher education industry that collected all this money and didn’t produce a return in the process.
Question: Excuse me. I just thought I would defend Adam Smith really quickly. In his theory of moral sentiments he does have the passages on the prudent man, which I think shows that he knew the value of work despite that glib comment in the wealth of nations. But other than that, I mean, do you really have a problem with economic growth or do you think it might just be mismeasured. In Tyler Cowen’s Stubborn Attachments, he argues for a measure of growth I think he calls “wealth plus” that would, I think, try to capture some of these ways of measuring life satisfaction. Would you be in favor of something like that? And still because, I mean, I don’t know if you really have a problem with growth in the abstract, so I’ll just leave it for you.
Oren Cass: Thank you for that question. I don’t have any problem with economic growth. I think economic growth is great and I think it’s in fact necessary. And I think we have to acknowledge the value that comes with growth and rising living standards. It’s certainly not that those are bad things. I think as you described, to some extent is a measurement problem and that better measures, I’m hesitant of just doing growth plus and saying we’re going to essentially take what we have. But if we count, we can essentially force more things into the same metric.
I think there’s in part a different set of metrics that we should give more attention to. And that if we did that, we could essentially have a more balanced view of how things are going. So there are some metrics that already exist. One that I think is really important is the savings rate. From a consumption driven perspective, in a sense almost the lower the savings rate is the better. And you see since the 1970s through today a sharp decline in the savings rate. But savings is actually really important. Having not just higher income households, but everybody be in a position to save because if they actually are saving reflects both in economic and cultural terms something closer to I think the outlook that we’d want to see if we believed we were really flourishing.
And then the other thing I’d say is that I think we just need to collect some other information. I mean, people who work on these issues know that if you dig deep enough, you can find in all of the census data and so forth great data on exactly what’s happening to family formation and family structure and opportunities for children. But it’s really hard to do and the data is typically two or three… I mean, right now we’re looking at 2014, 2015 data in some cases.
And so I think if you took this view seriously you would say, we can give just as much weight to having a real-time picture of information about those things. The example I give is there’s no reason we couldn’t have the employment report on the first Friday of every month and an update to the social index on the following Tuesday. It wouldn’t be any harder to know these things in real time than it is to estimate GDP to a tenth of a percentage point every quarter, or call 60,000 people to figure out labor force participation every month. You just have to agree that it matters and say that we actually want to give it the attention.
Question: A two-part question. One, what if any connection exists between the problems in our labor market and centralized decision-making here in DC? And as a follow-up to that, to what extent do you think a successful implementation of your working hypothesis requires a preference for state level policymaking?
Oren Cass: I think there are some places where the centralized decision-making is problematic, and the answer is better centrally made decisions, and some places where in fact the whole idea that it should be centrally made is problematic. So in the former category, I would put something like the way we do environmental regulation or the way we do employment regulation. I think for a lot of reasons, it makes sense to have an EPA and federally set standards for various things. I would like to see us do those more sensibly. And then certainly give local areas more flexibility in how they implement and in a sense how they want to prioritize. So there’s no reason you couldn’t say, look, the Clean Air Act says we have to set a standard for what we think the threshold is for clean air. But each county or each state actually gets to choose how quickly they want to try to get there. That strikes me as a very sensible balance.
Organized labor is another one where throughout time, and I think there’s a fair bit of agreement across the political spectrum, it makes sense to have a national structure of organized labor. I mean, big employers, among other things, who are operating in countless states don’t want to be dealing with a different labor structure in every place they do business. And there’s a lot of value from the labor side to being able to operate organizations that work in the same way everywhere. That’s a place where I think you just have to take the NLRA, the National Labor Relations Act, though, and say it shouldn’t be something that says you can only have one kind of union.
So, there’s a very specific provision in there called Section 8(a)(2) of the National Labor Relations Act that prohibits any kind of collaboration between management and labor outside the context of a formal union. That’s crazy. Maybe it made sense in the 1930s when you had management kind of trying to create these secret management-controlled unions. But there’s no reason to believe that would happen today. And in fact, if you survey workers, you find by huge margins they would prefer a collaborative relationship with management even if it meant they had less power over an adversarial relationship where they did have power. So for the sake of workers and employers, it would make sense to open that up.
And then when you look at how federal employment regulation works, again, I don’t think there’s necessarily a problem with saying, if you have an unorganized workplace where it’s every kind of individual worker and then the employer, there are places where it makes sense to have employment standards, but the whole premise of collective bargaining was supposed to be that the workers can look after their own interests in that context. And so it’s crazy to say, we’re going to have all of our federal standards, and then collective bargaining has to happen on top of that.
