Rethinking Economic Policy

Idea

New America’s Economic Growth program sought to chart a new growth path for the U.S. economy in the wake of the Great Recession. Through a series of policy papers and public forums, it outlined an agenda that emphasized expanded public investment, new trade and investment relations, full employment macroeconomic policy, and socioeconomic measures that would reduce inequality and expand both domestic and global demand. The ultimate goal of the program was to promote a more balanced pattern of domestic and international growth that would result in a stronger productive economy capable of supporting rising living standards for all Americans.

Incubation

The program’s seminal papers and projects served notice of the major rethinking that would be required to produce widespread prosperity in the new post-bubble era. America’s New Abundant Economy argued that abundance, not scarcity, was the principal challenge facing the U.S. and world economy. Too much labor, capital, and productive capacity was leading to disinflation, as well as asset and credit bubbles. Supply-side policies therefore had to be accompanied by more robust demand-creating structural changes. The Program’s three-year project, Current Account Surplus Watch, warned that big current account surplus economies, like China and Germany, were creating dangerous imbalances in the global economy, leading to large unsustainable debt build-ups in more consumer-oriented economies. These economies would need to help rebalance the global economy by consuming more and saving less. The Program’s analysis of private debt in America laid out why private, and not public debt was the cause of the 2008 financial crisis—and why the build-up of private debt was creating a major drag on economic growth and the middle-class standard of living. And The Way Forward laid out the case for a massive domestic and global public investment program that, in the wake of the financial crisis, would make up for weak private investment in the United States and other advanced industrialized economies. Public investment would both expand demand and strengthen the productive economy.

Impact

The program’s recommendations helped inform the U.S. Treasury push at the 2009 and 2010 G-20 summits to rebalance the world economy and encourage current surplus economies to consume more and export less. The program’s work on public infrastructure investment and the importance of increased public spending led to various proposals for a national infrastructure bank on Capitol Hill. They also helped catalyze a rethinking in the investment community about the need for more expansive fiscal policies and more unconventional monetary measures. Ten years after its inception, many of the Economic Growth’s program core ideas have become conventional wisdom in much of the policy and investment community.