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Critics Corner with Michael Strain
In this episode, Michael Strain joins Oren in the Critics Corner to discuss what he calls “grievance-onomics,” the reasons we should or should not have confidence that corporations pursuing their own profits will act in ways that benefit the American people, and policy implications on issues ranging from trade and investment to education and immigration. Michael is the director of economic policy studies at the American Enterprise Institute.
About Critics Corner
Today’s public policy debates consist primarily of people conversing within their own echo chambers while tuning out disagreement. To make progress on contentious issues, we need to better understand opposing perspectives, clarify points of agreement and disagreement, and collaborate on finding a constructive path forward. American Compass has no shortage of critics, so we figured, let’s have them on a show.
Critics Corner brings together those who disagree—whether on fundamental questions or specific policies—in the spirit of American Compass’s commitment to combining intellectual combat with personal civility. Neither debate nor interview, it’s a conversation between people eager to identify the source of their disagreements and the potential for common ground.
Oren Cass: Well, we are excited to welcome Michael Strain to the Critics Corner, one of our most trenchant yet amicable critics. So, Michael, welcome.
Michael Strain: Thank you, Oren, and thank you so much for having me and thank you for having a Critics Corner. I think this kind of engagement is desperately needed and terrific, so thank you for having me.
Oren Cass: Well, it only works when people come, so thank you as well. The topic du jour, which I think will be a good jumping-off place for us to cover lots of ground is in the new issue of National Review, you have something of a barnburner of a feature entitled, “Forget the Economics of Grievance,” which all our listeners should check out. And I think you say essentially that a lot of folks on the right are peddling what you call a grievance-onomics, which will hurt workers and consumers in the economy as a whole in insidious ways. Unpack that a little: What do you mean by grievance-onomics, how is it peddled, and what is the insidious harm?
Michael Strain: Well, I think that there are maybe two aspects of it that I would focus on. One is what I would describe as an unwarranted pessimism about economic life, economic circumstances, economic outcomes, economic past, and economic future. This is perhaps most famously manifested in President Trump’s inaugural address where he painted a picture of—I think I’m quoting accurately—rusted out factories scattered like tombstones across the landscape of the United States. This is present in a lot of the rhetoric of Senator Josh Hawley, for example, who really laments the condition of the typical American workers, typical American households. And this is not strictly an empirical question, people can look at the data on measures of economic outcomes and come to different conclusions.
But I think that the narrative has gotten so far out of whack that I think that there’s actually disagreement on some of the empirics as well, which I think does a disservice to the public. And so economic pessimism is one component of it, and then another component of it I think is an effort really to stoke class divisions, where the working class is pitted against the elites or the working class is pitted against Wall Street, or the working class is pitted against academia, or the working class is pitted against globalists or what have you, things of that nature.
And the confluence of that class-based animosities and economic pessimism is what I was describing in this essay. People who I think traffic in this, like Senator Hawley—not exclusively Senator Hawley—end up with a narrative that things have gone really, really terribly for most people, they are not to blame for that, they can’t do anything about that. It’s this other group that’s responsible for it, and that group needs to be held to account or taken down a peg in some fashion.
Oren Cass: And so, in tangible terms it seems like your frustration is in a lot of cases with the actual policies that that argues toward. So it tends to argue against globalization in many of its facets, toward things like an industrial policy. And in the article you lay out the case for why you think those things will ultimately make everyone worse off. Starting with industrial policy as a really interesting illustration of maybe a lot of these debates, you refer to it in terms of micromanaging domestic industry and central planning. I guess I would define industrial policy in quite different terms, in that I think it is certainly very distinct from central planning, where a central planner is sitting in office somewhere trying to tell various factories or businesses how much of what to make.
Industrial policy, in my mind at least, is a much more macro phenomenon that’s concerned with where in the economy investment is flowing toward, which industries or sectors. And recognizing that some industries or sectors have particularly high social or public value that isn’t something that private market investors are going to take into account when they make their own investment decisions. So at that macro level, does that strike you as something that is worth consideration, or does it all end up falling back under the central planning framework?
Michael Strain: First of all, I think that that characterization is one that I largely agree with. I think that there is quite a distance between actual, literal central planning, as you say, deciding which factories produce what and how much, and which people work where and that sort of thing, and industrial policy or industrial policy as you define it. I think even under your definition they’re more similar I think than you are allowing for. The basic thrust is, of the industrial policy push that’s happening on the right, we look at the economy we think that there’s too little manufacturing happening in the United States, and so we need to modify the tax code or modify the regulatory code to make sure that there’s more manufacturing.
