Out of economic consensus, poverty and troubling new questions
Half a century ago, as World War 2 was beginning to recede and Americans were plunging confidently into the heart of “our” great century, a remarkable bipartisan consensus was reached about the future of the economy.
That consensus went something like this:
America would, going forward, be a nation of ideas and “smart” work, where prosperity would increasingly flow not from muscle power and the things we build, but from brainpower and the concepts we develop.
Democrats and Republicans together developed a concept of free trade that would mean more and more blue collar and low-skill clerical jobs shifting off-shore, while emphasizing our role as the world’s financial and intellectual hub.
There were huge societal advantages to this approach. Products produced by workers earning pennies rather than dollars are cheaper, a fact that benefited American consumers.
And we were able to clean up our environment at home without applying those considerable costs to the things we want to buy. Instead, we exported the massive ecological impacts of our industries to countries like China, India and Mexico.
Meanwhile, we reveled in the rise of shiny new “dotcom” businesses. We told each other that soon we would be a nation of college graduates, not grease monkeys.
And for a time, millions of workers displaced by the great American economic consensus were able to find new employment in the booming home construction industry.
But in 2011, as the Great Recession stutters on and threatens to deepen, it’s fair to ask whether the conventional wisdom actually worked as promised.
In the decades since we collectively agreed that “dirty hands” industries were beneath us — and would be better handled by workers overseas — improvements in the American standard of living have stalled.
The latest Census figures show that one in six Americans now live in poverty. Economists are talking about a “lost decade,” but there is growing concern that the roots of our dilemma run much deeper.
-What if it is simply impossible — or even simply wrong — to expect American workers to compete with counterparts overseas earning a dollar or two a day?
-What if the nation simply can’t sustain a consumer driven economy when tens of millions of workers can’t find jobs to earn the money that would allow them to keep spending?
-What if laissez-faire environmental rules in Third World countries give their factories and plants an advantage that simply can’t be overcome by hard work or efficiency here at home?
So far, our two political parties are quibbling around the edges of these questions.
President Barack Obama suggests that another stimulus-style jobs package would jump start our economic engine.
But what if the problems are more systemic, more fundamental, than a cyclical slowdown?
What if we keep priming the pump through government spending, but multinational corporations keep deciding that it’s simply cheaper and more efficient to do business somewhere else?
If there’s a hole in the bottom of the bucket, it doesn’t matter how much you pour in — right?
Meanwhile, Republicans suggest that deregulation and tax cuts are the answer.
But do we really want a society that looks like China or India, where the social safety net is all but nonexistent and the environment is wracked by levels of pollution that are literally breathtaking?
Ron Paul, who is once again a high-profile Republican presidential candidate, has suggested that one way to boost employment in the US is to get rid of the minimum wage.
But what if the current rules of international trade mean that there is always someone somewhere in the world willing and able to do all our jobs — and for less money? Where does that “race to the bottom” end?
And is this really the vision of America that we expected when we embraced the current brand of global free trade?
This is frightening stuff.
It’s hard to accept the notion that an entire generation of American trade policy — a philosophy about economics and open trade that has enjoyed bipartisan support for fifty years — needs to be re-examined.
But we owe it to the 46,200,000 Americans now living in poverty to begin asking ourselves tough, troubling questions.
Conservative answer: churches and neighbors will take care of the impoverished.
Brian,
We didn’t “collectively” decide “dirty hands industries” were beneath us. A bunch of labor haters, banksters at the top and WalMart did, and changed all sorts of rules to push manufacturing jobs overseas. There’s an example of a clean, efficient economy that protects workers and hasn’t suffered like we have, while in a two-decade time frame incorporated millions of people who were just above Third World status. Germany.
There is no nice answer. There is no nice solution. The only way government can create jobs is to hire more people to work for the government.
I believe we have reached a major turning point in economics. Essentially, we have been painting ourselves into a corner. The recession has only made clear the problems.
As automation and computerization has made it possible for business to offer more products with fewer workers, the world’s population has continued to increase. Meaning there are more people for fewer jobs. And it doesn’t really matter how much education one has when companies can tap the best workers from all parts of the world.
I would not be surprised if we are fast reaching the point where the new norm for the unemployment rate is 9% and rising.
The other conservative answer is to promote the Horatio Alger myth. That is – even though you are poor and out of work, if we have less regulation, taxes and government, you can become rich (without resorting to “class warfare”.
You can become an NBA or movie star. Maybe your small business turns into McDonalds or WalMart. etc.
There are currently about 4 million jobs in the US that cannot be filled because there are not workers qualified to fill those positions. There are 400,000 health care related job vacancies. This blog misses the point. We don’t need to employ people with the more menial jobs, we need to educate our people to fill the jobs that we already have.
Paul: There are currently 14.1 million unemployed Americans. Perhaps as many more are underemployed.
Most experts say that between 2 and 3 million jobs could be filled if workers received proper education and support.
Even if that happens, it leaves roughly 11 million workers without opportunity.
It’s also worth pointing out that a growing number of those 11 million have some form of higher education — just not in the narrowing bandwidth of skills that are still in demand.
–Brian, NCPR
There are also an awful lot of part time minimum wage jobs around.
When the country was founded we were a middle class society. Even those that were well off by standards of the day were not filthy rich like the the aristocracies of Europe. The “American Dream” was possible. Land was available (you had to take it from the natives but they didn’t count) and anyone with any gumption could set up a homestead, build a cabin and make a living for themselves. Only the truly lazy were indigent.
Then came the industrial revolution after which the majority had to work for someone else to make a living and thus were at the mercy of those who owned the companies. An American aristocracy was born in the form of corporate capitalists. When things got out of hand and workers were getting the short end of the stick unions were born to level the playing field. Then the unions got big and corrupt and now we are in a period of declining union influence and a technological revolution that reduces the need for labor. At the same time conservatives seem to thing government needs to go back to the agrarian era when the Constitution was written.
We can’t go back. There isn’t enough land for everyone to homestead. While I agree that growing government isn’t necessarily the answer, unfettered capitalism isn’t either. We need to find a new balance. We need an economy that values more than just the bottom line. We need to promote happiness over wealth and we need government that understands that “trickle down” doesn’t work. It hasn’t worked for 30 years now and it’s not going to.
What we really need is a stronger safety net. Better universal health care – more support for public schools/universties paid for by higher taxes on the wealthy. That way people could be entrepreneurs or boutique farmers (or artists) without worrying that they wouldn’t be able to pay doctor bills or send their children to college. Many could then accept a lower standard of living in exchange for a more rewarding life.
The alternative is a strong class-based society with big differences between the poor and the middle class and the very wealthy. The poor would be poor like in the third world. The very wealthy would be hereditary aristocracy. In the past that has lead to social instability and most of the ills of the 20th century.
If we follow the advice of Ron Paul and other Tea Party Republicans, we won’t need more heath care workers as suggested above because the old and the poor will do the decent thing and crook in the privacy of their or their children’s home.
And since Rick Perry is so darn good and creating jobs, why don’t we send all of the unemployed to Texas. I”m sure Rick will create jobs for them or execute them for being out of work.
Class warfare has already begun and the rich are winning – at least for now.
Governor Rick Perry – government doesn’t create jobs
Governor Rick Perry – I created millions of jobs in Texas (as governor)
For what its worth: Recently on NPR’s ON POINT it was pointed out that Texas HAS created thoussands of NEW jobs. The problem is they did too good of a job sharing this information and as a result thousands have flocked to Texas to fill the jobs. They have more people employed but their unemployment numbers stay the same.
I mostly want to 2nd OA’s point. Brian, Germany does show that the bucket does not have a hole in it. They were only recently passed by China as the world’s # exporting nation, and do it with 5% of China’s population. Their blue collar workers make more than ours so, and their unemployment is about the same. Which does not cause panic as it does here in Germany because they have a strong social safety net, including guaranteed health care for everyone, and it is every bit as good as ours. When the recession hit, their government subsidized companies to keep workers on the payroll at reduced hours, but still working. Germany has it’s problems (e.g. integrating Middle Easterners and East Germans into the larger society), but as a nation, unlike this one, it still works.
Oh yeah, Brian.
Your post on this topic is truly brilliant, and should get wider exposure.
