By Eric Vandenbroeck and co-workers

Yesterday’s Economic Thinking Can’t Solve Today’s Economic Problems

For people, these are tumultuous times. Inequality in income and wealth is at historically high levels. Climate change is accelerating, with the number of billion-dollar weather disasters in the United States rising from three in 1980 to 27 in 2024. Artificial intelligence is reshaping society at an unprecedented pace, prompting layoffs and putting entire professions at risk. According to an estimate by the Brookings Institution, up to 85 percent of current workers in the U.S. labor force could see their jobs affected by today’s generative AI technology. In the future, that percentage could climb even higher.

At moments of danger and uncertainty, it is usually the task of governments to protect people and help them navigate change—to step in when markets cannot. Yet Americans seem to have little belief in Washington’s capabilities. Over the past two decades, public trust in the U.S. government has plummeted by 40 percent. Some Americans believe the federal government has been absent. Others believe it has failed to meet pressing challenges, including the rising cost of living, climate change, and the potential disruptions of AI. Either way, Washington has its work cut out for it as the government tries to regain Americans’ trust.

So where can it start? And what led to the distrust in the first place? Two new books—Ezra Klein and Derek Thompson’s Abundance and Diane Coyle’s The Measure of Progress—offer suggestions and explanations. In Abundance, Klein and Thompson argue that the U.S. government has been hamstrung by red tape and hollowed out in its capacity to act, making it impossible for the country to address current issues or adapt to a changing world. The Measure of Progress, meanwhile, takes aim at the economic data that states use. According to Coyle, analysts evaluate the economy using outdated, limited metrics, causing policymakers to misunderstand the challenges citizens face.

Abundance and The Measure of Progress may have separate focuses, but they are united by the notion that the government cannot address today’s problems with yesterday’s institutions and processes. Although Klein and Thompson’s thought-provoking book does not provide concrete answers, it offers a fresh lens through which to view a struggling world and the American government’s role in it. The book raises many questions, wrestles with previous assumptions, and provides new ideas. Coyle’s latest work offers a more specific diagnosis of a problem and charts a direction toward better economic measures. It improves readers’ understanding of progress. Both provide new ways of examining the economy and society and suggest new kinds of change.

The system for processing unemployment insurance, which has long been in need of updating, provides a vivid illustration. When the pandemic began, the unemployment insurance system effectively broke under a deluge of jobless claims. California’s system in particular could not handle the demand, developing a backlog with over 1.2 million claims. This occurred in no small part because the state had to follow a manual verification process built to prevent fraud. But rather than loosen rules to solve this problem, California’s unemployment insurance system simply stopped taking claims for weeks so officials could process existing applications.

Klein and Thompson also argue that the need for accountability has made it harder for the government to spend on research, arguably one of the most important roles of the public sector. Analysts at the Federal Reserve Bank of Dallas have estimated that around 20 percent of business productivity growth in the United States since the end of World War II is the result of government-funded research and development. But government-funded R & D has declined for the past 60 years as a share of the economy. It has done so, in part, because the system by which the government underwrites research has become bogged down in paperwork and processes designed to make bureaucrats justify their expenditures, especially to Congress. These restrictions evolved in response to spending on basic scientific research that does not have an immediately obvious commercial or practical purpose and that voters thus sometimes see as wasteful. What the public does not realize is that such research can also yield crucial breakthroughs down the line. One of the most dramatic examples is the research on messenger ribonucleic acid, or mRNA. Early government investments in mRNA date back to 1985, at a time when it was considered an obscure molecule with no clear application. One of the key researchers behind mRNA, Katalin Kariko, famously had trouble receiving funding to study it. Yet mRNA ultimately delivered the first vaccines during the COVID-19 pandemic, helping people return to their lives and the economy get back in shape.

Public mistrust also means that officials avoid funding experiments that might fail. Instead, the United States’ main granting agencies for research—such as the National Science Foundation and the National Institutes of Health—have increasingly spent on experiments that are not novel. Their grant recipients have also skewed older in age, reflecting a reluctance to fund younger, unproven scientists. This desire to play it safe reduces the likelihood of major scientific breakthroughs that could solve challenges. The Internet, GPS, and indeed computers themselves partially originated from research funded by the Defense Advanced Research Projects Agency. But as Klein and Thompson note, the agency was able to contribute to these innovations in large part because it was free to take risks.