We think that this or that commodity really should not be produced overseas, that production of that specific commodity whether it’s semiconductors or medicine, certain medicines or things of that nature, we think that those things really should be made in the United States and not made overseas. And so through some combination of regulations and incentives we’re going to move that production back at home. And that I think is in some cases an impulse that I can understand, I certainly can understand why many people on the right are concerned about critical weapons systems components being manufactured in China, for example, a nation that we’re increasingly at adversarial relations with.
But I think two things. One, at the end of the day, it is quite clearly at effort to overrule what would be happening if businesses and investors and households were just left to make decisions on their own. That effort is centralized in the U.S. Congress and the White House and various executive departments. And I think that those efforts would accrue to the detriment, not just of “the economy,” but also to the working class and ultimately to individual workers.
Oren Cass: Right. I guess the problem with in my mind using the central planning language in that respect is that I think it brings with it a specific critique. So if you take the Hayekian critique of central planning and associated knowledge problems and so forth, that’s a specific set of arguments about things that markets do better than policymakers can. And when it comes to many of the things that central planners want to do or have attempted to do in places like the Soviet Union, it was quite clear that, for instance, the price mechanism is a much better way to signal than a bureaucratic meeting.
But when you then step back and ask about investment at say the sectoral level, I think you put it exactly right, you’re describing a process where policymakers would cause things to happen differently than they would if businesses and consumers were left to their own devices. The question is whether those businesses deserve any deference at the macro level. So for instance, it’s not the case that investors care what is good for the United States or the trajectory of economic growth in the United States, or the wages of workers when they make investments. I should ask, would you at least agree that that’s not in their calculation as they decide where to allocate their investment?
Michael Strain: No, I don’t think I would agree with that. I certainly agree with it up to a point. I think you’re right, of course, that investors are trying to get the greatest return on their investment, on their investment dollar and businesses are trying to make as much profit as possible. And I certainly recognize that there are lots and lots of times where social benefits and social costs don’t line up perfectly with private benefits and private costs. The manufacturing company or the factory that’s polluting the river is pursuing private interest that is at their private cost that is less than the social cost of their activities, so certainly that sort of thing happens.
I do think that a lot of companies and a lot of investors do care about the longer-term performance of the U.S. economy and do care about the longer-term prospects for the United States as a whole more broadly than the return on any specific investment decision, and there are self-interested reasons for them to do that. And so, to take an example of locating business operations in China, my expectation is that even without any action by Congress, if the United States and China kind of continue on this trajectory of being increasingly adversarial with each other, we don’t want weapon systems manufactured—Washington may not want weapons systems manufactured in China, and New York’s going to realize that.
Oren Cass: Sure. But let’s stay away from weapons components. I think the semiconductor example is a better one, even putting aside semiconductors that might go into weapons. I guess there’s both a normative and a positive question, there’s a positive question of do you see businesses… And certainly at the small-scale level, of course there are entrepreneurs and investors who take seriously a whole host of social concerns. But when you talk about the major Fortune 50, Fortune 500 companies that are allocating so much of the private capital investment, along with the BlackRocks and Bridgewaters of the world that are making the second-order allocations.
I guess there’s a positive question, do you see them taking into account what is good for American workers or the strength of American industry and innovation and growth in their individual economic decisions? And then the other side of it would be, do think they should? Milton Friedman would’ve said they shouldn’t. And so my sense has always been you mostly would agree with Milton Friedman that the social responsibility of the business is to increase its profits, and so would be curious both in the normative sense what your expectation for businesses would be.
Michael Strain: I think that businesses have an economic interest in being good corporate citizens. Businesses have an economic interest in being good employers, businesses have an economic interest in treating their suppliers well, businesses have an economic interest in treating their communities well and in treating their customers well. These are all repeat interactions, especially with large businesses. And so, any given large business could do better this quarter by mistreating its suppliers or by mistreating its customers or workers, but they’re thinking about more than just this quarter, they’re thinking about their reputation, and they’re thinking about the need to maintain good long-term relationships with all those various constituencies. And so I think that there often is more overlap between the Friedmanite view, which certainly you’re right that I described to you for the most part, and this view of corporations needing to be, in some broader sense, good citizens.