Brian is right about our problems being systemic. Part of it is having been the richest country for so long. Our wages and prices have been correspondingly higher, and that makes it harder to compete. Historically, we aren’t the first country where this has happened. Another factor is that globalization has led to the de-industrialization of the West, and producing goods is the basis of a nation’s wealth. Third, is the cost of energy. Or economy is based on cheap energy. According the economist James Hamilton 10 out of the last 11 recessions were triggered by spikes in energy costs. The only exception was the dot.com bubble early last decade. New energy sources are harder and more expensive to produce, and the cost is bumping up against the price that chokes off economic growth. The most recent increases in energy prices last winter and spring are choking off our feeble recovery. Our political leadership is failing us by not being more forthright about the role of energy in our current predicament. Enacting some serious energy conservation might help buy us some time. If we were sending $500 bln a year to oil producers instead of $750 bln a year, that is real money that could be used elsewhere. In any case, some of our commentators talk about the US becoming a third world country, or, even a collapse like FSU went through twenty years ago. I don’t know if they are right about that, but we do seem to be facing converging crises like we seem to face every eighty years or so in this country.
The fact is though 1/4 of our children nationally do NOT graduate from high school. How is that going to compete anywhere?
We have a long ways to go.
I would like to see us build a very solid social safety net, which we could do in fact it is very affordable, programs for the poor are not what is killing our budget. If we did that we could also create a regulatory and trade environment that was pro-American business and pro-American business growth. For example we put relatively stringent environmental controls on our fruit and vegetable growers compared to other countries. Yet we simply let those other countries import their products grown using who knows what sort of toxic chemicals, enter our country with no questions.
We have blue collar jobs on the US that are growing right now, they are in the energy field and we have to recognize that Oil, Coal, Natural Gas, solar, wind etc, are export commodities and create good blue color jobs. You can’t whine about no blue collar jobs then say we are never going to allow hydro-fracking or allow a wind turbine to be built because we don’t like the view.
All the talk about class warfare comes too late. The class war has been over for some time now — we lost.
To the point about economic consensus, consumer driven economy, etc. — we have an economy that is predicated on ever expanding growth. It is easily seen that in a closed system growth cannot be sustained indefinitely. In spite of our efforts to fund a space program we have little chance of expanding our economy beyond low Earth orbit any time soon.
So we MUST create an economic system that rewards frugality, conservation, sustainability, and generally living in a modest way. We must learn to stop buying plastic junk that we throw away immediately and instead spend our money on more expensive but higher quality items that will be more permanent — we must adopt a “buy it once” mentality and go back to doing some things with human work, like raking leaves rather than leaf-blowing them.
We must also work hard to achieve some maximum limit of population world-wide. Resources just aren’t there to sustain unlimited growth in population.
Corporations as the exist today are rewarded by the system of stock ownership to keep growing. That has to end.
If we were to restructure society based on the concept of sustainability rather than growth we could live better more satisfying lives. But we would have to sacrifice the idea that some or most of us should live like Moghuls.
I think philosophically I agree with you! As long as we are spiritually and emotionally only about material success and accumulation we are not going to be happy. There has been this hyper-materialism over the past 40 years, this insane building of big homes just for the sake of being big, I think the average home size has almost doubled since the 1960’s, the insane salaries and incomes paid to some people, are in real terms far far higher than those same sorts of folk made in the 1960′.s It is bizarre how after the generation of drop out and tune in, we ended up with the most materialistically oriented society in our history.
America has not always been that way, I think we lost any sense of shame.
We’ve already seen the race to the bottom. After NAFTA, US jobs flooded into Mexico. But then even anti-union Mexico became undercut by slave labor in China or slave wages in Vietnam or Cambodia and Mexican jobs went there.
Brian, while it’s true that exporting our blue collar manufacturing jobs has created part of the problem, there is more to it than that. A very large part has been played by the intentional transfer of wealth to the very wealthiest in our society that has been going on for the last thirty years. Henry Ford understood that if he didn’t pay his workers well, there would be no one to buy his cars. Today’s businessmen have forgotten this obvious truth. And the conservative calls for drastic belt tightening in the face of a major recession just makes things worse: how are the laid-off government workers going to improve the business climate to get companies hiring again if they have no income to spend on the stuff companies sell?
