While much of today’s economic debate revolves around pursuing a laissez faire, free market approach versus a more socialist, welfare state approach, economist Dr. Glenn Hubbard thinks the debate should be reframed.
Hubbard, Dean Emeritus and the Russell L. Carson Professor of Finance and Economics at the Columbia Business School, was the featured speaker in the Bradley Distinguished Lecture Series webinar this fall. The series is sponsored by The Lynde and Harry Bradley Foundation and the Lubar School of Business.
More interesting, Hubbard suggests, would be to shift the debate to The Wall versus The Bridge. He describes The Wall as policies that push change away, such as globalization or technological innovation. The Bridge, on the other hand, focuses on ideas based on sound economic principles to move economic growth forward.
Hubbard took the audience on a journey that began in the late 1980s that demonstrates both wall and bridge. In that era, a number of important walls fell and opened the economy to new growth: the (literal) fall of the Berlin Wall and what it stood for, the opening up of North American trade through NAFTA, the opening of the economies of China and India to the world market, and what he called the “death of distance,” through which the cost of transportation and communication decreased significantly.
The era wasn’t only about walls coming down, though. One significant wall developed from what he termed the “China shock.” The economic advantages of China expanding into world markets ultimately had a devastating effect on output and employment in the U.S., with a marked shift in politics and populist pressures that continue to build to this day.
In his remarks, Hubbard frequently referred to Adam Smith, noting that for Smith, a strong economy wasn’t centered on GDP, but rather on “mass flourishing” – in other words, an economy that generated possibilities for participation by everyone.
Smith saw that economic gains came from change and disruption. In our economy, Hubbard points out, we’ve had two big ones: globalization and technological change. “And they’ve delivered,” he says.
However, he notes that while these sea changes have resulted in increased average gains, “we are not all average.” This has led to concern that if only those at the higher end of the economic scale are getting the benefit, the disruption may not be worth it. And this is where walls start to build.
Hubbard channeled Adam Smith again for guidance on building bridges. For Smith, participation and reconnecting were critical – economic participation for as many people as possible, and reconnecting those who are displaced to the modern economy.
In terms of participation, Hubbard advocates preparing for competition through such instruments as federal block grants for community colleges (“the workhorses of training”), training credits for businesses, and more active involvement and solutions from business leaders.
On the reconnection side, what we might call social insurance today, Hubbard points out that our system was designed in the 1930s, when we were primarily worried about temporary booms and busts.
In the modern economy, we can help people reconnect to work through personal re-employment accounts, expansion of the Earned Income Tax Credit, or place-based aid for communities that are left behind, he suggests.
Buy-in for such initiatives, of course, is critical, and the nation needs to do some soul searching on its priorities, he says.
“I would argue that participation and reconnecting are well worth the spending candle,” he says, suggesting that we need to consider tax increases or reforms to entitlement programs to help manage the costs.
Ultimately, he says, walls hurt business and therefore business leaders need to step up and propose building bridges instead.
If we don’t focus on building bridges, he notes, economic history is a good teacher.
“Walls are easy to articulate and they often prevail,” he concludes. “If we don’t begin to articulate the bridge, if we don’t fund the bridge, if we don’t shape our actions to support it, we will go the risk of walls – and down that road, statism lies.”
A recording of Dr. Hubbard’s full remarks can be found on the Lubar School’s YouTube channel here.