Oren Cass: Yeah. Well, and so I guess the reason we went down this path is the question was in the industrial policy context, if we leave businesses to their own devices, are we going to get a pattern of investment that is likely to be a good one—I won’t say optimal, because nothing’s going to produce the optimal one, but a good one or the best one we could hope for, for America’s interests. And I guess I hear what you’re saying about being good to suppliers and workers and so forth. It also seems to me empirically that over the last 20 or 30 years American firms have quite enthusiastically shifted their investment away from areas that would be most useful and valuable to the American economy, whether that’s through offshoring or through just frankly taking a lot of capital out of private investment and throwing it into financial markets.
And so, I guess my concern is that—and this goes to the central planning analogy—it feels like there’s an assumption that there must be some economic principle that says this is going to work out for the best, when in fact there’s not. As far as I’m aware there’s no economic principle or theory that says investors pursuing their own private interest are going to allocate their capital in ways that are in the long-term interests of the country.
Michael Strain: I think that those private decisions will result in a—and this is what I argue in the article—I think those private decisions will accrue to the interests of the working class more than efforts at industrial policy or trade restrictions or things of that nature would. And so, if the question is, we have two options, one option is to let investors make investment decisions, let businesses make business decisions, let consumers make decisions about what they want to buy, and we have a level policy playing field as a general matter. So the tax rate on manufacturing firms is the same as the tax rate is on financial services companies or retail or whatever.
I think that that arrangement will produce better outcomes for workers over the longer term than an arrangement where Washington is trying to put a pretty heavy thumb on the scale toward manufacturing, either by giving manufacturing companies a much better tax rate than other industries receive, or by putting in place regulations restricting certain activities like outsourcing or offshoring or things of that nature. It will not be better for every worker, there will be people who lose out under both of those two different regimes, but I think the regime where Washington does not engage in industrial policy produces better outcomes over a suitably long time horizon than the regime where it does.
Oren Cass: Right. I guess I’m trying to understand where this faith in investment decisions comes from. In other words, if the question is what is the most efficient allocation of resources that’s going to produce the cheapest goods at the end of the day, then I think you might have some good economic theory to fall back on. But if the claim is just that businesses and investors pursuing profit are going to allocate their investment in socially beneficial ways… I guess one way to understand what you’re saying is that there’s just a “compared to what,” that no matter how bad they are at it, Washington would be even worse if they try to be involved. But I take you to be almost making kind of an invisible hand argument, and it’s just not clear to me what the actual kind of, even at the ECON101 level, argument is that Ray Dalio at Bridgewater is allocating capital in a way that is in the interests of anyone in America, let alone everyone in America.
Michael Strain: Yeah, so, somewhere in between anyone and everyone, again. I guess I have a few thoughts in response. One is that we shouldn’t I think discount the importance of cheaper goods, and certainly right now—I’m not sure when this is going to be released, but presumably we will still be living through an era of really troublingly high inflation, at least I hope so because if this is released and that’s not true, then we’ve had some sort of massive catechism. But the ability to afford goods and services is on the minds of the American people right now and with good reason. And an economy that can produce goods and services at relatively lower prices than one with relatively higher prices, I think is really important, particularly for the working class who by definition have lower wages and income than the middle class.
I think that argument toward efficiency gets shortchanged in some of these discussions in a way that I think it shouldn’t. That’s really important to the welfare of workers and the working class. A second point is, does Wall Street know better than Washington in terms of what will actually help workers? I think the answer is yes, and the reason is not because both people on Wall Street and people in Washington are surveying the social and economic landscape and trying to make benevolent decisions. The answer is I think in some ways more complicated but also more straightforward than that, that if investors are trying to find the highest return to their dollar, then they’re going to be investing in relatively more valuable companies or industries, and that’s where businesses are going to be doing well and they’re going to be growing and they’re going to be in need of more workers.
And that is where you’re going to see that demand for workers on the part of profitable businesses—that’s where your wage gains are going to come from. Now again, not every worker is going to benefit. Certainly, if you’re talking about a one-factory town and the factory leaves town, that’s going to cause real harm to a lot of people. But for most workers, when the marginal investment dollar goes to the most profitable investment, that’s a better situation than when it doesn’t. And by definition, industrial policy wants to make the marginal investment dollar not go to the most profitable investment, and so that’s going to make workers worse off over time. A third point—
Oren Cass: Let me just ask you one thing about the second one, it seems to assume a correlation between the most profitable opportunity and one that is going to provide a relatively better opportunity for the worker. So for instance, and you can throw out my example, which I’m obviously framing to my own advantage and replace it with your own. But if I consider a choice between an investment in let’s call it a factory and an investment in an app developer in San Francisco, it may be that the return on investment in the app developer is going to be much higher—it’s less capital intensive, there are great acquisition opportunities, and one of the in fact reasons the return is so high is it requires so little labor—but it’s not clear to me how it follows that that is also the better investment for workers.
