Can Economic Policy Solve Economic Problems?
There are plenty of smart policies that can help to address the economic factors that have fueled support for populist politicians over the last year. But, even as economists promote such measures, they must remain humble about the efficacy of their solutions.
CAMBRIDGE – The past year has witnessed several attacks, including a few near misses, on the rules-based global order that has undergirded prosperity in the world’s advanced economies and the rapid growth of many emerging economies. A lively debate has ensued about whether the fundamental cause of such populist attacks is economic or cultural. I suspect the answer is a bit of both, especially because cultural explanations raise the question of why now, whereas economic explanations provide a ready answer: the significant slowdown of income growth.
A tougher question is what can be done about it. The challenge we face consists in the disconnect between the economic aspirations of the discontented and the policy tools we have at our disposal to meet them. And in some cases, the tools themselves may be politically counterproductive.
Still, we must try, because surveys of life satisfaction reveal some disturbing trends. Life satisfaction in the United States, as measured by the General Social Survey, peaked in 1990 and has been largely trending down, even as household incomes have risen (albeit tepidly). Other major economies have also experienced declining levels of self-reported wellbeing, including Italy, where Pew’s measure of life satisfaction peaked in 2002, and France as well.