The norms of the last two decades or so — consume before invest; worry about the short term, not the long term — have been more than just a reflection of the economy. They have also affected the economy. Chief executives have fought for paychecks that their predecessors would have considered obscenely large. Technocrats inside Washington’s regulatory agencies, after listening to their bosses talk endlessly about the dangers of overregulation, made quite sure that they weren’t regulating too much. Financial engineering became a more appealing career track than actual engineering or science. In one of the small gems in their book, Goldin and Katz write that towns and cities with a large elderly population once devoted a higher-than-average share of their taxes to schools. Apparently, age made them see the benefits of education. In recent decades, though, the relationship switched. Older towns spent less than average on schools. You can imagine voters in these places asking themselves, “What’s in it for me?”
By any standard, the Obama administration faces an imposing economic to-do list. It will try to end the financial crisis and recession as quickly as possible, even as it starts work on an agenda that will inspire opposition from a murderers’ row of interest groups: Wall Street, Big Oil, Big Coal, the American Medical Association and teachers’ unions. Some items on the agenda will fail.
But the same was true of the New Deal and the decades after World War II, the period that is obviously the model for the Obama years. Roosevelt and Truman both failed to pass universal health insurance or even a program like Medicare. Yet the successes of those years — Social Security, the highway system, the G.I. Bill, the National Science Foundation, the National Labor Relations Board — had a huge effect on the culture.
The American economy didn’t simply grow rapidly in the late 1940s, 1950s and 1960s. It grew rapidly and gave an increasing share of its bounty to the vast middle class. Middle-class incomes soared during those years, while income growth at the very top of the ladder, which had been so great in the 1920s, slowed down. The effects were too great to be explained by a neat package of policies, just as the last few decades can’t be explained only by education, investment and the like.
When Washington sets out to rewrite the rules for the economy, it can pass new laws and shift money from one program to another. But the effects of those changes are not likely to be merely the obvious ones. The changes can also send signals. They can influence millions of individual decisions — about the schools people attend, the jobs they choose, the medical care they request — and, in the process, reshape the economy.
New David Leonhardt Article on Facing Our Economic Challenges
At the New York Times, an early article from next Sunday's Magazine: The Big Fix. Absolutely worth a read. From the concluding paragraphs: