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Saturday, June 29, 2013
Current Affairs ... Economics/Business ...

Even though the “Great Recession” is officially over, the USA seems to be suffering from an economic malaise that goes back to at least the turn of the century. A recent article by Niall Ferguson sums it up in its title: The End of the American Dream. In sum, there is a widening distribution of income; the rich are getting richer and the poor getting poorer, with less and less ground between them. Those without college degrees or some form of technical training probably will just barely get by, money will be a problem throughout their lives. Even those with college degrees or usable training such as respiratory technicians or auto mechanics face declining opportunities. Too many college grads continue to live at home with their parents, working in service jobs way below their skill level.

The chances for moving up, for improving one’s economic well-being over time, seem to have been halted. Governments and employers are trying to back out of promises made to citizens and employees regarding health care and old age benefits, promises that now seem way too expensive to fulfill. Unemployment and partial employment rates have been way too high for the past 5 years, while average wage levels began to stagnate well before that.

In many ways, it appears that something has fundamentally changed in our economy over the past 40 or 50 years. Back in the 1700s, the world started changing; new technologies increased the economic gains available from manufacturing things and trading them, and started lowering the amount of work and resources needed to grow food, cloth and lumber. An agricultural-based world economy, one that provided only bare subsistence for all but a tiny fraction of people, started changing into an industrialized manufacturing economy linked to expanding system of transportation and trade. People started leaving farms and forests looking for a better life in the urban manufacturing and trade centers.

My grandparents caught the tail end of “act 1” of this economic drama. They left the agrarian and forest villages of southeastern Poland for jobs in garment manufacturing plants in northern NJ. I remember the cold-water flats where they lived and the old brick factories where they worked. They did not have a luxurious life, by today’s standards. But they weren’t at all tempted to go back to “life on the land” as they experienced it in Europe. The big wool companies were certainly exploiting their labors, giving them just enough to get by. But they took the deal.

But then came “act 2”, leading to the world that my parents knew. I.e., the world of the “American Dream”. Labor organizers and progressive government types discovered over time that the big manufacturing companies and the rich people who owned them could in fact be “shook down” for more. There was some violence and tumult in the process (recall the bloody labor strikes in the late 19th and early 20th centuries), but over time the labor unions got better wages and benefits for manufacturing workers, while governments led by “progressives” were able to raise taxes on the rich and their enterprises so as to provide universal primary and secondary schooling, old age support, better medical care, safer workplaces, and various other public benefits.

So, my grandparents lived to see their children gain better economic opportunities, and anticipated even better things still for their grandchildren (including me). The big thing was college — government programs put college in range for most any family who could get thru an additional four years of schooling. They themselves got something from LBJ’s “Great Society”, i.e. cheap access to medical care in their old age thanks to Medicare.

The American “economic engine” seemed able to keep all this going. Government burdens and labor demands on the owners of our big productive enterprises had increased quite a bit over the past 100 years. The gap between rich and poor seemed to narrow. (The ratio of CEO pay to worker pay for most corporations was around 20-to-1 in the 1950s; today it’s over 200-1.) I’m sure that the “captains of industry” weren’t all that happy about all this; but they didn’t have much choice back then, there wasn’t much they could do other than some lobbying and campaign contributions as to keep the politicians from totally going off the deep end of socialism.

Even though the entrepreneurs, business managers, bankers and investors were heavily burdened and highly regulated by government, they kept on working and innovating for whatever profit they could achieve. There was continued economic growth in the 1960’s, along with ongoing scientific innovation. Much of that innovation was driven by the privately owned but heavily regulated Bell System, leading to mainframe computers, jet planes, orbiting communication satellites, fast cars and interstate highways, and men exploring the surface of the moon. The predictions from Ayn Rand and her followers that business owners would give up and let the world collapse in an “Atlas Shrugged” nightmare seemed entirely irrelevant. Even though the entrepreneurial class didn’t like what was going on, they did what they could to continue making whatever return they gain on their invested capital and human skills.

So how did we get from there to where we are today? I have been over-simplifying the modern industrial economy of America and Western Europe, and will continue to do so here, by splitting up the population into two classes: the rich entrepreneurial class, i.e. the major owners of corporate stock, the investors, the bankers, and the business leaders; and “everyone else”, the not-rich people who get by or try to keep going by offering their labors to the entrepreneurial class. Yes, I know there are still some small farmers out there, but most farming is now done through corporations and investors, i.e. the entrepreneurial class. And yes, there is a small business class, e.g. local restaurants and dry cleaners. And yes, some workers have a small equity stake in big business, through pension fund investments and retirement savings. There is also a big “government class” in our economy, as the Republicans are fond of reminding us. I.e., there are quite a few government workers out there (including myself), and many people who don’t work but get by (some wholly, but more often partially) through government support. But the main drama and source of major change in our economy has been the relationship between workers and the big corporate owners — give Marx that much credit.

And the drama of today is this: the owners seem to be telling the workers, their union representatives, and the public leaders who would use government to further improve the lives of the working class, that they don’t need workers like they used to. They can make just as much return on their invested time and capital funds by hiring fewer of the working class, paying them less, and ignoring their unions and the political leaders who would shake the owners down for public benefits (via taxes and regulations). Once upon a time, the ownership class didn’t have any choice but to keep their plants in America and deal with American workers and their strikes and progressive politicians, best they could.

But since the 1960’s, things have changed. Technology at first helped businesses squeeze more and more economic return from the labor efforts that were necessary in their factories, stores, warehouses, transportation lines, etc. But now, that technology has reaching a tipping point, such that the human labor input can simply be eliminated for many productive functions. And to the degree that workers are still needed, we now have globalization. American workers must now compete with almost everyone on the planet for the fewer jobs that the producers and service companies will need. As Tom Friedman is fond of saying, the world has become “flat”. The barriers separating workers in India and Vietnam and Costa Rica from doing our jobs are mostly gone, due to information and transportation technology advances.

As to politics, the entrepreneurial class is no longer hostage to high taxes, labor union demands, and stringent regulations that the US and Western Europe had imposed. There are plenty of poor countries they can move their operations to if America doesn’t cooperate. So, our labor unions have been become almost toothless (when was the last time you heard about a major industrial strike in the USA? I vaguely remember strikes from my childhood). Companies can walk away from pension liabilities and get away with it. And our politicians have begun to cut taxes, remove regulations, and are getting ready to reduce supports such as Medicare and Social Security, so that America can “stay competitive”. The Ayn Rand threat of the rich is finally being realized.

There have been some good effects from all this. Millions of families in Asia and Latin America have been lifted from long-term agrarian poverty. They have achieved living standards roughly equivalent to what my grandparents experienced after they left Poland for the industrial ghettos in the US. I.e., the “Act 1” that I spoke of has taken place. Unfortunately, the cost of this is to take away “Act 2 and Act 3” for many families in the industrialized US and Europe. We are not being cast back into economic destitute or agrarian backwardness. But we certainly are seeing a set-back towards the “Act 1” standards of life that my grandparents experienced from the 1910’s through the 50’s. Overall, the globalized entrepreneurial class will still have enough demand for their products to keep them wealthy; even if many US consumers have to cut back, millions and maybe billions of new consumers in developing countries will now be buying TV’s and smart phones and autos, etc.

Theoretically, the tables could turn once more if the citizens of the world could unite, if there could be strong international labor unions that could coordinate actions across many nations; and if liberal progressive leaders could cooperate internationally. Unfortunately, this won’t happen anytime soon. We are still living in a tribal world. Why should I trust an international government or union to not favor the Brazilians or Japanese or Bulgarians or Kenyans? There is too much national friction to overcome; it will be a long time until everyone looks beyond nation-states for their identity, and see themselves as citizens of the world.

So, until that happens, the rich will continue to hold the cards in this world. The extremely poor presently living in under-developed nations will get increased chances at a better life (so long as they don’t give in to religious fundamentalism, which is basically an attempt at socialism); but the days in the industrialized nations when the economic playing field between workers and owners had become relatively level (or close to it) are becoming just a fond memory, a halcyon bubble in history that couldn’t last.

◊   posted by Jim G @ 6:50 pm      

  1. Jim, Strangely enough, I’ve been thinking about this topic a little myself. While I agree with much you say, I have some observations to make. I admit these are not well-thought-out concepts. These are more in the line of observations; observations, without any really well-thought-out coherence. Regardless, here are some of my “observations”:

    I’ve been thinking myself lately that our country is somewhat in what might be called the transition stage (which took some long period of time) between the guilds and the industrial age. When the industrial age started to “bloom”, it put many well-educated people (in a particular field of expertise) out of work; they were left with no chance of future employment. (To mention a particular field: Oddly enough, I recently read of the change regarding women’s health, how men gradually took over the field of women’s health, leaving absolutely no place at all for such experts as midwives, for instance.) It seems to me that such seismic changes in employment are due to the changes that come about due to the evolving of humanity.

    These days we are in the information age. Yet, we have not really had any time to figure out or find out just exactly how those whose skills are simply no longer needed, are totally outmoded, will fare in this life. (I am one of those individuals as every single thing I spent 36 years of my life teaching others is absolutely outdated, outmoded, and used by no one any more whatsoever; well, except me, I guess.) If I were younger, a member of the baby boomer generation, and not retired, I’d be one of those seeking a job level with skills way below the job I could be holding down. Just how all this will turn out is not yet “figured out” by society; how things will turn out remains to be seen.

    One thing I think we *do* know is that one way or the other, humanity will muddle its way through the situation, as it has done it at least 2 times in my time (to say nothing of the many other times our country has gone through depressions, to say nothing of other countries in the world in written and pre-written history).

    Thinking more in terms of the “short-term”, back to the depression of late 1920s and 1930s (the nadir of which time I was born): The depression of those days was equally as devastating to people as the recent depression has been to people these days; and I have to confess sometimes the depression of the 1930s and its consequences seemed worse to me; but what do I know. (On a digression, reading about the settling of the West and the migration of people in the East of our country out past the Mississippi River, many of them moved because of depressions during those times.)

    So, this occurs to me: The depression of the 1930s and the subsequent hardship for many people of the time were followed by another period of a different kind of hardship, WW II; during that war (to speak economically here and not of the massive destruction of humanity involved) there was *serious* “rationing” of almost every kind of thing anybody wanted. Everything went into the “war effort.” During WW II, people earned a lot of money; but there simply was no way to spend any of it; people saved. It was only after WW II was over that people began to realize that they could actually spend some of the money they had saved; but first much of everything “consumer” had to begin to be produced. That took a little time too. So, the way it seems to me, the country did not go from “desperately poor” (which so many absolutely were) to “very rich” overnight; it took some time before the people themselves began to be in a position to buy things that were gradually beginning to be produced. I see somewhat of a similarity in this latest depression; people are hesitant to spend a lot of money; they may have it, but they are waiting for some surety.

    Another tho’t about this point: It seems to me the height of silliness (which a lot of the GOP seem to think is the answer) to expect that *everybody* will become an entrepreneur; there’s only so much room for entrepreneurs, unless there’s something I am missing in this information age. I sometimes wonder if we may be on our way back to the old guild system, where everyone worked at/from home; there were master craftsmen, journeymen (those on their way to being a “master”), and apprentices just learning a craft. Sometimes I find myself thinking that we may just end up back with that system, with some changes to fit the technology of the information age. Who knows?

    Obviously, I’m just wondering, speculating what form this described process of depression/period of saving (if you will)/period of consumer spending will take in this information age.

    One thing I *am* sure of is our country has been through so many depressions in its short history, it will survive this one too. We just don’t know yet what the economic form will be in the future.

    One last tho’t that I think is not given enough consideration by anyone these days: No matter how much we may think in terms of, what you here call “tribal”, what others may call “nations/national”, I tend to think that (and I use the word “first” that follows with forethought as I think it’s the first step along a long route): We may be taking the first step in a *global* economy and a general “one planet” approach to life by humans on this planet. It’s certainly massively too soon to really approach this topic with surety of any kind, but I think that the information age will be instrumental in driving this concept, whether people want to think about or actually think about it or not. It seems to me that such a “one planet” concept will be driven “first” by economics, exactly what is the topic of your thoughts here.

    Yet, in the end, I do think that some time in the future (I for sure won’t be around to see it) a global economy, to be followed later and gradually by a general “global-ness” will be inevitable. Perhaps it will be the information age that is instrumental in leading to a “one planet” humanity. MCS

    Comment by Mary — June 30, 2013 @ 2:34 pm

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