There are still two weeks to go until the US presidential election, but Democrats are feeling sufficiently optimistic to start talking about what a Joe Biden cabinet might look like. Much of the conversation centered around racial and sexual diversity. But Democrats should pay just as much attention to economic and political diversity.
Indeed, the next president will need a very heterodox team to deal with a very complex problem: how to bridge the historic gap between the fortunes of companies and American workers.
It has become almost a cliché to discuss the split between Wall Street, where asset prices remain near all-time highs, and the real US economy, where the 31% drop in gross domestic product has hit record highs. proportions of the size of a depression in the second trimester. At the same time, extremely high aggregate unemployment figures mask even more painful levels of unemployment for certain types of workers.
While we all understand the big picture of the problem, there is some new and disturbing data that shows just how far financial markets have drifted from Main Street. To bridge this separation, there is a need to rethink politics in nearly every area of government – from treasury and commerce to work and education.
For example, new research from academics at Ohio State University and the University of Pittsburgh shows that publicly traded companies in the United States as a group contribute much less to employment levels or gross domestic product. than at any time since the 1970s. There are several reasons for this. But a key point is that the fortunes of the country, its businesses and its workers were much more tied when the largest listed companies operated in the industrial and manufacturing sector than in services, as is the case today.
This has become more and more true with the transition to a high-tech economy. While the share of tech companies as a percentage of market capitalization at the end of 2019 was 32.8% – surpassing 40% in the second quarter of 2020 – these companies accounted for just 16.3% of total employment among listed companies, and less than 5 percent of total private non-farm employment. As study co-author René M Stultz says, “High valuations can arise for many different reasons, but many of these reasons have nothing to do with the current economic contribution. [of the companies]”.
This is why President Donald Trump’s habit of equating stock prices with economic well-being, while useful for 401,000 pension accounts, is so grossly misleading (10% of households own 84% of the stock). As investors know, the upside-down nature of today’s markets means that in recent years, the “good” news, such as a stronger economy, has often been “bad” news for stock prices, which tend to be “bad” news. to fall if there is any indication that central bankers unplug low rates and easy monetary policy. This is one of the main reasons behind the record prices of current assets.
This is also why Mr Biden is absolutely right that we need to start rewarding “work, not wealth”. But slogans are one thing and economic paradigm shifts are another. The changes that will be necessary to correct the list of vessels are not incremental but systemic. After more than four decades, the financialized growth by an easy monetary policy is exploited. What is needed now is a significant fiscal stimulus to get through the months and years to come.
There is also, and rightly so, a growing concern about the debt. While the failure to adopt another short-term stimulus package is more pre-election politics than genuine concerns about the US fiscal position, it is also true that for the first time since World War II, the United States move closer to a national debt. ratio to GDP of nearly 100 percent.
This is fine as long as interest rates stay low and the dollar remains the world’s reserve currency. But I don’t think the dollar privilege will last forever – in part because of the international goodwill and trust that was wasted by the Trump administration (which also increased the national debt faster than its Democratic predecessor) .
If the public sector takes on more debt, it must be productive debt – ideally, a fiscal stimulus that creates short-term jobs and pushes long-term investments in high-growth strategic areas such as technology. clean.
Mr Biden’s multibillion-dollar fiscal stimulus package, which would link climate change, infrastructure and investments in human capital, could do both. Done correctly, it would not be incremental either. We are talking about reshaping the entire American economy, and that will require not only a team of willing and capable technocrats, but real leaders with the political capital to drive the change.
It means someone like Massachusetts Senator Elizabeth Warren to the Treasury, who has the will and the ability to re-anchor the financial sector in the real economy, and possibly former New York Mayor Michael Bloomberg, to the commerce department, which could orchestrate a national competitiveness plan for a world in which we need closer collaboration between employers, educators and workers.
Mr Biden said if elected he would be a transitional president who would serve as a bridge with a younger generation of leaders. If that’s true, he has nothing to lose by sticking to his business vision – and picking a truly diverse team to execute it.