Economic recovery good, but spread unevenly across country

Last week, there was good economic news.  Maybe.

The U.S. Census Bureau reported that household income had risen during 2015 by 5.7 percent.  That was the first increase since 2007, the last year before the Great Recession.  Women employed full-time gained somewhat more than men.  Unemployment was down and millions more had health insurance.

That’s the good news.  The not-so-good news was that, even with the increase, household income was still below what it had been in 2007 and even further behind the 1999 level.

Income inequality, the gap between the rich and the poor, stabilized and did not increase last year, but it was still high and well above what it had been in the 1990s.

For some doubters about the economic improvement, there would be no positive news until people who had quit looking for a job and were no longer counted as unemployed came back into the labor force.  For other critics, improvement would depend on reducing the income gap.

Recovery from the recession has been imperfect partly because of imperfect government policy.  President Obama managed to push through one stimulus boost, but Congress denied him any more jump-start spending. 

Because of the inability to use fiscal measures – government spending and tax tools – all anti-recession efforts have been left to monetary policy run by the Federal Reserve.  It drastically lowered interest rates and added more money to the economy. 

At some point, Federal Reserve policy lost strength.  It has weakened interest rates as a tool by keeping them below one percent even as the economy recovered.  Small increases will not return normal interest rates, with their greater flexibility as a tool, for years. 

But the problem seems to go well beyond simply recovering to the 2007 level.  Many well-paid, relatively less skilled jobs have migrated out of the country.  Now, lower paid workers elsewhere produce competitively priced imports.  That’s one cause of complaints about trade policy. 

The exported jobs won’t come back home.  And technology makes production here possible with fewer workers.  The U.S. needs to provide better training and retraining, so people can add skills and adjust to more advanced needs. 

Workers must now be paid in line with the value of their labor to products or services.  The way to create jobs that pay well is to keep the country ahead of others in developing leading edge products and services.  That requires government help, now lacking.

There’s another reason the good economic news may not feel so positive.  In the U.S., with the third largest population in the world, people spread across a continent are not likely to have the same experience as the national average. 

The American national economy is composed of many smaller economies.  Broad economic policies, as proposed by presidential candidates, have uneven effects across the country.  That should prompt states to take on bigger roles in developing economic growth. 

Traditionally, that has meant offering tax breaks to companies willing to locate in a state.  Such policies do not promote national economy growth.  They are simply aimed at luring jobs away from other states. 

Tax incentives will not do the job by themselves.  They are not targeted and, in light of interstate competition, they are not likely to be notably better that what’s available elsewhere.  They amount to a passive economic development effort.

Some states, like California or Texas, have complex economies virtually the same as that of an independent nation.  But many others, including Maine, must develop and exploit a more limited range of sectors.

With the oldest median age population in the country and as a popular place for retirement, Maine could create a focus on innovative ways of providing living space and health care to seniors.  State educational institutions could increase training of health care personnel.

Such targeted development depends on better marketing of what the state does well.  Let retirees know they are invited and health care professionals know they are needed.

If public funds spent through tax incentives were replaced by targeted spending on sectors in which Maine can specialize, the results could produce more and better employment.  In short, active development effort should replace passive and sometimes questionable tax cuts.

A divided federal government will likely remain unable to produce a consistent growth policy and possibly much else.  Even if Republicans succeed in cutting regulations or taxes, that won’t necessarily boost the Maine economy or that of many other states.

The absence of federal action should lead to greater state action in economic development.  Otherwise, recovery, however good, could pass by some states and workers.