The most glaring failure of advanced economies

The surest way for policy advocates to lose a progressive audience is to start talking about the economy’s supply side, the importance of incentives, and the dangers of excess regulation. These ideas are traditionally associated with conservative agendas. Ezra Klein and Derek Thompson’s new book Abundance aims to change all that.

As Klein and Thompson point out, the left has traditionally focused on demand-side remedies. A key tenet of the New Deal in the United States and social democracy in Europe is Keynesian management of aggregate demand to ensure full employment. Another is public transfers to mitigate the impact of unemployment, ill health, and old age.

Klein and Thompson rightly underscore that it is improvements in supply that are the source of broad-based posterity in the US and other advanced economies. As productivity rises, low- and middle-income families reap the benefits of cheaper and more varied and plentiful goods and services. Increasingly, however, the US economy’s ability to build things has been hobbled, Klein and Thompson argue, by environmental, safety, labor, and other regulations, and by complex and time-consuming local permitting rules.

These rules and regulations may be well-meaning, but they can be also counterproductive. When governments and communities place obstacles in the way of investment and innovation, they undercut prosperity. Public transport lags behind, productivity in housing construction plummets, and deployment of renewables falters.

The examples Klein and Thompon offer are telling. California’s high-speed railroad is years behind schedule, way over budget, and has been sharply reduced in length. President Joe Biden’s infrastructure plan promised 500,000 charging stations nationwide for electric vehicles; only seven were built in the first two years of the program.

Klein and Thompson’ vision of progress features energy from renewable sources and cheap, safe nuclear power; fresh water from desalination; fruits and vegetables from hyper-productive vertically stacked farms; meat produced in labs without slaughtering live animals; miracle drugs delivered by autonomous drones; and space-based factories supplying our other needs without requiring any human workers. And since AI has greatly shortened the workweek, we all can enjoy more vacation time without sacrificing our living standards.

Klein and Thompson are right to want to shift progressives’ attention to the supply side of the economy. Keynesian social democracy no longer provides an adequate answer to the malaise experienced by workers. But their depiction of utopia reflects a vision that ultimately remains consumerist. They say very little about people as workers. Their focus is squarely on the abundance of goods and services that the economy generates – on how much we build, rather than on the builders.

In this, they share a common blind spot with economists who, ever since Adam Smith, have emphasized that the ultimate end of production is consumption. But what gives meaning to our lives is not just the fruits of our labor, but also the work itself.

When people are asked about well-being and life satisfaction, the work they do ranks at the top, along with contributions to their community and family bonds. For economists, a job provides income but is otherwise a negative – a source of “disutility.” For real people, a job is a source of pride, dignity, and social recognition.

The loss of employment typically produces a reduction in individual well-being that is a multiple of the loss of income. The social effects magnify those costs. Communities that suffer from persistent unemployment experience rising levels of crime, family breakdown, drug abuse, and an increase in authoritarian values. The rise of far-right populists in the US and Europe has been linked to the job losses associated with trade shocks, automation, and fiscal austerity.

Good jobs pay well, but also provide security, autonomy, and a path to self-improvement. None of this is possible without high levels of productivity. A progressive who is focused on abundance of good jobs, rather than abundance of goods and services, would therefore find plenty to agree with in Klein and Thompson’s book. But there would also be many quibbles.

Consider housing, one of Klein and Thompson’s key examples. Productivity in housing construction has stagnated in recent years, in part because of safety regulations and union rules. As one of Klein and Thompson’s interlocutors readily admits, many of the regulations that impede construction productivity also reduce workplace injuries. Fatalities and non-fatal injuries in construction have fallen dramatically in the US since the 1970s, thanks to many of these restrictive rules. That must surely count as an improvement in overall worker well-being, casting the productivity statistics in a somewhat different light.

Klein and Thompson are concerned mainly with services such as housing, transportation, health, and energy, rather than consumer goods per se. But their line of argument echoes economists’ case for automation and free trade. These may have been efficient by conventional criteria, and they certainly helped produce an abundance of goods. But they also hurt many workers. They left our societies scarred and helped pave the way for right-wing populism. A good-jobs focus would make us more tolerant of rules and regulations that sacrifice some efficiency for the sake of better labor-market outcomes for non-college-educated workers.

Ultimately, the real challenge for progressives is to devise an agenda that benefits workers in their role as workers as much as in their role as consumers. This requires a distinctive approach to innovation, investment, and regulation. Unions, worker representatives, and collective bargaining must be viewed as essential components of abundance, rather than obstacles to it. Place-based strategies and local economic development coalitions are critical. And government must put its thumb on the scale to ensure innovation takes a worker-friendly direction.

Advanced economies’ most glaring failure has been their inability to deliver adequate numbers of good jobs. The damage has gone beyond economic performance, reflected in divided societies and polarized politics. Remedying this failure requires focusing on those who produce abundance, alongside abundance itself.

Copyright: Project Syndicate, 2025. www.project-syndicate.org