Shapiro in 2007: Underlying Structural Economic Problems Require Investment

Commenting on a discussion between Brad DeLong and Tyler Cowen on the ability of the fiscal stimulus to be effective, Matt Yglesias writes:

I think that when considering these issues it's perhaps useful to think back to 2006 and 2007. I don’t recall that many market-oriented economists were saying back then that there were huge underlying structural problems with the United States economy. I recall some people saying that, mostly on the left, mostly being dismissed as unduly pessimistic and/or motivated by partisanship, and generally now supportive of fiscal stimulus.

Well, maybe there weren’t that many, but certainly NDN's Dr. Robert Shapiro (who is inarguably a market-oriented economist) did make that argument, pointing out that globalization had created structural changes in the economy that allowed wages to stagnate and incomes to decline even as GDP and productivity increased over the last eight years. In June of 2007, Shapiro wrote:

We cannot entirely avoid these hidden costs of globalization, but we can outsmart and outrun them. There are many proposals to cushion their effects, through measures such as wage insurance. Those measures may help for a while, but by themselves they tacitly accept the underlying dynamics as inevitable and inalterable. A better approach focuses directly on affecting those dynamics. To begin, we will have to relieve some of the cost pressures on businesses which in the more intensely-competitive environment of globalization, hold down wages and job creation even as growth and productivity increase. Reforming our health care and energy practices, in short, is now the number one jobs and incomes issue, and one on which American workers and American businesses have real common cause. Both areas are already major public policy issues. Recognizing how the enormous increases in health care and energy costs of recent years directly and substantially affect wages and jobs should give greater sense of urgency to finally addressing both areas, in specific ways that will slow those increases.

In addition, we also should expand our public investments and other commitments in those areas in which American workers and businesses have advantages in the global economy. In an increasingly idea-based economy, the education of every American child should specifically include advanced skills in information technologies...

Shapiro's crucial policy recommendations go on, you can read them here.

Of course, NDN supported President Obama's stimulus, but I don't see that as contradictory to seeing problematic structural dynamics in the American economy. As Shapiro wrote this fall, the stimulus should work for the long run by correcting some of structural problems through investing in the prerequisites to economic growth that he outlines above. Indeed, the priorities Shapiro and Simon Rosenberg lay out in this memo track well with the American Recovery and Reinvestment Act. The most important part of ARRA may ultimately be the "Reinvestment" that, as Obama works to reduce health care costs, invest in infrastructure, and reform America's energy policy, leads America past recovery and to a truly 21st century economy.