Michael Strain: Well, it’s perhaps not the better investment for workers that day or that week or that month. It’s not the best investment for the workers in the town where the factory is located. And so, you have to I think allow for a long enough time horizon when making these assessments, and you have to allow for that dollar of investment to work its way through the economy. And the dollar of investment that goes to the app developer isn’t going to go into the app developer’s mattress, it’s going to go to making that app more profitable, that’s going to generate income for the people who work for the app developer. They’re going to save that income, which is going to free up funds for other investments. They’re going to go spend that income, which is going to help the workers at the places where they spend that income. And it’s going to boost overall national income in a way that certainly is going to be better for workers over… not that week or not that month, but maybe over that year or something a little bit longer than a time horizon that you would measure in days.
Oren Cass: And what if the app developer is in Shanghai?
Michael Strain: What if they had developers in Shanghai?
Oren Cass: Yeah.
Michael Strain: Well, then it takes a little longer.
Oren Cass: Does it ever come back? What’s the story that an American worker ever benefits from the investment going to an app developer in Shanghai instead?
Michael Strain: Well, it starts to become less direct, it takes a little longer obviously. There’s a reason that dollar is going to the developer in Shanghai, and people in Shanghai buy lots of stuff from the United States, especially if it’s denominated in dollars. This is when we start to get into perhaps the third objection I have, which is, “compared to what?” And so, the question is would we be better off if we were in a situation where investors were somehow prohibited or heavily discouraged from sending their investment dollar to Shanghai. And I think the answer to that is almost obviously that capital controls are not in anybody’s interest over the longer term.
Oren Cass: With respect to China—it is certainly not obvious to me—why is it not in America’s interests to tell American holders of capital that they should make those investments in America rather than China?
Michael Strain: Well, define what more specifically do you have in mind?
Oren Cass: Well, you were saying that capital controls are obviously in no one’s interest. If the question were constraining American investment in China, there are obviously all sorts of kind of technical ways you could go about doing it, but I was most interested at the philosophical level, whether it is more in America’s long-run interest to have American investment in America rather than in China. It’s very funny if you go all the way back, Adam Smith in his paragraph about the invisible hand makes the point twice in the same paragraph that he’s assuming that all of this capital is being invested in domestic industry. And David Ricardo says the exact same thing. When David Ricardo makes the case for comparative advantage, he specifically emphasizes that he’s assuming, of course, that holders of capital are going to want to deploy their capital domestically.
And in the case of Britain, the British capital is not going to go to Portugal and specifically he says, in fact, that he hopes that never changes. So going all the way back to the classical case that I think so much of our modern intuition is built on, there has been an assumption that one of the ways workers benefit from capitalism is that capital has to work with them, that they’re mutually entangled. And so, I hear you saying, no, no, it’s obviously better to remove that entanglement, let the capital go to in this case an authoritarian, communist, mercantilist regime, and that that will in turn ultimately benefit the workers. And I guess I feel that that case requires making in a little bit more detail.
Michael Strain: Let’s set China aside and talk instead about—
Oren Cass: No, no, you just, you said it was obviously the case that we wanted the dollar to go to Shanghai.
Michael Strain: Could we have the dollar go instead to Berlin?
Oren Cass: Only if you’ll concede first that it’s not a good idea if it goes to Shanghai.
Michael Strain: I think the question of the dollar going to Shanghai becomes complicated given the geopolitical situation that we’re in. Certainly, again, to go back to the example of weapons manufacturing, I think efforts to discourage U.S. direct investment in Chinese military development are certainly worth discussing, but I’m happy to stick with the Shanghai philosophical analogy if that’s what you’d like to do.
If I’m a person and I live in Cincinnati, let’s say, and I want to invest some money in a Chinese company, an app developer or whatever, we’re back to the money doesn’t sit in the mattress situation and I get a return on that investment. Presumably, if I’m an American that that return shows up in a U.S. bank account, it can be used for other investment. If I choose to spend some of it, I live in Cincinnati, I go down to the shop, to the furniture store, and I buy a new whatever for my house, et cetera, et cetera. That money, if I’m an American, that money comes back to the United States.
