As President Donald Trump keeps insisting to voters, the American economy is strong. The unemployment rate is at record lows. Wages have ticked up at the lower end of the labour market. US stocks remain near record highs.
Yet there is another reality, one that Democratic candidates fighting it out in Tuesday’s New Hampshire primary elections as well as the Super Tuesday primaries in March will be looking to exploit. Opportunities for many Americans, particularly younger people, middle-skilled employees, gig workers and minorities, have eroded in the past two decades — thanks to globalisation, technological job disruption and a superstar economy that rewards top performers far more than others. This narrative helps progressive candidate Bernie Sanders and to a lesser extent Elizabeth Warren.
Both versions are true — not only in the US, but in many other developed economies. A new report from the McKinsey Global Institute examining growth in OECD countries since 2000 finds that work opportunities have increased everywhere: 45m more working age people are employed now than in 2000 in the 22 countries studied. “Rich countries have created a lot of jobs, and that should be celebrated,” says McKinsey director and co-author James Manyika. He cites central bank stimulus, growing demand for services, rising government employment and a broad recovery as key factors in that job growth.
Indeed, this is the trend that Mr Trump has leveraged to such good effect, recently in his State of the Union address, as well as his appearance at the World Economic Forum in Davos. He makes the classic argument for supply side economics: that low interest rates, tax cuts and deregulation have buoyed corporations, which have in turn created more jobs. He doesn’t, of course, admit that the recovery from the 2008 financial crisis did not begin with him. But he has the headline numbers of higher growth and lower unemployment — the ones that are easiest to communicate to voters — in his favour.
But this argument works only at a national level. If you start to break the data down to individuals and families, the numbers are much less favourable. Rising housing prices, education costs and to some extent healthcare have eaten between 54 and 107 per cent of all income gains for households not only in the US, but Australia, France and the UK, the McKinsey report says
Employment protections are lower, and the pension burden for individuals is higher. Savings (especially for young people) have fallen. Commuting times to good jobs, which are clustered in just a few areas in the US, have increased. Contract work has risen and full-time employment with benefits has fallen.
Amid these changes, governments, which have assumed much of the post financial crisis debt burden once held by consumers and the financial sector, are doing less and less to mitigate the fallout from all these shifts for individuals.
It is true that rising wages in emerging markets including China have made it harder for US and European companies to cut their labour bills by moving jobs offshore. But many employers are turning to labour saving technology rather than hiring more people. Meanwhile, although the prices of many goods and services have decreased, the costs of those things that really matter — your home, your health, your kids’ college fees — are continuing to rise dramatically. All this leaves individuals carrying much more of a load. In short, we’re on our own, and it doesn’t feel good.
That is why I believe that traditional metrics, such as the unemployment rate, fail to capture what is really happening on the ground. This is especially true in the US, where education inflation, in particular, is off the charts. No wonder the more progressive candidates in the Democratic race have made hay with the idea of free college and student debt forgiveness.
Young Americans are floundering, and not only as workers and savers: they now hold more debt than 40-somethings, according to Mr Manyika. This is a historic shift. They are also falling short as consumers. Having to pay off an average of $29,000 apiece in student loans leaves many with little left over to buy houses and fill them with stuff. The US Federal Reserve has flagged their struggles as a long-term threat to overall economic growth.
All this presents an opportunity for a moderate Democratic candidate like Pete Buttigieg or Michael Bloomberg, who can acknowledge both sides of the economic story. While Mr Trump focuses only on the growth part, Mr Sanders, and to a lesser degree Ms Warren, highlights mainly the negatives.
But the truth is nuanced, which is admittedly not always the easiest thing to communicate on the campaign trail. Americans ought to celebrate job growth but we also need to acknowledge that the burdens on individuals have risen in ways that are simply unsustainable.
Growth matters but so does the share of income that people have to spend in order to live near good jobs, stay healthy enough to do them, and pay for the schooling that will ensure that they and their children have a shot at those jobs.
That is the full reality of the go-it-alone economy. We should all be looking seriously at any presidential candidate who can explain it — let alone solve it.