There is a widespread feeling that the American economy is broken.
Data shows that the percentage of families living paycheck to paycheck
has risen from around 30% in the late 1990s to 50% to 60% today. Rising
costs and stagnant wages have lowered the standard of living for
working families, even as per-capita GDP has reached new records in a
linear ascent. In many aspects of society, we are acting as if we are
impoverished instead of wealthy. Both federal and state government
agencies have laid off workers, services are impaired, maintenance of
infrastructure is declining, homelessness is rising, etc. What is
wrong?
Ezra Klein and Derek Thompson recently wrote the book
“Abundance”, published in 2025 to address issues with the broken
economy. The book expresses the core ideas of supply-side
progressivism, a movement originating in about 2010 and building
momentum until today. There's a Wikipedia Page for supply-side progressivism; check it out.
The
term “Abundance” is now being widely used by Democratic candidates for
Congress, though I suspect few of them have actually read the book.
“Abundance” may become the main campaign theme for the 2026 mid-term
elections, particularly for centrist Democrats. Abundance seems an odd
choice as the unifying rallying cry for Democrats – because the main
message is a confession that Republicans were right when they said that
government regulations were strangling the economy.
The central
thesis of Abundance is that limitations in the supply of goods and
services have driven prices higher and impaired American prosperity.
Klein and Thompson lay out the argument that excessive government
regulation has been the root cause of those shortages. Specific
examples include goods and services which have increased in price more
than the rate of inflation – housing, health care, higher education, and
other key necessities, including energy, food and transportation. For
me, there’s an uncomfortable echo of Reagan-era supply side economics,
which proposed that lower tax rates, in combination with reduced
regulation, would bring prosperity to consumers and higher government
revenue. The theory is largely discredited by current day economists.
Klein
and Thompson title their chapters Beyond Scarcity, Grow, Build, Invent,
and Deploy. The first chapters examine the impact of regulatory
over-reach on particular aspects of the American economy. The final
chapter, “Deploy”, emphasizes the role that government should play in
encouraging the development and commercialization of new technologies,
after invention.
Klein and Thompson give short shrift to the
societal benefits of the last 60 years of government regulations. We
now have cleaner air and water; fatalities per air-travel passenger-mile
have fallen by a staggering 99%; fatalities per vehicle-travel
passenger-mile have fallen by about 66%; worker safety is greatly
improved across many industries; food and medical safety is far better
in the United States than in other nations; etc. But they are correct
that there is a cost to regulations, and those costs have not always
been weighed accurately against the benefits.
To use a Millennial
idiom, one could say that Klein and Thompson are *not wrong*, damning
them with faint praise. I believe the book is correct that policy
choices about some regulations have led to scarcity, which then led to
rising costs. Housing and medical treatment are the best examples. On
the other hand, abundance theory is woefully incomplete in describing or
remedying the problems with the economy.
The primary problem
with the economy is demonstrably not on the supply side. Adjusted for
inflation, personal earnings (wages and salaries) have increased by only
about 12% since 1980, while per capita GDP has more than doubled,
according to data from the Federal Reserve Database. Wage stagnation is
the primary reason that working-class Americans are being left behind,
not limited supplies of needed goods and services.
The reason for wage stagnation is also pretty clear. Over the course of my career (1980 – 2026), I saw computer automation eliminate many good-paying jobs. Managers were issued PCs to do correspondence and clerical work, and secretaries were re-assigned or fired. A geologist with a workstation could do the work of three to five geologists working with pencils and drafting tables, so 2/3rds of the geologists were fired. Workstations produced high-quality graphics, so the entire drafting and reprographics departments were fired. Enterprise-wide accounting software reduced the number of accountants in my department from 28 to 1; the other 27 were fired. The Internet and internal information archives eliminated the need for information specialists. In the 1980s, management set a goal of reducing professional headcount from 3000 to 1000, and achieved that goal; also in 1980, there was an aspirational goal to reduce the headcount to 300. The company has now been sold, so it appears that they achieved that goal as well. As Thomas Piketty wrote, technology and capital replace labor.
There
is a belief, often cited in articles about economics and technology,
that new technologies *always* produce new jobs. I saw another article
citing that dogma two days ago, in an article about the Davos conference
and AI. The argument is empirical, and to my mind, began to break down
with the introduction of the PC in 1980. It may be true that the
introduction of the automobile created more jobs for buggy-whip
manufacturers, but that will not necessarily be true about the
replacement of lawyers by AI. Empiricism is the weakest scientific
argument, because it provides no fundamental explanation for why it is
true, and it provides no predictive power for situations outside of the
envelope of prior experience. And the future is always outside of the
envelope of prior experience.
The goal of many Democratic
policies of the past 60 years has been to address the symptoms, rather
than the cause, of economic dysfunction. Higher minimum wage, pro-union
regulations, food assistance, rental assistance, child-care tax
credits, health insurance subsidies, etc., are all band-aids, not
solutions to our economic problems. Neither party has been able to
develop policies that improve the fundamental productivity of all
individual workers, and the power of those workers to demand greater
compensation for their work.
My employer’s view is that
employees were a cost, not an asset. For 45 years, the pathway to
improve corporate profitability has been to employ fewer people. That
put relentless pressure on employee compensation.
There are a
few obvious possibilities. Nationalized health care would remove the
burden on businesses of providing health insurance for employees.
Higher minimum wage might help, but also provides an incentive for
businesses to automate low-paying jobs. It might be possible to tax
companies based on the number of good-paying jobs they provide, relative
to profits. But this might put American companies at a disadvantage in
global trade.
Government policies have long been tolerant of
the gimmicks that employers (even government employers) use to avoid
paying benefits to employees, such as restricting weekly hours, or
periodically laying off worked, only to hire them again shortly
afterwards. But as well as ensuring that workers are paid benefits that
they deserve, government should help to improve their productivity and
value to employers.
In my opinion, there are no clear policy
fixes for the problems plaguing the 21st century economy. Abundance, as
a book and as a policy goal, is a good start. But after 2028,
Democrats must not fail to deliver on the idea that Americans deserve
prosperity, or we will face a return to the populist politics of
grievance and blame which characterizes the Trump administration.