And again, if the investment opportunity in the app company in Shanghai puts $100 in my pocket, the investment in the factory in Ohio puts $75 in my pocket, I’ve got more money in my pocket at the end of the day investing in Shanghai, and because that money doesn’t sit under a mattress, that money goes to work for the U.S. economy. If instead I’m investing in a multinational, then the situation becomes even more complicated obviously, but there are lots of companies that do some business in China and they don’t do all or most of their business in China. And if this is all U.S.-based or we’re talking about U.S. investors, a similar logic applies.
If I can get $100 off my investment in Starbucks, or $75 off my investment in a purely domestic U.S. factory, there’s a very strong argument that the Starbucks investment is better for the U.S. economy as a whole, including U.S. workers, even though Starbucks has some stores that are located in China. Again, I want to bracket that there may be some specific situations where that logic doesn’t make sense, especially with respect to China, but I think on the whole that’s the right way to think about those issues.
Oren Cass: Yeah. It’s interesting—this is a layman’s term, I know this isn’t necessarily exactly the technical way economists would speak about multipliers—but it strikes me that in the story that you are telling, there is in a sense a multiplier effect, where as the money continues to move back through the economy, even if step one is happening somewhere else, you still have the larger wealth coming back and that creates more opportunities. To your point, the dollar doesn’t stay in the mattress. And I want to talk about some other things besides industrial policy, so we’ll ask this last question about industrial policy and let you take it wherever you want. The sort of $100 return from investment A versus $75 from investment B strikes me as getting very nicely at the core issue, which is yes, of course, the investment that generates the $100 looks better than the one that generates the $75, but there might be a lot else going on.
So, for one thing, if the one that generates the $75 also generates $25 in a bunch of workers’ pockets, that’s not something the investor’s interested in, but you might have $100 still, just distributed differently in the second case. It’s funny you mentioned Cincinnati—I think Intel is making a $20 billion semiconductor investment in Ohio. And so it’s like, okay, well, is that any better than if they’d made that 20 billion investment in Vietnam? I could see how you could tell the story: Well, maybe if it were cheaper to do it in Vietnam, that generates a little bit more return on capital to the Intel investors who could then go spend it at Starbucks in Cincinnati, but it strikes me that if you build the $20 billion Intel plant outside Cincinnati—it’s outside Columbus but who’s counting—instead, even if investors are getting less in their pocket, workers might be getting more in their pockets, you might attract a lot of other domestic investment around it, you might generate a lot of domestic innovation.
Andy Grove, the long-term CEO of Intel, always emphasized this point that where the manufacturing goes, ultimately the innovation and everything else goes. And so, maybe it’s hard to answer as an empirical question, but I wonder how confident we should be one way or the other that we actually end up with higher long-run prosperity in the U.S. with the $100 return in Shanghai than with the $70 return on major investment in innovative domestic industry.
Michael Strain: I think we should be pretty confident about it. Again, let’s forget about money going overseas and coffee shop in Chicago, app developer in San Francisco, factory in Ohio. Obviously, the money going to the factory is going to help more workers. And if $75 comes out of that investment versus $85 at the Starbucks and a hundred at the app developer, workers are going to be better off that day, that week, that month with the $75. But the economy’s ability to create jobs and the need for businesses, not the ability, the need for businesses to compete aggressively for workers and drive up wages are going to be dampened if investments are being made in relatively unprofitable industries.
And so, then the question I think just becomes, okay, great, but what if we want workers to be better off? What if we make a political judgment—and I’m not using the word political in a pejorative sense—what if we come together as a society and decide that for whatever reason that the welfare of workers needs to be prioritized above the welfare of some other groups? So A, that’s fine, I’m not a libertarian or an economic libertarian in the sense that I think that those kinds of judgments should be impermissible or even unwelcome. So, I think it is certainly the right of society to say, “Hey, the market is producing some outcomes that we don’t think are best.”
Then we get to the question of how do we enact outcomes that we think are better? And one solution certainly is industrial policy. We might just say, “Okay, the welfare of workers as a whole is less important than boosting gains for this one industry.” Or we might say, “The welfare of workers next year and the year after, and the year after is less important than the welfare of workers in this one industry this year.” We might make those determinations, in which case industrial policy may make sense, or we can instead not favor any particular industry and not misdirect investment, not channel the marginal investment dollar to the relatively less profitable investment opportunity, but we can just do things to help workers. And we can have a tax code and a regulatory regime that encourages and that allows for investment dollars to go to the most profitable activities. And then we can tax higher-income individuals and take that tax revenue and figure out ways to help workers, or to have the kinds of outcomes that we wish to have, and that’s my preferred course of action, not industrial policy, which would attempt to help workers before investment decisions are made and before business decisions are made, but to do the kinds of things that we traditionally do to help workers through government programs.
