The jobs answer that Jeremy Epstein – and the middle class – deserved
Since asking the candidates at Tuesday’s presidential debate how they would improve his job prospects, college junior Jeremy Epstein has been lionized on Twitter, repeatedly interviewed on television and declared a nerdy sex symbol.
Unfortunately, as they have throughout the campaign, Romney and Obama avoided details when answering Epstein’s thoughtful question. Instead, they lampooned each others’ records and policies. Such answers are to be expected, arguably, in the waning weeks of an extraordinarily tight presidential campaign.
But an analysis of Obama’s and Romney’s specific proposals and the positions of their key advisers – particularly when it comes to creating manufacturing jobs – shows that voters do face a critical choice. This is, in fact, an election that will send the federal government in one of two very different directions when it comes to long-term job creation.
In his answer at the debate, Romney referred to his five-point plan that he said will create 12 million new jobs in the United States. The plan, which is detailed in a white paper endorsed by four leading conservative economists, is a full-throated endorsement of using tax breaks and market forces alone to revive the American economy. While Romney is tacking toward the center in the race’s final weeks, it is fair for voters to assume that he will slash the size of government, and rely on a free-market approach to the economy.
The white paper, for example, calls for reducing federal spending to 20 percent of GDP by 2016, its pre-financial crisis average. It hails Romney’s proposed across the board 20 percent tax break. And it calls for a sweeping reduction in government regulation, specifically repeal of the Dodd-Frank Wall Street regulations and Obamacare. The word “manufacturing” does not appear in it.
The Romney camp seems wary of even a light-touch attempt to boost manufacturing. During this spring’s Republican primaries, R. Glenn Hubbard, lead author of the white paper, dean of Columbia University’s business school, and a top Romney economic adviser, criticized a proposal by Republican presidential candidate Rick Santorum to use tax policy to bolster American manufacturing. In February, Santorum proposed that government aid the sector by exempting manufacturing companies from corporate income taxes.
“By proposing special tax breaks for manufacturing, Mr. Santorum follows Mr. Obama’s incorrect lead and introduces a significant economic distortion,” Hubbard wrote in a March Wall Street Journal editorial. “In a world with highly mobile capital, tax policy needs to be neutral toward different forms of business activity and not succumb to the temptation to pick winners and losers.”
If Romney is likely to embrace a no-government approach, it is fair for voters to assume to assume that Obama will do the opposite. Obama also tacked to the center in Tuesday’s debate, but he and many liberal economists embrace an entirely different view of economic theory and American history.
Members of the administration and liberal economists credit the role of government research and defense spending with creating everything from the Internet to high-speed semi-conductors to the completion of the human genome project. That level of basic research, they contend, created the foundations for enormous growth by private sector online, pharmaceutical and computing companies.
“There is a long history of government involvement in supporting innovation and growth in many ways,” Gary Pisano, a Harvard Business School professor, told me in an interview today. “Sometimes, it is very broad, like land grant colleges. Sometimes, it is very specific like granting railroads right-of-way in the American west. It has had a role. We can’t deny it.” (A separate interview I did with Pisano about his new book Producing Prosperity: Why America needs a manufacturing renaissance earlier this week is below.)
A second Obama term is likely to involve heavy government role in promoting manufacturing. An investment in community colleges would theoretically create the skilled machinists, for example, that are needed for advanced manufacturing. A National Institute of Manufacturing – modeled on the National Institutes of Health – may even be created.
Ironically, whoever wins the presidency is likely to enjoy a sharply improved economy.
The Congressional Budget Office estimates that even if the so-called “fiscal cliff” is not averted in January, the American economy will create 9.06 million jobs between 2013 and 2017, nearly double the number created in the last four years. In an even more optimistic prediction, Moody’s analytics says that whoever is elected president, 12 million jobs will be created by 2016.
Whether they deserve it or not, the winner will claim that the improving economy is an endorsement of their economic vision. In short, the decision is an important one. It is also stark.
Obama has at times gone too far in intervening in the economy. The administration’s disastrous investments in Solyndra and other alternative energy companies was a classic example of government trying to pick winners and losers. But we ought not to conclude that just because certain types of government investing go awry there is no role for government at all.
I agree with Pisano’s outlook that government, in fact, plays an enormous role in the economy. The carried interest tax break is a massive subsidy to the private equity industry. The home mortgage interest deduction is an enormous boost for the middle class.
And in today’s globalized economy we compete with economic rivals who aggressively subsidize their leading industries. Having no government assistance in manufacturing is the equivalent of unilateral disarmament in today’s de facto trade wars.
I believe there is a broad, long-term role the government can and should take in reviving manufacturing, but it should not engage in picking winners and losers. Both candidates’ plans have their shortcomings. In the end, I err toward the approach that is less ideological. On job creation and reviving manufacturing, Obama is more realistic.
PHOTO: U.S. President Barack Obama (L) and Republican presidential nominee Mitt Romney (R) speak directly to each other during the second U.S. presidential campaign debate in Hempstead, New York, October 16, 2012. REUTERS/Win McNamee/POOL