 

More and More

Klein and Thompson are two of the United States’ most prominent policy journalists, and their clean prose and salient examples make difficult concepts comprehensible. An early work of a broader movement still taking shape, Abundance articulates a vision in which American policymakers unleash supply so that more people can access the goods and services they need and want. The authors aspire to a world in which there is clean energy to power every convenience, medical care and medicines that allow people to live longer and healthier lives, and a happy balance between work and time with friends and family. Klein and Thompson have written their book for Americans whose politics are left of center, but their assessment of government and the imperative for technological innovation would appeal to others, as well. They argue for less emphasis on policies that help people consume more of what they have today (by subsidizing demand), and their vision of abundance resembles that of some techno-optimists on the right—including Marc Andreessen, a tech entrepreneur and ally of U.S. President Donald Trump.

Klein and Thompson contend that the U.S. government today is ill equipped to deliver in key areas such as housing, climate and energy, and innovation. The crux of the issue, as they see it, is that the American state is tied up by regulations and bureaucracy, as well as a loss of government expertise due to an outsourcing of its workforce in some areas. Consider, for example, decarbonization. According to scientists, the United States will need to move away from a reliance on machines such as gasoline-powered cars that operate with their own sources of energy and toward ones that rely instead on electric grids. It will also need to power those grids with clean energy sources instead of fossil fuels. To do so, the United States must convert around one billion machines into cleaner alternatives, build new electric grids to handle increased demand, and erect more transmission lines to move power to where it is needed. The authors argue, however, that the environmental regulations, labor laws, and oversight mechanisms that once created a better quality of life for Americans are now hindering these projects and impeding innovation. Decades ago, for example, California began building an electric high-speed rail system that could decrease travel times across the state and reduce the number of carbon-emitting vehicles on the roads. But for all the money California has spent, the project has led to few new tracks because environmental reviews and property protections have made it prohibitively expensive.

The problem is that although Americans want their government to do more, they do not trust it enough to give it the necessary power. This is hardly a new paradox. For decades, Americans have mistrusted government, demanded accountability from lawmakers, and expressed a low tolerance for public-sector failure. The result has been a byzantine system of procedures, regulations, and judicial rulings designed to both restrict and control state action. The 1946 Administrative Procedure Act that guides the federal bureaucracy, for example, was passed to quell fears of government overreach in the wake of the New Deal era. Similarly, during the 1970s, liberal legal advocates sued the government to force it to improve air quality, working conditions, and civil rights. Klein and Thompson argue that all this legislating and litigating has made it too hard to implement change—including the very set of changes liberal lawyers sought—by giving rise to a system that is focused on processes to ensure accountability and prevent seeming waste and fraud at the expense of results.

The U.S. Capitol, Washington, D.C., March 2025

In addition to mismeasuring labor, Coyle argues, national statistics fail to properly value natural resources. Back in the 1940s, when national measurements of wealth, growth, and productivity were created, natural resources—such as oil, minerals, water, and forests—were viewed as infinite in supply. They were therefore not incorporated into accounting frameworks, such as GDP. Analysts now know there are limits to some of these goods and that economic activity can damage the environment more broadly. But because economic metrics have not been properly updated, there is a limited understanding of what types of activities are environmentally sustainable—and indeed whether humans can maintain their modern quality of life. Put differently, governments have not placed a price on clean air and functional ecosystems.

The result is overuse and environmental degradation, such as smog, water pollution, and, of course, climate change. Fossil fuel consumption has dramatically increased since 1950, as the world’s economies have grown. In 2023, fossil fuels constituted over 80 percent of the United States’ primary energy consumption. The burning of fossil fuels is responsible for around 74 percent of human-caused greenhouse gas emissions. Measurements of economic growth that accounted for the environmental costs of fossil fuels might have discouraged this enormous dependence. But the market did not and still does not account for such harms, only fossil fuel sales and use.