Oren Cass: So, that’s a perfect segue, that’s where I wanted to head, which is you conclude the essay on exactly this note. You say you want to “grow the economy and use some of the surplus to create on ramps of opportunity for all.” What does that look like in concrete terms? What are the onramps of opportunity for all that we could be building if we wanted to spend money that way?
Michael Strain: Well, I think that there are several. One thing we could do is have more generous earning subsidies as a way to get people into the workforce, and as a way to boost the incomes of people who are working, who are living in impoverished households or in working-class households. There have been some exciting recent developments in worker training. I think people are rightly skeptical of worker training programs because their track record has been pretty questionable. But I feel like we’re getting closer to cracking the code there and figuring out how to actually help workers get the skills that they need that result in higher wages and better job opportunities, and so, bringing some of those programs up to scale would certainly be a way to do that.
I think offering more support to workers with young kids so that it’s easier for workers to have childcare arrangements that allow them to work more, to work jobs that have unpredictable schedules, things of that nature, to be able to manage those sorts of situations. I think there’s a lot we can do, a lot we can do better to help workers who were incarcerated to reenter society, to reenter the labor market and to better their economic circumstances that way. We have a lot of government programs that are serving as obstacles to workers earning their own success in the labor market—programs like the disability insurance program, some iterations of the employment insurance program. Certainly, with the employment insurance expansions that we’ve had in the year 2021 kept workers on the sidelines. And so not just spending money on programs, but also having better designed programs I think would be a way to help workers. And so there’s I think a lot that can be done to help the working class and to help draw people into the working class that we’re not currently doing or that we can be doing better.
Oren Cass: Yeah. I guess if I were to bucket the ones you described, it seems to me that some of them I would put more as antipoverty programs. And wage subsidy as an example is something that I’ve done work on, I know you’ve done work on as well.
Michael Strain: I think that’s further up the income distribution.
Oren Cass: What’s that?
Michael Strain: It certainly has a large antipoverty component to it, but we could move that further up the income distribution and have it help a greater number of households.
Oren Cass: You could. I’m not sure how far up the income distribution you can plausibly get just as a question of what share of jobs you’re intending to subsidize into what level. I’ve often looked at if you set a target wage of $15 an hour and try to sort of subsidize everything underneath that, that’s already an enormous program. If you try to start hitting the person at $20 or $25 an hour and giving them any sizable bump, I certainly haven’t seen any proposals out there like that. I guess it could be intriguing, I think it would be very difficult to do. I think likewise on some of the questions around I think recidivism, safety net reform, those are incredibly important issues, a lot of them come down to, among other things, are people in the labor force at all?
And so, I think that’s one important place to look and maybe that’s why you use the term “onramp,” in that that’s getting people in, in the first place. I guess my concern when I look at what’s happened in the economy in recent decades is—and to your point, there are all the arguments about the empirics and what exactly the wage trajectory for this group versus that is—I think that there’s consensus though that the share of income going to the top quintile, however you want to divide it, has gone up. Whereas the share going to say the middle quintile has gone down. That measures Gini coefficient, measures of inequality have gone up, and that certainly wages and growing less quickly, especially for people without college degrees.
And so, I guess when I hear all the things you’re describing, they are ways to get people onto the bottom rung in a sense. I guess I’m skeptical that they really do anything to address the broader bifurcation that I would say that we’ve been seeing, and that certainly motivates a lot of my concern generally. And so maybe that’s sort of the last topic to hit. I’d be curious both whether you see that bifurcation happening in society and if it’s concerning, and then if so, to what extent you see your or any policy program being responsive to it.
Michael Strain: Define the bifurcation again?
Oren Cass: It’s interesting, I think typically we describe it as between people who do and don’t have college degrees. I think that’s even probably in a sense over-optimistic in that a huge share of people who earn college degrees these days are finding that they don’t actually have much value in the labor market. We are producing new college graduates much faster than we are producing jobs that require a college degree. And so I’d say it’s really the 25–35% of people who are in jobs that require college degrees that are the top of the labor market and have seen significant wage growth, benefit from some of the other things that you mentioned, like predictable scheduling, versus essentially everybody else who I think have seen I would say essentially no wage growth, certainly less wage growth, certainly a declining share of labor income, and I think much as a result in a sense being left behind from a lot of the gains that we like to think are being broadly shared.
