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The Globe and Mail

Progressives need new economic vision to counter boom-bust anxiety

Michael Motala is a student at Columbia University and Osgoode Hall Law School.

In a U.S. election cycle dominated by Republican presidential nominee Donald Trump's gaffes and marred by conspiratorial coverage about Democratic nominee Hillary Clinton, it's hardly surprising that substantive economic policy has taken a back seat.

Mr. Trump's rhetoric on immigration and a wall on the Mexican border addresses America's moribund growth illogically and by proxy. And a recent study out of the Peterson Institute for International Economics concluded that Mr. Trump's trade policies would unleash a trade war that could cost as many as four million U.S. jobs. Even the Koch brothers, long-time stalwarts of the Republican Party, realize that the nominee's ideas are a recipe for disaster.

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Ms. Clinton, by contrast, has embraced the implementation of a $12 to $15 minimum wage, tax increases for the wealthy and a $275-billion infrastructure plan. According to the Peterson study, her apparent opposition to the Trans-Pacific Partnership and further economic integration would be harmful (though not catastrophic) for the global economy. On the domestic front, a Clinton White House promises to deliver more of the same Obamanomics. For the large swath of disaffected blue-collar workers, another round of the same will be a tough pill to swallow. Regrettably, Ms. Clinton is all that stands between the free world and an economic nosedive into nativism.

Is concern over the U.S. economy grounded in popular anxiety or reality?

Short-term indicators are mixed. According to the U.S. Bureau of Labour Statistics, business-sector labour productivity decreased by 0.6 per cent in the second quarter of 2016. Manufacturing also contracted by 3.2 percentage points, according to the Institute for Supply Management.

On the other hand, the Census Bureau recently reported that U.S. households experienced a 5.4-per-cent increase in median income between 2014 and 2015. Despite this uptick, the 2008 recession has had an intractable impact on medium-term economic growth and productivity. Except for the six-year period following the 1973 oil shocks, at a meagre 1.3 per cent, productivity growth since the recession has been the most anemic in more than half a century.

Larry Summers, the Harvard economist and former U.S. Treasury Secretary, calls this trend "secular stagnation." The last decade has thrust rising income inequality, and the over-concentration of wealth in the financial sector, to the fore. Absent government intervention, falling participation in the workforce and a demographic shift will decrease long-term aggregate demand, portending a slow- or no-growth future.

Decades of pro-business policies have done very little for the average American. The U.S. economy faces deeply embedded structural problems. Compounding growth prospects are the decline in business investment, and the unwillingness of multinational giants such as Apple Inc. to repatriate their cash stockpiles. The increasing pace of economic globalization has made way for elaborate international taxation schemes that eviscerate the public purse. Taxes lie at the redistributive heart of the social contract in liberal democracies. Absent international co-operation, the nation-state's fiscal future is bleak.

Economic policy change is driven by financial crisis. Keynesian thinking dominated the liberal world following the Second World War. It was not until the era of stagflation in the 1970s that John Maynard Keynes's influence diminished, making way for the ascendance of monetarism and free-market economics.

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The politics of the post-2008 crisis has seen a neo-Keynesian resurgence. This time, however, fiscal stimulus, low interest rates and cheap credit have done little to boost demand and fuel sustained economic growth. Contemporary politics lacks a positive progressive vision. Instead of waiting for the next crisis, progressives must find a new vision to combat boom-bust-doom-gloom.

"Politics with a capital P is more about long-term visions," Rutger Bregman, the 28-year-old Dutch author of Utopia for Realists, told me in a recent interview. "… Real progress begins on the periphery and moves to the centre."

In his recently translated book, Mr. Bregman makes the controversial case for a comprehensive universal basic income. A universal, unconditional and regular subsistence payment may seem radical, but according to Mr. Bregman, "all the milestones of civilizations, everything we have achieved in the last two or three centuries, were all regarded as Utopian fantasies once."

Such policies would support the transition to a more productive and efficient technology economy. While manufacturing was the engine of 20th-century economic growth, today's highly-capitalized tech giants are lightweight and more thinly staffed. The nine-to-five paradigm, which is fraught with wasted time and inefficiency, is also being disrupted. Social democracies can and must do more.

"One of the challenges of the future is that we need to redefine words like 'work' or 'progress' or 'productivity' or 'growth,'" Mr. Bregman told me. He cites broader trends, such as decreases in global violence and poverty, as reasons to be optimistic about the future.

The U.S. election's personality-focused politics has left little oxygen for innovative and progressive economic ideas. Meanwhile, the big-picture challenge of taxation threatens the state's long-term redistributive capacity. If we fail to collectively tackle that one, we might never see the light of day.

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