For decades, political leaders have focused on building “walls” rather than “bridges,” obstructing market exchange rather than facilitating it. Columbia Business School dean emeritus Glenn Hubbard has observed firsthand that walls are politically hard to resist. As chairman of the President’s Council of Economic Advisers from 2001 to 2003, he advised against imposing steel tariffs in 2001, but President George W. Bush rejected that advice. Hubbard also observed the effects of deindustrialization on workers and communities in Youngstown, OH as part of his economic research. Instead of helping workers adjust to disruptive economic forces, politicians tried to wall off those forces with public policies. In the long term, that neither helped the communities nor built support for free markets and capitalism.

Hubbard suggests the failure of policy to adequately respond to displacements caused by technological change and globalization has led to the rise of populism and diminished public belief that the market economy creates broad prosperity. He argues for bridges — public policies to help displaced workers — to replace the walls and renew support for capitalism.

Returning to the game / In Hubbard’s telling, Adam Smith understood the importance of bridge-building. Smith thought of himself first as a moral philosopher and viewed the economy as a moral system of flourishing. Smith wanted to promote the happiness of everyone in the nation, not just the elites, Hubbard (and others) notes. Such mass flourishing results from “inclusion, mutual ties, and mutual support” — bridges — that help those on the margins participate in the market.

Dynamism leads to economic gains but results in disruption that unavoidably produces winners and losers. Mass flourishing requires that the losers return to the game — that they rejoin the economy in some new productive role. Their failure to do so may undermine the entire enterprise and violates an implicit moral precept that the winners compensate the losers. While some economists have thought about how to do this (Hubbard cites the late Cambridge economist Nicholas Kaldor’s work in particular), the economics profession in the post–World War II period did not focus on this because extraordinary economic growth was assumed to be the rising tide that lifts all boats.

Hubbard’s policy prescriptions provide mechanisms for the winners to compensate the losers. His are generally new policies; current government programs help smooth short-term business cycle disruptions but do not meet the long-term needs of those displaced by technological change and globalization. Without any apparent sense of the irony, Hubbard calls for massive government intervention to shore up public support for the market economy.

Big government spending / In Hubbard’s perfect world, governments would insure individuals against the risk of adverse outcomes from technological change and globalization. Policymakers would establish mechanisms that anticipate structural changes in the economy, provide workers the means to improve their skills, and help displaced workers reconnect to the economy. These mechanisms would compensate the losers by allowing them to continue participating in an ever-changing market. The business sector can also help identify trends and needed skills, but in Hubbard’s view they should principally “defend the process of competition.”

Hubbard offers some recommendations:

  • Increase community college funding by $20 billion annually to “provide skills to meet job demands of the changing economy” and raise the completion rate to 60%.
  • Increase federal funding for basic research to “maintain global research preeminence.”
  • Provide employer tax credits for training workers above a base level. This is intended to compensate firms “for the risk of trained workers leaving for a job elsewhere.”
  • Establish individual “Personal Reemployment Accounts” to support training and income for dislocated workers.
  • Provide wage insurance to offset part of the difference between wages at a higher-paying job that disappears and wages from a subsequent lower-paying job. This is intended to “encourage rapid reemployment and skill acquisition.”
  • Expand the Earned Income Tax Credit to keep people — particularly childless workers — engaged in low-wage work that lets them build skills and an employment record.
  • Establish place-based block grants for areas with “stubbornly high rates of long-term nonemployment” to promote workforce participation.
  • Institute universal catastrophic health insurance to provide access to health care and “raise labor demand for low- and mid-skilled workers.”
  • Increase federal funding for the Medicaid program to enable states to withstand budget pressures during periods of high unemployment.
  • Create a broad national service program to foster a feeling that “we’re all in this together.”

These policy interventions would cost about $120 billion per year, Hubbard estimates. Many of them have been proposed before as stand-alone additions to the social safety net and have been rejected by Congress. Hubbard now proposes them as a comprehensive package, as though that would cause Congress to look more favorably on them, ignoring that Congress has been unable to enact comprehensive welfare reforms since the Personal Responsibility and Work Opportunity Act of 1996.

Acknowledging the difficulty in coordinating this massive new benefits infrastructure, Hubbard recommends that the cross-cutting policy process fall to a U.S. Task Force on Economic Engagement. The task force would evaluate proposed bridges and walls and hopefully would “promote vigorous public and legislative debates.”

Hubbard accepts that paying for these policies would “require a rethinking of social spending on older versus younger Americans.” To finance these initiatives, he offers several ideas:

  • Tax corporations on cash flow rather than profits, which would move tax incidence to firms with large profits above the competitive return on capital.
  • Eliminate the step-up of capital gains at death, which allows heirs to pay lower taxes when they sell inherited assets.
  • Reduce Social Security benefits for those with higher lifetime incomes.
  • Increase Medicare premiums for the affluent.
  • Reduce tax subsidies for health insurance.

Hubbard also proposes cutting Social Security benefits beyond what is required to prevent the program trust fund’s depletion (which is expected in 2034) and increasing the Medicare tax beyond what is needed to ward off its insolvency (expected in 2026). The additional revenue would be used to help fund his new welfare protections.

Too little too late / All of Hubbard’s bridges are worthy of consideration as responses to future shocks (and perhaps for recovery from the COVID-19 pandemic if enacted soon enough). That said, it is not clear that these policies will help workers who have already been displaced by technological change and globalization to reenter the labor market.

Compensation that prepares workers to compete are unlikely to motivate those devastated by past policy errors to support an economic system that allowed their jobs to go abroad and their communities to become hollowed out. Many displaced Americans feel betrayed, and Hubbard’s proposals will be viewed as too little too late. Indeed, workers might consider these policies to be ways to reduce employer labor costs cynically packaged as assistance to workers.

Labor force participation of prime-age workers has declined in recent decades, for reasons that aren’t entirely clear. To the extent that it is because people have concluded that “the game is rigged” — that government policy favors economic and social elites — Hubbard’s proposals will have minimal effect on participation. Even worse, these bridges risk becoming yet more long-term forms of welfare if Congress extends their period of eligibility — which seems likely.

The Wall and the Bridge proposes many complicated policy reforms. Further debate is needed to determine if they are the right policies for what ails the country at this time.