Michael Strain: So, I think that there’s no doubt that if you compare the United States today to the United States in, say, the 1960s or ’70s, that the kind of gap between college-educated workers and the rest of the workforce has grown. I think that’s really an inequality story and by many measures, over the past 10 or 15 years that kind of inequality seems to be shrinking. If you look at the behavior of the kind of 90:10 ratio, the 90th percentile of earnings to the 10th percentile of earnings, that’s been pretty flat for a decade or so. If you look at the Gini coefficient, that’s been trending down by some measures of income.
Oren Cass: That’s only after transfers though, right?
Michael Strain: So, before transfers it’s basically been stagnating. It’s grown by a few percent, which is much slower growth obviously than the trajectory it had during the ’80s and ’90s. I think that there’s a question about whether or not this problem is getting—or the situation is getting worse or is getting better. That doesn’t mean that it isn’t a problem, or that doesn’t mean that the rate of improvement doesn’t need to increase, but I think that it’s important to pin that down as a way to kind of set the stage and inform our thinking about it. I’m cautiously optimistic that if you are a $15- or $17- or $19-an-hour worker, there are policies that we could advance and expand that could turn you into a $25-an-hour worker. I’m much more optimistic about that than I would’ve been 10 years ago, and I think that that’s important.
Oren Cass: And that’s mostly the training kinds of policies, which you described.
Michael Strain: The training kinds of policies, exactly. So, I think that there are things that we can do for workers who aren’t in poverty, but also aren’t in that top third that you were describing. I think childcare assistance is another one of those policies.
Oren Cass: I was struck when you mentioned that—just to clarify the thinking, being adding more second earners to the workforce, allowing a single parent to be in the workforce more hours, what’s the actual sort of vector of progress there in your mind?
Michael Strain: I think both of those, and I think that, again, I don’t think that we should think of this as necessarily an antipoverty issue. I think if you are a $15-an-hour worker, it might be easier for you to become a $20-an-hour worker if it were easier for you to have somebody look after your children and that were a less onerous process. So, you could maybe work more hours, maybe work more flexible hours. There are several mechanisms through which career progression could be assisted by more readily available childcare for working-class workers, not just for the working poor.
Certainly, I think proposals to reform some of our existing programs. If we could do a better job with helping workers with physical disabilities, that would help the working poor, I think, but that could go much higher up the wage distribution. If you’re a construction worker and you’re earning 20 bucks an hour or something along those lines and you suffer a physical accident, our current disability program is binary: you’re either in or you’re out. And maybe there are things you could do, you could keep your $20-an-hour wage, or maybe you have to go down to 18 or something, but there are things you could do that… and maybe you can only do 20 hours a week or whatever. But there’s a lot of space between your old work life and absolutely nothing, and right now that’s the choice you have.
I think there’s a lot we can do for the working class specifically. I also think that this is not a one-year project, and so, things like education reform, things like better investments in childhood and things of that nature, those help tomorrow’s working class as well. And we tend I think to think about those sorts of programs as programs that are designed to help today’s workers or designed to help today’s working poor, or just designed to help kids—kids should be in better schools or whatever. But if we adopt a longer time horizon, then those are going to help that middle third, not the top third that’s doing really well, not the bottom third that are either not working or in poverty, but that might help that middle third.
Oren Cass: Yeah, that’s a good point. It’s funny, I think we take that in somewhat different directions, because I think back to our hypothetical $75 return on investment in the factory and think… I think you’d made the point that might be good for workers day one, week one, month one, but what about year two, year five, year 10. And in my mind, that goes to exactly these points you’ve just been raising, which is that the more robust local opportunity with the better job for the worker in day one potentially has an awful lot of positive downstream benefits that I think, especially over the last couple of decades, we overlooked to their detriment, but I certainly take your point that education reform and other areas are ripe ones as well.
There was one other area in thinking about potential agendas that I thought might be an area of overlap based on your essay, I wasn’t sure. So last question for you is immigration. I think it was clear that you don’t care for the way the nationalist populist right talks about the immigration issue, but unlike some of the policy areas that you were most critical of, on immigration you more indicated that this is an area for debate and thinking and consideration, and so, especially in thinking about the bottom of the labor market, you were just using the construction worker as an example. I’m curious for your thoughts: Is a more restrictive immigration policy, particularly on the less skilled side—we could talk about what that means is that shifting to a skill-based system, et cetera—but does that seem like a tool that should be in the toolbox or not from your perspective?
