http://www.nytimes.com/2016/10/13/opinion/campaign-stops/can-the-democrats-resurrect-the-middle-class.html 2016-10-13 10:14:53 Can the Democrats Resurrect the Middle Class? Establishment economists have plans that sound pretty radical. Will Hillary Clinton listen to them? === With the likelihood of major gains on Election Day rising, the most important task facing Democrats is the development of a coherent economic agenda that addresses issues that were central in both the Republican and Democratic primaries. There are preliminary signs that Democrats and their allies are willing to put together just such an agenda. The Brookings Institution, for example, has produced a series of essays, “ The two authors outline numerous proposals, including some that would be risky for Democrats, particularly those that call for the redistribution of resources from the party’s upscale wing to downscale voters. These proposals include changes in the Child and Dependent Care Tax Credit to benefit families with incomes of less than $100,000 (while reducing the benefits of the tax credit to the affluent) as well as the reduction or elimination of tax breaks in education savings plans for the affluent to generate revenues to boost Pell grants for poorer students. Sawhill and Rodrigue don’t shy away from what they see as a necessary step in combating economic inequality: They go on: An additional contribution to a progressive economic agenda comes from In Sunday’s Washington Post, amid fears that “the global economy is entering unexplored and dangerous territory.” And when economies worldwide stagnate, the result, Summers writes, is that “electorates turn surly.” The way to counter these negative trends, in his view, is to abandon “austerity economics in favor of investment economics.” Some of the most interesting developments in the formation of a Democratic agenda can be found in the evolving work of Furman focuses on a pair of crucial factors underlying slow growth: a lack of corporate dynamism and the weakening of competitive forces in the marketplace. Diminishing vitality in the marketplace has become a mounting concern among economists and policy makers. One advantage of Furman’s approach is that it cuts across ideological boundaries. In a speech in Chicago last month, “ To support his case, Furman cites a wide range of data and reports. These include the finding that “in 42 percent of the roughly 900 industries examined, the top four firms controlled more than a third of the market in 2012, up from 28 percent of industries in 1997” and that in financial services, “the loan market share of the top ten banks increased from about 30 percent in 1980 to about 50 percent in 2010.” If the creation of new firms is a marker of a thriving competitive economy, Furman argues that the trends are not favorable. The accompanying chart shows a sharp decline over the past 30-plus years in the percentage of companies that are five years old or less, from just over 50 percent in 1982 to roughly 33 percent now, and a decline in the share of total employment provided by these young firms, from roughly 21 percent in 1982 to about 11 percent now. The decline in corporate dynamism has been accompanied by a decline in labor dynamism, with “workers less likely to move between jobs, industries, occupations, and locations,” Furman writes. What Furman describes is a nation suffering from what amounts to economic arteriosclerosis. This has not hurt corporate management and the owners of capital — stockholders — but it has been disastrous for workers. Furman argues that “both market concentration and frictions that reduce worker mobility can lead to greater monopsony power for employers" (monopsony is a buyer’s monopoly). “With fewer firms competing for a given type of worker,” Furman contends, The growing strength of businesses to bargain for low wages, bolstered by the decline in unionized employment and the falling value of the minimum wage, has contributed to the declining share of total income going to workers. Furman describes the trend as follows: Despite rising returns to capital, there has not been a parallel increase in business investment. “One explanation,” Furman argues, “is that monopoly power has increased — which is consistent with higher returns and lower output.” Together, “declining firm dynamism, high returns and low output, and disparities in the rate of return on investment are all potential consequences of increasing barriers to entry” and restraining the operation of a free and open market. With these findings in place, Furman has laid out the groundwork for a liberal Democratic agenda: Furman describes four areas where pro-competitive reforms are possible — and in some cases have already been initiated. The first is intellectual property and patent reform, areas where there is growing bipartisan agreement that excessive and often frivolous patent claims and the emergence of a new breed of patent tort litigators have held back innovation, especially technological innovation. The second is the need to increase the bargaining power of workers, whose leverage has steadily declined. More stringent antitrust enforcement could break up some business consolidation, giving workers access to job mobility; the practice of requiring employees to sign noncompete agreements should also be restrained. The third area is reform of state laws requiring occupational licensing, which Furman describes as an “example of policies that create inefficient and inequitable rents,” and which have grown fivefold in the second half of the 20th century, from less than 5 percent of the work force in the early 1950s to 25 percent by 2008. While such licensing is needed in the case of health and safety occupations, in others Insofar as the licensing serves a legitimate need, the federal government can press for cross-border portability, giving licensees more opportunity to cross state lines for better jobs. The fourth is reform of land use regulation. “Overly burdensome land-use restrictions — like minimum lot sizes, off-street parking requirements, height limits, prohibitions on multifamily housing, or lengthy permitting processes — can instead artificially reduce competition by acting as supply constraints,” Furman contends. “In doing so, such policies both allow a small number of landowners to capture economic rents and reduce the stock of available affordable housing.” Furman notes that land use constraints limit productivity growth and labor mobility by making it more difficult for workers to move to higher-productivity cities. One of the most vexing problems facing those seeking to develop a liberal, pro-competition agenda is the emergence of the digital marketplace. The complexity of the economics of the internet is, according to Furman, reflected in the following contradiction. On one hand, internet markets “have tended to favor digital giants that hold high market shares” and digitalization also poses an increased danger of opaque price fixing through the “use of advanced machine learning algorithms to set prices and adapt product functionality.” On the other hand, the digital marketplace has encouraged competition by lowering “many costs for small businesses, increasing their ability to rapidly and inexpensively scale up, collect information on potential consumers, and create new products and ideas.” There is disagreement among economists concerning Furman’s work. Lawrence Katz, an economist at Harvard, wrote me by email: “I am a big fan of Jason Furman and think the directions he has been sketching on technology, competition, and globalization make a lot of sense.” David Card, an economist at Berkeley, conversely, wrote that he does not think Furman’s proposals “will amount to more than a couple of percentage points higher wages (or a few percent lower prices) for low to middle income folks.” Overall, Card said, “I am deeply skeptical, to say the least.” I would argue that even if Card is right, wages that are a couple of percentage points higher are nothing to sneeze at. Furman’s proposals should not be viewed in isolation, but as one piece of a broader liberal agenda — an agenda that could include some or all of what Larry Summers, Isabel Sawhill, and others, have proposed. Hillary Clinton has President Obama has presided over a credible recovery from the 2008 crisis and he has amassed a number of achievements, including, according to There have also been a number of failures, as Factcheck.org also pointed out, perhaps most notably a 36 percent rise in the number of Americans on food stamps and a 0.3 increase in the poverty rate. Assuming for the moment that Clinton is Obama’s successor, it will fall to her to build on his record and to address the yearning of those hard-pressed voters who have felt for far too long like beggars at the banquet.