Building the New American Economy: Smart, Fair, and Sustainable
February 16, 2017
Renowned economist Jeffrey Sachs has written a book “to explore the economic choices facing the United States and the world at the start of the new administration of Donald Trump and the new Congress."
Building the New American Economy: Smart, Fair, and Sustainable by Jeffrey D. Sachs, Columbia University Press, 152 pages, $17.95, Hardcover, February 2017, ISBN 9780231184045
I think it’s safe to say most American’s no longer feel the economy is working for them, their families, and their communities. Economic populist messages formed the backbone of insurrections within both major parties this past election year, one of them taking its candidate all the way to an electoral college victory and the White House.
Jeffrey Sachs, one of the world’s most respected, preeminent economists, and author of The End of Poverty: Economic Possibilities for Our Time, Common Wealth: Economics for a Crowded Planet, and The Age of Sustainable Development, has been advocating an alternative for decades. The purpose of his new book, Building the New American Economy, does the same, but very specifically addresses this moment “to explore the economic choices facing the United States and the world at the start of the new administration of Donald Trump and the new Congress."
Sachs supported the other insurgent, acting as a close advisor to Bernie Sanders (who wrote the introduction to this book) during his campaign. But this book is decidedly nonpartisan; liberal economists and the Obama administration policies take a bludgeoning in the book. And he begins the book applauding many of Donald Trump’s campaign pledges, writing:
Rebuilding America’s inner cities and creating a twenty-first-century infrastructure could be Trump’s greatest legacy.
Trump’s pledge to make America’s infrastructure “second to none” is a correct and bold goal, for America’s competitiveness, future job creation, public health, and wellbeing.
But how exactly does he differ from those orthodoxies? It is, perhaps, because his ideas are more concerned with the pragmatic possibilities of economic progress than in staking out ideological territory or currying favor with the current political and economic elite. As Joe Scarborough, who we should remember is a former Republican Congressman with a 95 percent rating from the American Conservative Union, writes in his endorsement of the book:
Jeffrey Sachs remains one of the most thought-provoking economists in the world today because he dares to challenge presidents of both parties and the orthodoxies that bind them to disastrous policies.
There are also many economists—secular stagnationists like Robert Gordon, author of The Rise and Fall of American Growth—that would have us believe in an emerging orthodoxy that the staggering economic growth of the past, post-war years is simply not possible in today. Sachs respects, and yet rejects, those ideas. He believes that the supposedly past “golden age” of economic growth wasn’t an aberration now at an end, but the result of deliberate saving, investment, and planning. Noting that nondefense R&D fell from around 4 percent of the federal budget in the 1960s to just 1.5 today, he admonishes that:
In the pursuit of tax cuts, we have undermined our collective ability to build a more prosperous and sustainable future. And we’ve done it with little recognition of the long-term consequences.
We certainly notice the crumbling of the roads, bridges, and dams that suffer from chronic undersaving and underinvestment. We are less aware of the science, skills, and natural capital that we are shortchanging as well. And we are less aware still that investing in our future requires rates of public and private saving. Golden ages don’t just happen; they reflect societies that choose to save and invest vigorously in their long-tern wellbeing.
At 152 pages, this is also a bit lighter than books like Gordon’s, which weighed in at 784. While both offer solutions, Sachs’ seem deceptively simple. It basically comes down to raising revenue and rethinking our institutions—public and private—to quite literally begin rebuilding America.
All of this requires three fundamental shifts in what we accept and expect. First, we must “raise tax revenues to fund greater public investments.” Taxes are never popular, but the infrastructure and services they provide are almost universally so. But that requires a government that works, which brings us to:
Second, the government will need to restore its capacity to plan complex public investments.
Think here of the intestate highway system, built over the course of three decades and six administrations, or the moonshot of the 1960s—both investments that not only showed the capacity of government to plan and accomplish large, audacious projects that have become the envy of the world, but yielded great dividends for the private sector, that in fact produced the physical and scientific infrastructure our private enterprises have been largely powered by since. And:
Third, and perhaps most crucially, we need financial system reform, to shift Wall Street from high-frequency trading and hedge fund insider trading back to long-term capital formation.
There is a reason I find books on the Wall Street of yesteryear so inspiring, and those that document Wall Street today so terrifying, and Sachs captures it perfectly when he writes:
We remember J. P. Morgan as a titan of finance not for shaving a nanosecond from high-frequency stock market trades, but because his banking firm financed much of America’s new industrial economy of the early twentieth century, including steel, railroads, industrial machinery, consumer appliances, and the newly emergent telephone system. U.S. Steel, AT&T, General Electric, International Harvester, and much of the rail industry all bear his financial imprint. If Wall Street continues as a hodgepodge of insider trading, hedge funds, and other wealth management, it will be overtaken by index funds requiring little more than a computer program to operate.
But this isn’t a political screed or attack on Wall Street. He tackles all of the biggest issues of the day—from the rise of automation, globalization, income inequality, to the degradation of our infrastructure and environment, to the current dysfunction of our political system—in short yet in-depth detail and analysis.
On infrastructure, he argues for long-term planning over “short-term stimulus.” And he calls for Wall Street to return to its former role to help finance it.
As America builds the new infrastructure for the age of sustainable development, Wall Street would then also restore its role as the financial powerhouse behind the world’s most dynamic economy.
On trade, he explains how globalization can increase efficiency, while at the same time lead to greater inequality, and counsels that “A vote for expanded trade can be made unanimous if the winners are also taxed modestly to help compensate the losers.” He takes our most difficult and intractable problems, and lays out pragmatic and practical approaches to them. Even on energy policy and climate change, he writes:
Despite considerable hullabaloo, there is nothing very mysterious about the world’s energy challenge.
(Extra points, Mr. Sachs, for using the word hullabaloo in the midst of such a serious discussion.) It all comes down to three words: smart, fair, and sustainable. There are those that would argue that attempts to address economic inequality and environmental protection would somehow weaken our economy, whereas Sachs believes that it’s the only sustainable way forward. Sanders sums this thinking up succinctly in his introduction:
An economy in which almost all of the wealth and income flows to the very top is simply not sustainable. Likewise, an economy based on destructive environmental policies will inevitably lead to catastrophe for the rich and poor alike.
It is, in fact, only smart, fair, and sustainable development that offers the only real prospect for growth. And it is the reason that:
On September 25, 2015, all 193 governments of the United Nations adopted sustainable development, with seventeen specific Sustainable Development Goals (SDGs), and the basis for global cooperation on economic and social development during the coming fifteen years. On December 11, 2015, the same governments adopted the Paris climate agreement, also built on the concept of sustainable development.
The world feels a lot different today than it did just that short time ago, but it isn’t. And even if a nationalist wave turns some governments’ backs on those goals, we as citizens and communities and companies can still begin to implement them to make our own organizations and communities smarter, fairer, and more sustainable. And as the tide turns back, as it inevitably will, we will be well-placed to capitalize on the opportunities inherent in those sustainable development goals.