Michael Strain: I think it’s a much harder question. I think that for many lower-wage immigrants, immigrants with relatively fewer skills, I think that there’s basically all upside for the United States. But the more similar immigrants are to existing workers in the United States, the larger the threat that higher levels of immigration will reduce the wages of existing workers. And that I think is something to be taken seriously and thoughtfully, and I think that we should be thinking of immigration at least in part as an economic policy that is designed to help economic outcomes for the United States, and I’m not apologetic about that.
Again, we’re speaking at a pretty high level of abstraction. I also think we should have refugee programs when people are really suffering horrible circumstances, we should be a welcoming nation, of course. But as a general matter, I think people should be able to… if your wife’s not an American citizen you should be able to bring your wife over, that sort of thing. But I think as a general matter, we should be thinking about the level of immigration that will help the United States, that the United States needs. And so, one answer to that could be zero because some workers are going to bear a direct cost; one answer is open borders because we’ll have immigrants come in until the wage differential normalizes, and I think the right answer is somewhere in between those two, and I think the right answer fluctuates.
And so, if the United States does not have a pretty significant rebound in workforce participation relatively soon, and if it continues to be the case that businesses can’t find workers and are really raising wages rapidly to the point where that is being passed through to consumers in the form of higher prices, then I think we should be open to increasing the flow of immigrants, including immigrants in the lower-wage portion of the distribution. If that ceases to be the case and we start to be concerned again about tepid wage growth, then we should turn the dial in the other direction. Unlike I think some of the other policies we’ve discussed, I think that there is real evidence that large groups of workers are going to be made worse off. Talking about trade restrictions or industrial policy, certainly, again, the factory with the $75 of investment is going to be better off that day, that week, that month.
But my read of the evidence of President Trump’s trade war is that that hurt manufacturing workers as a whole, to say nothing of the broader economy. My expectation is that industrial policy would have a similar effect. And so there, yes, there were certainly individual workers and individual businesses that benefited from President Trump’s trade war, but the manufacturing sector as a whole didn’t, manufacturing workers as a whole didn’t, the economy as a whole didn’t. Let’s not do that anymore. I think the story is a little more complicated for immigration.
Oren Cass: Why is it though? If you think of trade in abstract terms as essentially an enormous new labor pool, taking all the things you just said about the way that there can be real harms to sufficiently large groups of workers with high volumes of immigration that you think are cognizable and need consideration, why isn’t the exact same thing true of asking American workers to compete with 300 million Chinese workers?
Michael Strain: I think there are two. So, in the abstract, it’s not different, so I think it’s an excellent question. I think that there are two important real-world factors that make it different. One is that you’re hurting a lot of American companies with tariffs on imports from other countries, because that’s raising prices for those companies. If you’re a company and you make something and you rely on imports from China or wherever to make that good, your production costs have just gone way up.
Oren Cass: Doesn’t the exact same thing go for labor if we’re trying to prevent the cost of labor as an input from going down?
Michael Strain: Well, it’s the chain of events, right? You see an affirmative increase in your costs when you put the tariffs on. If you were to increase immigration, then you might see a reduction in wages, but you’re not, by leaving immigration policy alone, you’re not making that company worse off. But the other big factor is the retaliatory nature of these actions, and that had a big impact on the ultimate outcome of the trade war on the manufacturing sector. Other countries don’t just sit on their hands when you substantially increase tariffs on their goods. They do the same to you, and any realistic assessment of how a trade war was going to play out should have included that consideration, and so taken as a whole the manufacturing workers were made worse off. Protection from imports probably helped them in and of itself, but that’s not the only thing that happened. Other countries retaliated. And that’s just not the kind of thing that we should be particularly concerned about when we’re talking about increasing the flows of lower wage immigrants.
Oren Cass: Interesting. Well, we have reached the end of our time. Thank you. This has been fantastic. I will give you the final word, if you have anything you’ve been thinking, “Oh, I hope he asks X,” or a point that has come to your mind, or anything you’d like to plug.
Michael Strain: I don’t have a final word. I just want to thank you again for having me on and I want to thank you again for having a Critics Corner. I think the public square needs more honest and direct engagement with competing points of view, rather than trying to shut people down who disagree, and so I think this is a real public service.
Oren Cass: Well, this was awesome. We look forward to more of your criticism and maybe we’ll do it again sometime.
Michael Strain: Sounds great.