The current presidential candidates are selling snake oil when it comes to the economy.[1]

“The economy is rigged”—Bernie Sanders, with Hillary Clinton yapping along behind.  The economy is “rigged” only in the sense that economic change has assigned a lot of value to skills and education, and virtually no value to just showing up.  In a period of economic transformation, a modern economy shifts resources from low-productivity sectors to higher-productivity sectors.  All those in the skilled and educated sectors profit, while those in the less-educated and less-skilled sectors lose.  That isn’t the same as saying—as Sanders and Clinton imply—that a cabal of Wall Street bankers are making all the decisions for the nation at large.

“We don’t make things anymore”—Donald Trump.  In fact, it depends on what the meaning of “we” is.  On the one hand, the total value of goods manufactured in the United States is at its highest level, almost 50 percent higher than in the late 1990s.[2]  On the other hand, employment in manufacturing has declined by 29 percent over the same period.  Under the pressure of foreign competition, productivity in manufacturing has increased through new technological innovations.  Indeed, in the many days ago, it was the competition from highly productive American manufacturing that forced adaptation on foreign countries.

“I do not believe in unfettered free trade”—Bernie Sanders.  The North American Free Trade Agreement (NAFTA) and the proposed Trans-Pacific Partnership (TPP) have been condemned for exporting jobs to developing countries.  In fact, most academic economists—highly astute people on the left—believe that the evidence shows that free trade has been good for the United States.  It has destroyed some jobs, but it has created many others.  Job loss at big, old-fashioned firms is easier for the media to document than is job-creation at many small firms.

“I want to make sure the wealthy pay their fair share, which they have not been doing”—Hillary Clinton.[3]  While exceptions exist, the Congressional Budget Office (CBO) reports that the fabled top “one percent” of earners pays at a rate of 33 percent, while the middle three-fifths of earners pay at an average rate of 13 percent.[4]

“The Laffer curve.  HA!”—me.  Republicans promise that big tax cuts will lead to robust economic growth.  The Mellon Plan of the 1920s and JFK’s tax cut of 1963 seem to bear out this claim.  However, the Reagan and Bush II tax cuts did not stimulate much economic growth.[5]  Still, tax cuts leading to growth has become a Republican mantra.  Actually, the amount of growth from tax cuts is very uncertain.  What is certain is the impact of further tax cuts on the deficit.  Tax cuts will produce bigger deficits.  According to one estimate, Donald Trump’s tax plan would reduce federal income by 29 percent.

What Bernie Sanders, Donald Trump, and Hillary Clinton are trying to say is that Americans have become uncomfortable with adapting to change and competition.  That is easy to understand.  From 1945 to the 1970s, the American economy led the world.  Americans got used to high incomes from less work.  Then, the rest of the world caught up.  Sometimes this came in the form of better quality goods; sometimes in the form of lower prices.  Now it’s up to us to learn how to compete again.

[1] Gregory Mankiw, “The Economy Is Rigged, And Other Campaign Myths,” NYT, 8 May 2016.

[2] That is, during the now longed-for “golden years” of the Clinton administration.

[3] Asked to define “fair” taxes on the upper 40 percent of earners, my beloved sister-in-law says, “well, more.”

[4] http://www.pewresearch.org/fact-tank/2016/04/13/high-income-americans-pay-most-income-taxes-but-enough-to-be-fair/

[5] To be fair, the Reagan administration also had to wring-out a lot of inflation by slamming the brakes on money creation.  This led to high interest rates, slow growth, and high unemployment.