It makes much more sense to say, if you have an organized labor force in place so that you can collectively bargain, you don’t need the federal standards. You should be allowed to depart from them in whatever direction you want. And if you did that, the workers and the employers, they could use the federal standards or they could come to agreements that both sides liked better. You’d get more efficient agreements and you’d actually get employers that are wanting to have a counterparty to work with, which I think would be much more constructive.
Last one, just because I promised one place where we do need to get the federal government out. When you get to the safety net, the way we are running the safety net through the federal government doesn’t make any sense. The federal government, it makes sense for the program to raise the money through the tax system. But what we then do is we have literally more than a hundred different programs all created at different times through different legislation run through different agencies that just make rules. I mean, virtually every anti-poverty program is already implemented by the states. Because Washington knows it can’t do it, so it just sends money with crazy rules attached.
What I call, “implement Section 8 housing vouchers, however you want,” that doesn’t make sense. I do think that the federal government raising the money makes sense both for countercyclical reasons and redistributive reasons, but I would much rather have the federal government say, we’re going to run this wage subsidy with one chunk of the money and the rest of the money we’re going to send back to the states through what I would call a flex fund. Meaning each state relative to their population gets its share of the safety net funding. And with that, you can go figure out however you want to take care of those who truly can’t work and support themselves.
And if you did that, you would get to a system where state and even down to the local and nonprofit level would have a lot more flexibility to address the actual needs of individuals. First of all, to distinguish between those who can and can’t work, and then to address the actual needs of those who can’t work rather than just kind of trying to create a “not working” system that starts to look a lot like what people can achieve if they do work.
Question: You addressed the implications of the working hypothesis for a number of domestic policy areas, from education to immigration and trade. I’m curious of the potential implications in two other areas. One is in Fed and monetary policy, addressing the business cycle and the unemployment that comes with that, and the short-term risks and consequences for the market and for workers of that. Then the second is in financial reform broadly. Not just enabling Americans to work and earn money, but more importantly to build wealth. And how do we address loans and savings and the fiscal responsibility that we need to actually create the healthy families and communities that you speak to.
Oren Cass: Yeah. Thank you for that question. To address the monetary policy side of it, I do think one implication of the working hypothesis is we should probably have a bias towards slightly looser monetary policy. I mean, obviously you don’t want an economy that’s overheating; at the point where you get inflation you do have to respond. But we currently operate in this environment where even though the inflation target is 2%, the acceptable rate is 0 to 2%, right? And as soon as we just start going up, we think something must be wrong. I think it would make a lot more sense to say, all things equal, 1 to 3% should probably be the range we’re operating and 2% is the target. And we should actually say, rather than have a bias toward preempting any inflation, even at the expense of tight labor markets and wages, we’re just as concerned about preempting in the reverse. So I do think that’s one implication.
The other thing I’ll mention, I’ll take that question as an opportunity to mention is I do think it’s important as we look at the current economic moment that we’re in to distinguish between the secular and cyclical trends that we’re seeing, because there’s no question we’re in a very tight labor market right now. And that that is a good thing for workers. Two caveats are really important. One, it still does not look as good as the top of past business cycles. So the share of prime age males out of the labor force right now is worse than in 2006, which was worse than in 2000, which was worse than the late ’80s.
You see a similar trend with wage growth. And so part of what I worry about is what I call kind of bumps on a downward slope, which is that the actual secular trend in our labor market has been declining for a very long time, but thanks to the business cycle every now and then it looks better. And typically just in time to release the political pressure from actually addressing the downward trajectory. So I think we should be able to hold the two thoughts in our head simultaneously, that we should celebrate that this is better than not being going up, but we can’t lose sight of the direction we’ve been on and where we should be worried we’re going to be the next time the cycle turns.
And where this connects also back to monetary policy is to recognize that tight labor markets and wage growth feel great in the moment, but they don’t mean anything if they’re not actually linked to productivity gains. And in formal terms, that’s just what inflation means. If you have to pay people more but they’re not doing more, that can only go on so long in terms of creating real, better outcomes for people, either consumers or workers. But I also think it gives us a good way to evaluate what’s happening and to say, I think there are some very good changes we’ve seen in federal policy recently, but a lot of the ones that we would point to and say, well, that’s been good for where we are in the economic cycle look a lot more like just goosing a tight labor market than they do actually taking on these things that would change you from this trajectory to this trajectory.
And so that’s the things in the book that I want to focus on are not just how do you keep the labor market tight as long as you can, but how do you change the underlying conditions so that whether you’re in a tight labor market or not, you’re starting to move in the direction of investing in the typical worker creating conditions in which he’s going to succeed as well.
