Our Elites Don't Understand What a Strong Economy Is

Everyone wants a strong economy. The problem is we don’t all agree on what a strong economy is.

Everyone wants a strong economy. It’s probably the most universally agreed upon political priority. The problem is we don’t agree on what a strong economy is. Too often, we think we’re having a disagreement about how to get to the place we all want—to a strong economy—when we’re actually talking about different things.

When most Americans talk about a strong economy, they mean prosperity and opportunity. The people who generally run things mean something else. If you want to know why we just had a national breakdown over H-1B visas, this is why we did.

THE FIRST ECONOMY: THE ECONOMY OF ELITES

When policy makers, business leaders, and the controllers of economic institutions talk about a strong economy, they mean America’s economic engine.

To the people who run things, a strong economy means America as an entity producing things and making things happen. This kind of strong economy is churning out iPhones, housing, petroleum, and cars. Businesses are profitable and hiring. Corporate value is growing and reflected in the markets. America the machine can effortlessly churn out products, services, microchips, drones, and guns.

This is the first economy, reflected in graphs and charts and spreadsheets. It’s the economy of unemployment numbers, productivity, profitability, and stock markets. The first economy is important because, when it’s thriving, it means the nation we’re part of has power—the power to produce things, build things, and act in the world. We benefit from living in a rich country. We benefit from our government having resources to build things and protect our interests. We want our businesses to be profitable and to employ people. None of us want to live in a broken-down nation with boarded-up businesses, firefighters who can’t afford equipment, and a government without the means to protect or serve.

When the first economy isn’t churning, the machine of America is weak. There’s less America can make or do, while rivals gain in resources and power and the ability to act.

The reason policymakers, corporate CEOs, and heads of institution think in terms of the first economy is obvious—it’s the source of their own power. They’re driving the ship of America, in a brutal competition with forces around the globe. They want that ship to be as capable as possible. They want as many tools as they can get in their arsenal. They want the soft power of a rich and influential nation, and the hard power of an economy producing the resources they depend upon.

The first economy is also where their personal wealth derives. They’re people who own or control small pieces of the American machine, meaning their wealth and comfort come from siphoning off slivers of that productive machine through things like shares, securities, or control of institutions. When America gets stronger, the little pieces of America they own or control get more valuable. That brings more value to them.

The people who run things most often see the economy as the national productive machine. Naturally, they want that machine to get better, faster, and more efficient. They want productivity to go up, the values of shares to go up, the green lines on spreadsheets to go up, and the number of iPhones pouring out of factories to go up, because that means America as an the entity is getting stronger—meaning the parts of it they control get more valuable too.

This is not what most Americans mean by a strong economy.

THE SECOND ECONOMY: THE ECONOMY OF NORMAL PEOPLE

There’s an alternative second view of the American economy: it’s a machine for employment and opportunity.

To most ordinary Americans, a strong economy means plentiful jobs doing things they want to do. When the economy is strong, it means more chances to realize dreams. It means jobs that pay more with better conditions and more reasonable bosses, and therefore more enjoyable lives. It means more chances to launch side hustles earning money doing things they like. It means more chances to start their own businesses, leaving the world of employers and managers behind.

This second economy is what most Americans think of as the economy. It’s more than jobs. It’s opportunity.

Policy people and CEOs tend to see this second economy as just an outgrowth of the first economy they’re already focused on. As they see things, when the American machine gets more efficient and profitable, that creates better wages and more opportunity, and thus better lives. Economic theories say growing and profitable firms tend to need to hire people, creating opportunities. Failing firms tend to let people go, flooding the labor marketing and driving down wages and opportunities. The first economy and the second economy are therefore correlated.

Saying they’re correlated doesn’t mean they’re the same thing.

THE FIRST AND SECOND ECONOMY ARE IN TENSION

Despite what you might have learned in economics, a strong first economy doesn’t always means a strong second economy. It’s possible to build an efficient and powerful machine for creating wealth and resources that doesn’t provide opportunity or good lives. History is chock full of such machines: plantation slavery in the American South, Roman slave agriculture, and medieval serfdom all provided resources and wealth to their nations even though they didn’t give the people working in those conditions opportunity or good lives. One of the most-shouted reasons against abolishing slavery was it would disrupt the Southern economy. That was in fact quite true. Ripping slavery out of Southern agriculture turned the Southern United States from a rich region to one of its poorest, taking nearly a century to recover. As it turned out, exploiting people and stealing their labor is a very efficient way to produce resources and wealth.

