Joint Economic Committee Hearing on the Decline of Economic Opportunity in the United States: Causes and Consequences

[ from the Economic Innovation Group ]

Dynamism in Retreat

The economy today is suffering from too little change, not too much. I realize this is a provocative claim in the age of the gig economy, automation, and the dawn of artificial intelligence. But the fact is Americans are less likely to start a business, move to another region, or switch jobs now than at any other time on record. Indeed, the U.S. economy is quickly becoming less dynamic in nearly every measurable respect.

Why does this matter? If we believe the problem is too much change, it follows that policy priorities will be oriented around mitigating disruptions and hedging against risk. On the other hand, if we understand the economy has grown too static and too risk averse in too many areas, the logical response is a dynamism-boosting policy agenda — precisely what I believe is urgently needed.

Dynamism can be understood, in essence, as the rate and scale of economic churn. It fuels an economy’s process of creative destruction, enhancing our ability to adapt and allocate resources in a more efficient manner. Historically, the high-churn nature of the U.S. economy acted as a kind of shock absorber in times of economic change or trauma.

Guideposts for an Opportunity Agenda

Before discussing potential solutions, let’s play devil’s advocate and ask if declining dynamism is really a problem that can or should be solved. If the decline is inevitable, why bother with useless policy prescriptions? Or, if there are hidden benefits to declining dynamism, why be worried at all?

Dynamism is only worth restoring to the extent that its decline corresponds with downstream negative outcomes. If, for example, we were seeing strong GDP growth, robust labor force participation, increased upward mobility, and strong wage growth, declining dynamism would be a moot point. Unfortunately, we see just the opposite. Furthermore, we can be certain that much of the current dilemma is due to policy choices and thus totally within our control. Nevertheless, our solutions should not fundamentally be aimed at making the economy look more like the past, but rather at ensuring that the benefits of tomorrow’s economy are broadly shared.

Here are five guideposts for a future-oriented opportunity agenda:

1. Focus on new firm creation and competition. Access to opportunity suffers when incumbents are too powerful, markets are too concentrated, and entrepreneurs are an endangered species. Policymakers should rebalance the playing field with lower barriers to entry and greater emphasis on the unique needs of new companies. This includes, among other things, reforming exceedingly complex tax and regulatory regimes, which serve to protect incumbents from competition, and boosting access to capital and talent for new ventures. It also includes accelerating the pipeline of high-skilled workers into the labor market — both through better skills training and by fixing the truly self-defeating U.S. immigration system.

2. Enhance geographic mobility and labor market fluidity. Central to any opportunity agenda should be empowering people to move to places of opportunity and efficiently develop and deploy their skills in the marketplace. Among other things, this means getting rid of onerous occupational licensing requirements, designing a safety net that does not discourage mobility, and revamping local zoning and land use regulations so that high-opportunity areas can accommodate more people.

3. Invest in the future. The United States has benefitted enormously from previous decades of massive public sector investments in infrastructure and basic research, but we often forget why such investments are critical to private sector innovation and dynamism. As we renew our commitment to smart public sector investments, we should also abandon 13 traditional economic development incentives, which too often amount to giveaways that mortgage the future of local communities. New approaches are needed.

4. Growth is still key. The United States is in desperate need of stronger GDP growth, which itself would go a long way to addressing concerns about access to opportunity and upward mobility. A broad pro-growth agenda is necessary, but we should also be bold in incorporating ideas aimed at helping struggling regions regain their footing. Meanwhile, let’s resist the temptation to feel complacent given our relatively strong post-crisis performance in comparison to other developed economies. Their present struggles are a glimpse into our economic future unless we take action soon.

5. We need data. It is hard enough to diagnose complex problems when data are available. Without sound data, we are left with little more than faith-based policymaking. The federal government should protect and expand its investment in the economic statistical agencies and allow for improvements that will make their work even more useful in the years to come.  But that is not enough. In light of how little we know about solving long-standing problems (especially related to upward mobility), federal policies should aggressively support novel approaches and reward state and local policy innovation. A more experimental approach to policymaking alongside existing legacy programs could provide a wealth of new data on what works and what should be discarded.


The decline of dynamism poses a threat to economic opportunity and upward mobility for future generations. A country as prosperous as the United States has a moral obligation to devote serious resources and brainpower to ensuring that everyone — especially children from poor backgrounds — has a shot at a better life. This is by no means the job of government alone, but the public sector has a crucial role to play in organizing the necessary attention and resources. The good news is that we retain enormous advantages and resources as a nation — more than enough to meet this challenge if we choose.

Christine Haskell, PHD has built her practice on credible, published research and data. In the Research Series, you’ll find highlights, shareable statistics, and links to the full source material.