February 10, 2017
Interviewed by: Privcap
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Want Growth? Import More Highly-Skilled Workers

A conversation with noted economics author Ed Conard, who argues in his new book that the best recipe for continued U.S. growth is to encourage the immigration of more highly skilled workers, who tend to found innovative new companies and drive job creation. He blames stagnant middle-class wages on a shortage of highly skilled business leaders.

A conversation with noted economics author Ed Conard, who argues in his new book that the best recipe for continued U.S. growth is to encourage the immigration of more highly skilled workers, who tend to found innovative new companies and drive job creation. He blames stagnant middle-class wages on a shortage of highly skilled business leaders.

Want Growth? Import More High-Skilled Workers
With Edward Conard, Author of The Upside of Inequality

Michael Ricciardi, Mercury Capital Advisors:
Hi, I’m Michael Ricciardi. I’m the managing partner, CEO and co-founder of Mercury Capital Advisors. Our featured speaker for today’s Mercury Masters Series is Ed Conard. Ed has been a buddy of mine for the last 36 years; we were classmates at business school. He is a world-renowned economist and the author of two New York Times bestsellers: the first, Unintended Consequences, and the second, more recently, called The Upside of Inequality. Welcome, Ed.

Edward Conard, Author, The Upside of Equality:
Good to be here.

Ricciardi: The Upside of Inequality: What does that title mean? Can you tell us the thesis of the book please?

Conard: I felt that no one had put forward an explanation for why middle and working-class wage growth had been slow in the face of what we see as a growth in the productivity of the top 1% or top 0.1%. So we left open the door for blaming the stagnant growth of the middle class on the success of our most successful workers. But, in fact, I think there are two different phenomena driving this. On the one side, take the 0.1% or the 1%. You used to have a capital-intensive economy where, if you wanted to scale to economy-wide success, you needed a lot of capital (Ford Motor Company, for example) and you had to share your success with a lot of investors.

Now, you can create Google, Facebook—you name it. You can scale the economy-wide success and need almost no capital at all. It’s a very different dynamic and you have a lot of people entering that lottery-like part of our economy. So, you’re going to see more outsized success, even if the expected returns aren’t very good in that lottery. But you see a lot of people have entered that lottery and, when they’re successful, they can be very, very successful relative to the past.

What you see happening on the other side of the balance in the middle and working class—I made an argument that trade, trade deficits and low-skilled labor have put downward pressure on wages. Think about trade, for example, even balanced trade. We sell high-skilled labor—Apple operating systems, for example—and we buy low-wage, low-skilled labor from China and Mexico. So the low-skilled worker bears 100% of the costs of lower wages, But they’re only capturing less than 25% of the benefit because the top 20% captures about 50% of GDP.

The classic economic model is that the only thing constraining growth is capital. And there’s a lot of capital sitting on the sidelines at 0% interest rates, so there are no constraints to grow. That’s not the reason why we’re seeing slow productivity and wage growth. I say we haven’t looked at the proper constraints. The constraints are properly trained talent and a willingness and capacity to take risks—largely entrepreneurial risk—in this economy. But we can take risk in many other ways.

Ricciardi: If you were advising President-elect Trump, how would you advise him on the economy?

Conard: The complaint of the workers who are supporting him is, “We want the constrained resources to be used for our benefit, not for the benefit of newly arriving immigrants, not for the benefit of offshore workers. Drive our wages up.”

Here’s what I would do: we issue about one million green cards a year, so we have about 100 to 110 million full-time workers. The top 5% is about 5.5 million workers. I would take those million green cards a year and issue them to top-5% workers throughout the rest of the world. I would try to double our workforce at the ultra-high end of the skill scale level.

When you take those guys out of Europe, out of Japan, out of Asia, and put them into our economy with our institutional capabilities, our on-the-job training and the synergistic networks of experts—like Silicon Valley, Wall Street, the petroleum industry, you name it—they become a lot more productive in the U.S. than they do in their home lands.

That can be really beneficial to our workers because, when our businesses can’t find those workers, they just Skype them in from Russia. They hire them somewhere else. The doctors and school teachers and bus drivers are all in those economies instead of our economy, driving up our wages.

The other thing I would do is I’d cut the corporate tax rate down to 15%. We should be trying to poll the rest of the world and we should be trying to make the U.S.—just make it almost impossible to compete with us because we have a low tax rate, we’re recruiting the highest skilled workers and they’re getting the best training in the world. It’s going to be hard for the rest of the world to compete if we were thoughtful about the strategy.

Ricciardi: You have a very insightful, astute, global macro perspective. What would constitute, for you, a red flag as we move forward over the next several years? Will you say, “We’ve got to really think back or think over what we’re doing and reassess our view of the world”?

Conard: I think there are two things we’re doing that are mistakes: one is the unbalanced trade. I think free trade is essential, so if we start taxing trade it’s going to be a mistake, a problem. We could make that mistake. On the other hand, if you look at trade deficits…we buy something from Germany. They have dollars. Instead of buying goods that employ Americans, they loan those dollars back to America. And unless we borrow the money and put it back to work, we lose the employment but we see the money sitting on the sidelines unused with zero interest rates. We think we’re going to cut taxes without cutting spending and somehow that’s the magic elixir that’s going to increase growth. I think you ultimately have to cut government spending, otherwise you’re just distorting.

I think one of two things can happen: I can either come and tax you or I can say, “I’m going to lower your taxes, but then I need to borrow from you. And, by the way, when I have to pay you back in the future, I’m going to increase your taxes to pay you back.” So, when did you really pay the taxes? You paid the taxes today. Or, I can borrow it from the Chinese, but I have to run a trade deficit to do that and if I run a trade deficit, there’s a guy in Michigan or somewhere who’s going to lose his job over it. I don’t think that’s a prescription for great growth. It might help rich guys; I’m not sure it helps workers.

The last thing I’d say is that I think, as baby boomers retire, we’re going to be eaten alive. We need a strategy to try to pay the baby boomers, because it’s going to be very difficult to try to pull their benefits away. Then, we are strong enough when that’s over to still be able to defend ourselves in the world.

I’d be amping up the number of high-skilled workers because I think that’s our only real shot for growth. You cannot pay off the baby boomers with organic growth. You’re not going to do it with innovation. You’re not going to do it with tax policy. You have to come up with a genuinely different way to increase growth. I don’t know where the growth’s going to come from, but if you unleash five million ultra high-skilled workers, they will find growth just like they have for the last 500 years.

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