Then you had a second question. Oh, financial regulation. I apologize. As I mentioned, savings rate, I think that’s a great way to look at it. I know nothing about financial regulation so can’t say a whole lot else insightful about it. Maybe I don’t say anything insightful about anything, what do I know.
Question: Liberals from Locke to Tocqueville have talked about the importance of property and you did mention savings rates, but so let me ask you the question. Let’s assume that we put that on our index as important, but would you be satisfied if we had increased savings rate and yet we had a nation of renters or is property part of your overall equation for health of a nation as well?
Oren Cass: That’s a really interesting question. I don’t have a definitive, like I thought about this and wrote a chapter in the book about it answer, but I’ll offer a thought, which is that I don’t think real property, especially in the form of home ownership, is something we should conceive of primarily as a savings mechanism. It’s nice that historically housing prices have gone up for some people. It’s really bad for other people. Structurally and how our economy develops, I don’t think it’s good that we have a bias toward rising home prices necessarily. So I think savings and investment, first of all preferably in slightly more liquid forms. And secondly, in slightly more productivity-focused forms. If I had a bias, I would prefer to see that over an emphasis on home ownership over renting.
Question: I raised this because you can’t really have stewardship of a community unless you have ownership within it. So something to think about.
Oren Cass: Yeah. It’s interesting point. Thank you. Let’s go back this way.
Question: Thank you. I wonder if you had any thoughts on sort of domestic competition between larger and smaller companies? I mean, sort of in the context of Amazon this week flirting for two years about moving into the Midwest and then choosing New York and DC. But also something you mentioned earlier sort of the tax incentives that smaller towns and states often have to offer these massive companies which may have consequences as well.
Oren Cass: Yeah. Thank you. I think it’s probably overstating to say Amazon ever… Well, maybe flirting is exactly the right word, or teasing in some way all of the other places they pretended they might go. I alluded to the tax breaks being thrown at companies I think as a good illustration of how we should understand how people perceive trade-offs. I don’t think it’s a good policy tool. And in fact, in talking about wage subsidies, I like to use, could use Amazon now, but the Foxconn example in Wisconsin as sort of a really useful counterpoint where it’s really interesting to think about something like Wisconsin is going to throw a huge amount of money at Foxconn to come to Wisconsin and think about how that cuts across how we’re used to talking about policy debates.
I mean, on the one hand you’d say like, well, that’s big government, I guess, in a way. On the other hand, a lot of things they were doing was essentially just trying to compensate for all of the onerous costs. Once you open up to an international economy, you have an even bigger problem, which is free trade makes complete sense in terms of saying we want to extend our market principles. But if in doing that you include in your boundaries jurisdictions that are not employing free market principles, you create a real tension. And so, I don’t know that the worker in Wisconsin is especially concerned about whether we’re being big government or small government if we’ve already adopted a policy that says they have to compete with someone who’s being massively subsidized somewhere else.
I think partly for economic, but especially for political economy reasons, we have to resist the firm by firm incentive as the way to cope with this. And that’s why I like to talk about wage subsidies as what I see as more a way to affect the underlying conditions that the labor market is operating in. And I actually think it’s incredibly important to hold the line if we go in that direction with a policy of refusing to tailor it. So some people, including a colleague of mine, have done very thoughtful work showing how you could do a regionally targeted wage subsidy. That’d be cheaper and you could believe you’re getting kind of the most bang for your buck.
I think the political economy of trying to open up a question of like, well, which regions should get the wage subsidy is a disaster. You see the same thing with like, well, maybe we should have the wage subsidy, but just for people of a certain age or just for people who have been recently laid off. Maybe we should use it for ex-convicts. As soon as we decide who should get; first of all, it’s a political economy disaster. Now you’re just distorting the labor market more.
And so, I think the right way to think about this is all of these subsidies, all of this activity, these are symptoms of people realizing the labor market is not delivering the outcomes that we want as a society. But whether it is left or right of center approach of throwing incentives or the clearly left of center approach of just yelling at it to do something differently isn’t going to work in economic or political economic terms. We have to find neutral ways to say we can alter the conditions the market’s operating in without actually kind of picking winners and losers in the market.
Question: Thank you for talking to us. My name is Dominic. I’m an intern here at Heritage, and I’m also a student at George Mason University. And as was mentioned before, George Mason professor Tyler Cowen recently wrote a book where he claims the economic growth and human rights should be the two focuses of public policy. With the high growth we’ve seen in the last year or two, we have some of the lowest unemployment we’ve had in a long time and more jobs currently than there are people willing to work them. And I understand a lot of that is because of low labor force participation, but what do you think of professor Cowen’s argument and what do you think of those job numbers?
