"Fareed Zakaria GPS," Sundays at 10 a.m. and 1 p.m. ET on CNN
Zanny Minton Beddoes, the economics editor for 'The Economist,' responds to readers' questions on recent economic data, the national minimum wage and gridlock in Washington.
Figures out this week suggest groundbreaking declined at home construction sites, factory activity in the mid-Atlantic region dipped. How concerned should we about these kinds of numbers?
I think we’ve had a fairly mixed crop of numbers, some of which are worrying, and some of which are quite positive. You have to be careful not to draw too much from any individual number. But broadly, my sense is that the private side of the U.S. economy is recovering at a reasonable, but not terribly dramatic, pace. The housing market, in particular, is on the mend.
Yes, some numbers disappoint, but broadly it’s a good news story. But I think the overall pace of recovery is being held back by the fiscal tightening that is going on. We had quite big tax increases at the beginning of the year. And in the sequester – and we’re getting somewhere in the order of 1.9 percent of GDP in fiscal tightening. So that’s acting as a brake on the economy and so the overall recovery is not as strong as it otherwise would be, which means there’s slower job growth than there otherwise would be.
It is a recovery, but it’s a pretty lackluster one considering how much we have to catch up, and I think that has quite a lot to do with fiscal policy.
“Jon Perrone” asks on Facebook how damaging is the current gridlock in Washington?
In the short term, I think it’s leading to a fiscal stance that’s far from optimal in that we have, to put it crudely, too much tightening in the short term, while we are not addressing what this country’s real problems are, which is entitlement reform. And I would probably add tax reform, because the U.S. tax system is incredibly inefficient and could do with reform.
But the U.S. does not have a short term fiscal problem. We saw that last week with the new deficit figures – they show that very powerfully. It’s not a situation where we have to cut fast now to deal with a fiscal crisis. But the U.S. does have a challenge with entitlements, particularly with Medicare spending in part because of the aging population and the baby boom generation, but largely because of the rise in health care costs.
Health-care cost inflation has slowed recently, and that’s probably the best thing from a longer term perspective if it lasts. But that’s where I think the policy focus needs to be. The focus in Washington is on cuts that furlough air traffic controllers or cut Head Start or cut public investment, and that’s not what this country needs. And I think that is the main economic damage from the fiscal situation in Washington – we are focusing on the wrong fiscal priority, and I think we are not focusing enough on jobs in the sense that not only is unemployment still high, but long term unemployment is still very high. There are a lot of people who are moving from unemployment to disability rolls, and there are a lot of people who have been out of work for a long time who are unable to get jobs. And I think that from a long term perspective, this is not just a human tragedy, but it’s going to be a potentially big hit on the economy in the future. So to summarize, the focus is too much on short term fiscal – and too much on fiscal – and not on the broader challenges facing the economy.
“Jon Inklovich,” an employer, says it has been difficult to find skilled workers in manufacturing and construction. Do you feel there’s a big skills gap in these industries?
I hear that a lot, and there are plenty of numbers that suggest employers are having trouble getting skilled workers. For me that’s another reason to focus on what matters in this economy, which is not only boosting the opportunities of those out of work, but improving skills through the education system, figuring out ways to train people for tomorrow’s jobs. And I think that means a whole number of things. I think at a very young age it means a bigger focus on pre-school because that’s where you start on the education ladder. It means improving K through 12, although I know that’s primarily the purview of the states. It means thinking about community colleges more effectively as a route to the more vocational training, it means thinking about college and how college fits in.
There’s a whole slew of things where much more needs to be done to ensure that people have the skills for the jobs that are going to be created. And the U.S. is a rich economy whose future job growth is going to be in the high skill area, and we need to make sure people have the capacity to do those jobs.
The Minnesota House this month approved a $9.50 minimum wage. Tyler Benschoter asks how much of an impact you think this kind of hike would have if applied nationally?
The impact of a minimum wage depends on how high it is to average wages. If you have too high a minimum wage, it will hurt job creation and you will have negative job effects. As of right now, the U.S. minimum wage is relatively low compared to median wages – both compared to its own history, and certainly compared to other countries. So I wouldn’t be worried about a modest increase, and I think the literature tells us that clearly over the last 10 years, modest increases in the minimum wage, at a sensible level, actually don’t have huge job hurting consequences.
The problem with one single minimum wage is that you don’t allow for younger people, who are less skilled and maybe more easily pushed out of the job market, or that the minimum wage should vary for different regions.
Now that’s a complicated answer to the question, but how much damage is done depends on how high it goes, and right now the U.S. is pretty low. So I think the damage to the U.S. of a modest minimum wage rise should not be that big. But if you look at somewhere like France, where I think the minimum wage is something like 60 percent of the median wage, it’s clearly a job killer.