To accurately account for the cost of economic development on the environment, Coyle proposes the use of “natural capital accounting.” This involves taking stock of natural capital, such as an ecosystem or the atmosphere, and what it produces and then estimating its value. Doing so is complex because these assets are not typically traded. Indeed, it may be impossible to accurately quantify natural capital’s value to individuals and society. But Coyle argues that imperfect estimates are better than assuming a price of zero, which is assuredly wrong. In other words, rather than completely omitting difficult-to-measure aspects of the economy, analysts must at least try to create tangible estimates.

Coyle’s book concludes by noting that productivity growth is not the same as progress and that societies need a better measure of advancement. She advocates for a comprehensive wealth framework that, if constructed according to her recommendation, would account for household production, determine prices for supposedly free goods, and recognize the effects of digitization on consumption, innovation, and GDP. Using such a framework, Coyle writes, would help data institutions better understand the modern economy and allow governments to make better choices.

 

The Limit Does Exist

Abundance and The Measure of Progress highlight real challenges in adapting to societal changes and offer ambitious solutions that demand a fundamental rethinking of how government goes about its work. Yet despite their drive to understand and correct what ails the United States, both run into practical challenges.

Although it may seem esoteric, Coyle’s agenda is politically difficult. Quality data is not cheap to produce. To accurately reflect the varied lives and circumstances of Americans, researchers need large sample sizes and more frequent sampling. This requires not only labor and infrastructure but also back-end support for data processing. And unfortunately, support for statistical agencies has been in decline. The real budget for the Bureau of Labor Statistics, which produces labor force and consumer price estimates, has decreased rather precipitously since 2010. This decline undermines the quality of findings by, for example, forcing researchers to rely on smaller sample sizes. If funding for government data continues along this trend, the United States will not be able to maintain even the current quality of its measurement tools, let alone make the improvements that Coyle outlines.

Klein and Thompson also fail to fully reckon with the feasibility of their vision. They argue that an overreliance on outsourcing to the private sector, which can hollow out state capacity, has made it more difficult for the public sector to tackle big problems—a hypothesis with, at best, mixed evidence in the economic literature. They also do not directly address the constraints that time might place on their agenda, even though it is perhaps the most binding constraint of all. There are only 24 hours in a day, and time is the one good that no amount of subsidy or regulatory reform can make more abundant.

Perhaps most important, despite what Klein and Thompson hope, Americans may not become more tolerant of less government oversight in the long run. Although the public is frustrated with inaction caused by restrictive regulations, many of these rules emerged from the adverse consequences of deregulation. For example, financial deregulation in the 1990s and early 2000s resulted in the financial crisis of 2008, at which point the public wanted more government intervention. The United States has gone through many cycles of regulation and deregulation, and although it may indeed be time to alleviate supply-side constraints, there will no doubt be unintended consequences that result in future restrictions if policymakers cannot strike the right balance.

Reform in Washington, of course, has always been a challenge, and if analysts limited themselves to what seemed plausible, they might never present new ideas. Since U.S. President Donald Trump took office, officials have mustered the political will to make some kinds of bureaucratic changes. The newly created Department of Government Efficiency, led by the Trump adviser Elon Musk, is attempting to lay off thousands of public employees and slash federal spending in an ostensible effort to improve the bureaucracy’s functioning. But DOGE’s efforts may actually increase the oversight and regulation they wish to cut, as government employees become more cautious out of fear of generating what Musk calls “waste and fraud.” The public, too, could become less tolerant of state action as DOGE’s drive to move fast yields haphazard mistakes. If the DOGE effort does not address the underlying forces that got the United States here, it is unlikely to result in enduring change.

A successful effort to unfetter Washington’s capacity and create lasting reforms could instead come from policymakers who really know where the country is going—or as Coyle says, have the right measure for progress. Klein and Thompson give a starting point, but it will take more effort to determine the correct mix of regulation and deregulation needed to achieve “abundance” without harming the quality of life as it exists today. More broadly, the public needs a better understanding of the work of government, and it needs to adopt a more open approach to government’s role in addressing important and existential challenges, be it investments in risky research, climate change, AI, or income inequality.

The United States is at an inflection point, one in which it is trying to address what many understand to be real problems while handling that which is uncertain. In this context, American leaders must rethink how government operates. They need institutions that are flexible enough to preserve progress on yesterday’s issues but not constrain progress on those of today. They need to better understand what challenges they are facing. And they need to better invest in how the country responds to change.

 

 

 

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