Oren Cass: I apologize I haven’t read his book yet. It’s right at the top of my to read list. But I’m certainly familiar with his argument and other things he’s written on this topic. One thing I would say about it is just to reiterate that I think economic growth is critically important. I’m very strongly in favor of it and want to make sure we remember that if we’re not getting it, we’re not going to be happy. But I think with that, we have to recognize that not all economic growth is created equal. That it’s perfectly possible to achieve economic growth in ways that don’t actually achieve what we mean when we say we want economic growth.
David mentioned in my old life I was a management consultant, and a little bit of my perspective on this comes from doing projects in the business world where you find a firm will choose some metric to hold people accountable for, to report to the board, to base bonuses on. You pick a metric and people will nail it on that metric, right? And at first glance it can even seem like the sensible metric, but if you put too much weight on it, even… First you have big fights like, well, do we want revenue growth or profit margins? So on and so forth. Even when everyone agrees profit margin is the thing we want, if you just then go tell everybody like, all right, bonuses are based on profit margin this year, you can get an awful lot of profit margin that leaves you in a much worse position at the end of the year.
And so part of the solution is in terms of having a more nuanced set of things to look at, but then part of it is I think also being willing to accept that we have politics for a reason and that policy making isn’t just a question of figuring the right levers to pull in the model that spits out the highest number at the end of the day. It requires more nuanced conversation about particularly for folks who are struggling why that’s happening and what they need. And then the jobs question I think I would come back to kind of the cyclical versus structural point. And certainly we should celebrate where we are while recognizing that I don’t think we have a right to have confidence that we’ve actually changed the trajectory. All right. I think I have time for one more. Last question, right in the middle.
Question: Thank you. There’s an old saying that a man with one watch knows what time it is. A man with two watches is not so sure. Similarly, a person who knows one way to live knows how to live. A person who knows more than one way is not so sure. This idea of five days a week getting up, leaving your house, going spending eight hours doing something you probably would rather not be doing in order to survive is not the only way to live. It’s not even a very good way to live. But that’s what we all know and that’s what we think about. Now, it’s been about 80 years since the US went to a 40 hour workweek. Since that time, non-farm productivity has increased by over a factor of five, farm productivity has increased by even more than that. But it’s—
Oren Cass: Sorry, they’re going yell at me if I don’t make you get to the question.
Question: The question is coming up and—
Oren Cass: If it doesn’t come quickly, I’m just going to start answering.
Question: Oh, okay. But the thing is 50 years ago major economists were predicting that by today we’d be working 24 hours a week because productivity is way up and it’s actually getting, in spite of what people are saying, it’s actually growing faster than it used to, and it’s going to be going up. And what is so terrible about not working so well? I haven’t worked in 29 years and I’ve been very happy.
Oren Cass: It’s interesting. I thought you were going to go a different direction with the question because when you talked about sort of the one watch versus two watches, I think you described the one watch person as probably happier and better off. The person who doesn’t know what time it is is better off. I would say the person who does know what time it is is better off and that for a huge share of our population, actually knowing what is expected of them, having a life script and having some clear obligations that they can fulfill through which they can attain respect and stand in actually is very crucial to definition of a good life. And one thing that we—
Question: That was the support for slavery.
Oren Cass: I’m not sure that’s quite right. All right. Well, what I’ll say is I think we misunderstand what work means for a lot of people. And survey data actually shows most people are satisfied with their jobs and the reason that they’re satisfied with their jobs isn’t that they’re changing the world necessarily. But that actually work is something that people want to have and that they’re happier when they have it than when they don’t.
Now, consistency is certainly very important. And so the last thing I’ll say to kind of conclude the talk is that I think our culture and how we think and talk about work is actually a big part of this. And that’s sort of the last piece that I address and that I think we have to grapple with is there are things outside of the policy levers that we can pull and the way we think about work and what kinds of work we treat as important and contributing and respectable actually has concrete meaning. It’s not intangible because if what matters to people about work isn’t just the money in their paycheck, it’s what they see themselves as accomplishing, what role they are playing, how they think other people see what they’re doing.
And then if you take those things away, if you say those things don’t have value, you’ve essentially given them a pay cut. I mean, you’ve done something that’s just important to how they’re going to feel about their work, whether they’re going to want to work as a change in their market wages. And so I think we have to be attuned to that as well and have a cultural discussion as well about how we treat the typical work-a-day job that is central to somebody’s life, that is the way that they contribute, and that is going to be important to their family and their community. Thank you very much.