A large part of the problem comes from deregulation of the banks, which led to a situation where the finance industry was producing outsize returns, which in turn sucked capital out of more productive uses and concentrated it in a sector which produced nothing except ever more toxic “investments,” which, inevitably, collapsed in time. That the business community still hasn’t gotten over its infatuation with those high returns is proven by the hoards of cash that major corporations are sitting on, waiting for the next big thing.
So while the question of whether our out-sourcing binge of the last few decades is a sustainable model for the long term fiscal health of the country is significant, it is not clear that, by itself, it would have put us into our current predicament.
A word more. While it would seem obvious that exporting all of our manufacturing jobs abroad would be a recipe for disaster, it ain’t necessarily so. It turns out that when we sell products manufactured abroad, a lot of the selling price goes to American workers, from the store buyer who selected the product, to the marketers who advertised it, to the truckers who got it from the port to the store, to the stock boy who put it on the shelves, to the register clerk who rang it up. The cost of manufacturing the item is a relatively small component of its selling price, and most of those add-on costs happen in the U.S.
Walker –
I think these two issues – transference of wealth and exporting jobs – are linked.
The off-shoring of American jobs has done far more to exaggerate the wealth gap in our country than any provisions of tax policy.
Corporate executives make enormous profits, for themselves and their shareholders, by using cheaper labor in low regulation countries.
Meanwhile, a growing number of low- and moderate-skill Americans can’t find work — pushing them downward.
One last point to your comment: It’s true that there are economic benefits to moving manufacturing off-shore.
The biggest is to consumers, who benefit from low prices.
But manufacturing still provides a significant piece of a retail item’s value — and it’s a process that generates a lot of jobs, which we desperately need.
What’s more, manufacturing jobs traditionally pay far better and offer more benefits than stock boys, register clerks, etc.
–Brian, NCPR
Brian, I didn’t mean to suggest that pushing our manufacturing off shore is good for the country, only that it’s not by itself a disastrous phenomenon. Which is a good thing, since manufacturing isn’t going to move back to the US until the average US worker is as poor as the average Chinese worker, or until fuel costs rise substantially (raising shipping costs) which wouldn’t help US workers much either.
But I really disagree that tax policy didn’t play a primary role in causing the transfer of wealth from the middle class to the uber-wealthy. This all started with Reagan’s trickle-down voodoo economics, and has continued ever since. Banking deregulation, big business subsidies and free-trade policies all played their part, true. But there’s a reason that for conservatives, the holy grail is low taxes.
Actually, there are ways to bring manufacturing back to the US. Tariffs for example.
Or trade agreements that require environmental and labor protections in order to avoid tariffs.
People forget that there was a time when the Federal government largely funded its operations through import duties, rather than income taxes.
It’s also worth pointing out that many nations in the world use tools of “soft protectionism” in order to protect their manufacturing sector.
China is the most notable example. Chinese firms benefit from artificially devalued currency, and national laws that limit competition.
It’s remarkable, actually, the degree to which most Americans have accepted that there simply is no way to defend or enhance our manufacturing sector.
A final point: The US remains the world’s largest manufacturing country in terms of total value of goods produced.
If we continue to lose the manufacturing sector, the economy will get a lot worse before it gets better.
–Brian, NCPR
I think that is a great point.
We are still the world’s largest manufacturing country. We just need to figure out how to expand on that, I do think fair trade is a start.
However, maybe we need to lose this idea that good “blue collar” jobs mean some guy or gal in a factory somewhere. Maybe we need to look at some guy erecting a wind turbine or some women on an oil platform or driving a tuck or working on our rail system and on and on.
Brian, you’re right of course about tariffs. But I think you’d have a better shot at bringing back Eisenhower’s 90% top tax rate than you would at bringing back protective tariffs. We’re all too addicted to cheap stuff.
To tell you the truth, I suspect that we’re wagging our collective tongues in vain here anyway. Marketing has us all so perfectly pegged that we don’t have a chance– we do and think whatever those with the money to buy the slickest advertising campaign tell us to do. Game over.
There is some movement of manufacturing back into the US from overseas. Some companies are finding that quality control standards and other issues are making it worth paying a bit more to get US made products. I don’t know how large this movement is but it has to be a good sign.
Ross Perot was correct when NAFTA was being debated, He said, “We’ll hear a giant sucking sound of U.S. jobs going oversea.”