The "BS Human Capital Story"

While I enjoy some vigorous disagreements on TPMCafe almost as much as its proprietors probably do, the fight that has broken out between Ed Kilgore and Max Sawicky is actually quite dispiriting.

To summarize: Max attacked the “Bullshit Human Capital Story” - the idea that education and training is the answer to the challenges of the global economy - and “The Clintons” for promoting it; Ed defended education and Clintons.

But, look, let’s leave the Clintons out of it. Yes, it’s true: twelve or fourteen years ago, Clinton, his Labor Secretary Robert Reich, his economic advisor and later Treasury Secretary Bob Rubin, Rubin’s ally Sperling, and many others (including my boss at the time, Senator Bill Bradley) promoted the idea that the U.S. should fully engage with the global economy (that is, NAFTA) and that while that might cause disruptions in the manufacturing sector, the way to deal with it was to raise skill levels through education and training.

Was that the right answer for the early 1990s? Maybe. It was more limited than many of its advocates recognized. But it was a good-faith effort to expand the economy and the benefits of growth, in a politically viable way.

But is it the right answer today? Almost certainly not.

The problem today is that we have a polarized labor market, and, in addition, as Paul Krugman pointed out in the column originally cited by Nathan, the returns to increased productivity have gone to capital and to a highly-skilled elite, rather than to the broader minority of workers with college educations or specific training. (The top 1%, rather than the top 20%.) On top of that, almost all the benefits of tax cuts have gone to the same small elite.

The polarization of the labor market is described in this paper by David Autor, Melissa Kearney and Lawrence Katz (a Clintonite himself), and this paper by Frank Levy and Richard Murnane. Basically, their argument is that a combination of computerization and globabalization - including offshoring/outsourcing but that’s not the biggest factor - has shifted the demand for skills and the middle of the labor market has dropped out, even while there is some increased demand for minimal-skill jobs. Autor et al explain some of the conflicting evidence on income inequality through this lens, and it seems persuasive to me.

The “Human Capital Story” isn’t an answer today because it’s not really possible to move people across these two labor markets that are pulling away from each other. There isn’t enough of a middle to train people up into, and the medium-skilled are going to have a hard time moving in to the highly-skilled elite. A bachelors’ degree won’t do it: The average weekly pay of full-time workers with a bachelor’s degree fell slightly during the last five years, after adjustment for inflation. (There may be some sectors that are exceptions, such as health care, where career ladders would help people move up.)

Of course, as they say at Faber College, “Knowledge is Good.” More education is better than less. Early childhood education is important for a bunch of reasons. But the idea that equipping people with higher ed and specific skills training will help them move smoothly through the rough waters of the economy and also up into the middle class just isn’t realistic in a polarized labor market. Nor is there any one thing we can do - such as stop passing trade deals - that would restore the middle of the labor market.

Relitigating the ‘90s or our feelings about the Clintons has absolutely nothing to do with figuring out how to deal with the labor market and economic circumstances fourteen years and four tax cuts later.

But what are some answers? It seems the story has to involve accepting that a lot of people are going to be stuck in the lower part of the job market, skills or no, and the key is to improve circumstances for them:

1. If we accept that the returns of productivity growth will flow to capital, cut more Americans in on the deal. Use universal accounts, baby bonds, universal 401(k)s and other asset-based systems to bring the returns to capital to working people.
   
2. Make capital pay. Equalize tax treatment of capital income (dividends and capital gains).
   
3. Tax wealth, not income. Or tax capital through a means such as a tax on financial transactions, or a Tobin Tax, focused on taxing cross-border transactions.
   
4. Raise the minimum wage, by at least $2 and adjust it for inflation.
   
5. Universal health care, universal health care, universal health care.