What Biden-omics ignores

President Trump doesn't have much of a second-term economic agenda. So far it's really just a two-page grab-bag of voter-friendly goals such as "create 10 million jobs in 10 months" or "cut prescription drug prices." The blueprint for achieving those goals is, in essence, "re-elect Trump." For many Republicans, apparently, that's plenty good enough.

Joe Biden has a more traditional policy agenda. And it's a pretty extensive and detailed one, with numbers attached and everything. It even has a slogan, though one that substitutes consonance for cleverness: "Build Back Better." Among the key elements of Biden-omics: A $15 federal minimum wage, a public option to ObamaCare, aid to states to help eliminate tuition for middle-class kids at public universities, and support for new rules to undermine anti-union "right to work" work laws.

If one can connect the various policy pieces with some overarching idea, it's probably this: Too many Americans are sharing in too little of the economy's gains. It's the inequality, stupid. Time to spread the wealth more.

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But what about building the wealth more? The U.S. economy grew at an average annual pace, adjusted for inflation, of about 2.5 percent during the first three years of Trump. That's a bit faster than the 2.4 percent of the final three years of the Obama presidency, but a minor achievement when considering the huge amount of fiscal stimulus injected into the economy via tax cuts and spending increases.

But what if the economy had grown faster than 2.5 percent? And what if that growth had been driven by higher worker productivity (or the output of goods and services produced per hour of work)? One result probably would have been faster wage growth.

A common critique of the Trump economy is that the record low levels of unemployment were not matched by record-high levels of growth in take-home pay, which was just a bit over 3 percent before the virus outbreak. Biden-omics sees that gap and blames the pernicious effect of income inequality. But weak productivity makes for a better explanation. When wages were growing at 4 percent and 5 percent in the late 1990s, productivity growth was twice as fast as it is today. Now, inflation was also higher back then. So when you adjust for prices, the gap in real wage growth for the average worker between the late 1990s and the pre-pandemic economy was a bit less than 1 percent a year, according to former Obama White House economist Jason Furman in a 2018 analysis. It's a gap easily explained by weaker productivity growth today vs. back then. The clear message then: A more productive U.S. economy is critical for faster-rising living standards.

Does Biden-omics address weak productivity growth? Proposed new spending for infrastructure and science research might eventually create a more efficient and innovative economy. Then again, some of those gains might be offset by tax and regulatory changes that seem to downplay or ignore any potential negative impact on productivity or economic growth.

But the importance of innovation-driven growth should not be ignored. Even before the pandemic, economists on Wall Street and in Washington were predicting the U.S. was pretty much stuck in slow-growth mode. And so did the Obama administration when Biden was there. In 2013, the Obama budget declared: "In the 21st Century, real GDP growth in the United States is likely to be permanently slower than it was in earlier eras because of a slowdown in labor force growth initially due to the retirement of the post-World War II baby boom generation, and later due to a decline in the growth of the working age population."

What that uncontroversial analysis means is that if the American economy is going to grow anywhere near as fast in the future as in the past, and if we want fast wage growth again in post-pandemic America, then we will need much higher productivity growth. While better public policy may help more equally distribute the gains from faster growth — skills training, earnings subsidies, a reduction in labor market regulations such as occupational licensing — the link between productivity and pay remains a strong one.

And any purported pro-worker, pro-middle-class agenda put forward by either party needs to explicitly deal with that reality. A pro-productivity agenda would boost high-skill immigration (including from China), reject trade barriers, and look hard at regulations that make it unnecessarily time consuming and expensive to build and innovate in the physical vs. digital world.

But first, understanding the root problem is perhaps most important if a President Biden is really going to successfully make his clunky slogan a reality.