Capitalism, in which people freely trade labor, does tend to link production with opportunity. It doesn’t always. If people can get away with it, exploiting others or rendering them into implicit serfs, they can create very efficient economic machines without opportunity. This is what a lot of Americans claim is happening, and it’s a major driver of our national discontent. Americans claim there’s still prosperity and production, but no opportunity. They’re working hard, but aren’t being treated well by their bosses and have no hope of getting ahead. The people who run things then tell them everything is great because the numbers say we have a great economy. Both groups are right, but they’re talking about different things.

This disconnect is why debates over immigration are frequently so frustrating. We just had a national bust up over H-1B visas. The stewards of the first economy love them, claiming correctly that attracting bright people from abroad strengthens the American machine. It makes America as a whole richer and more productive. Cheap labor—especially skilled labor like H-1Bs—is also disruptive to second economy opportunity. It reduces opportunity for native-born engineers. Both things can be true.

The people who run things think ordinary people don’t get it. This, however, is a case where the ordinary folks get it fine, but the people who claim to be experts miss the point. Ordinary people understand from experience there’s natural tension between the interests of the national economic engine and their personal opportunity. The elite are blinded by wishful thinking and abstractions giving them permission to ignore a tension they would prefer not to consider. They expect people to keep producing value for them to use, ignoring the nagging question of why others should agree to continue to allow themselves to be so put to use.

There are trade-offs between ensuring the machine produces the most it could, and ensuring the people who fuel that machine are getting the opportunity to live the lives they want. Some like to claim such trade-offs don’t exist. They claim higher wages are inherently bad for everyone because they reduce profitability, reducing employment and driving up prices, which hurt ordinary people in the long run. Through such abstract theoretical magic, they claim more opportunity somehow leads to a collapse in opportunity. If this were entirely true, we should bring back serfdom.

If you’re not eager to work in a turn-of-the-twentieth century sweatshop and die in a Triangle Shirtwaist Fire, then perhaps you don’t really believe these trades off don’t exist.

BALACING A STRONG ECONOMY

Of course, we can do both. We can ensure we increase efficiency and productivity while also encouraging opportunity. Instead of just maximizing for the first economy, we can maximize for the first and the second economy at the same time. It’s all a matter of priorities and trade-offs.

Doing this means you probably don’t get the absolutely maximized economic machine. You have to share with others, who might not produce as much for you to use. This may concern you when competing against states like China, willing to maximize their first economy without regard to the second—their people, remembering how bad things recently were as subsidence farmers, are happy to go along. However, you probably aren’t eager to work in a Foxconn factory where abused workers throw themselves off roofs. It also doesn’t mean you always maximize for the second economy, as sometimes happens in Europe. You can’t just gives everyone lovely lives while the economic machinery sustaining us creaks and rusts.

This is hard for some Americans to understand because, for most of the twentieth century, these trade-offs were mostly invisible to Americans. For a few decades in the middle-twentieth-century, America boomed because the rest of the industrial world was devastated in a global war. Prosperity back then was easy and effortless, so it was easy to grow resources and national power while opportunity increased without much thought or effort. That moment is gone. America no longer basks in easy prosperity, but must navigate a bumpy world with fierce competitors amid technological change the impact of which we don’t yet understand.

Our policy discussions would be a lot more fruitful if people would just be honest about what they mean by a strong economy. One of the great challenges of this moment is figuring out how to re-engineer a powerful national engine that also creates mass opportunity and prosperity. Achieving this will take innovative policy and clever thinking about how to reorganize the role of government, the economy, and work. We can’t begin, however, until we frankly acknowledge what the economy is and what it’s supposed to do.

Neither political party is even talking about this yet, much less seeking to implement a vision. I believe whoever seizes this issue will own the future. The political opportunity is rethinking not just government or economics, but the nature of work. To do this, our national leaders are going to have to learn to think differently about what it means to have a strong economy. We can no longer be solely focusing on maximizing the first economy. We must maximize both economies at the same time.

What do you think about the two economies? Join the conversation in the comments.