Tag Archives: economy

Robotics and Immigration

One of our most cherished myths is that America is a land of immigrants. In point of fact, we are—many millions of people migrated from the “Old World” to the “New” in the centuries following the first voyage of Columbus; what is now the United States became a favored destination of people from the British Isles, from Northern Europe (especially Germany), and later from Eastern and Southern Europe. These are the facts, the statistics. The mythic element, however, tells a story of people seeking freedom of various kinds—religious freedom, freedom from ethnic oppression, freedom from monarchs and oppressive class systems. No doubt these constituted the personal motives of many of the immigrants themselves.

Liberal and progressive arguments favoring continued unimpeded immigration are often couched in moral and mythic terms: that we have always been a nation of immigrants and should therefore continue to be (but: one definition of insanity is to repeat the same action over and over again despite not getting the hoped-for results); that we should forever continue to welcome “the huddled masses yearning to be free.”

What is not often considered are the motives of those already here (and of some who never stepped foot on American soil) in encouraging and enabling these mass migrations. From the very beginning, those motives have been all about profit: more specifically, about cheap labor as a means of exploiting the resources of this so-called “virgin land,” resources such as lumber, furs, gold and silver, and most especially agricultural commodities: tobacco, sugar (mostly on the Caribbean Islands), cotton, and wheat. With a few exceptions, early British colonies were chartered by London investors and were stocked with men and women from the desperate and criminal classes (people whom the British authorities were glad to be rid of), many of whom died shortly after arrival. As the colonies took hold, increasing numbers of the poor, the indebted, the jobless without prospects, the desperate, came here as indentured servants. Indenturement was little better than slavery, as many died before their term of service was up, others were cheated of their promised rewards. Then there was slavery itself, which brought millions of Africans here (and elsewhere in the New World) as chattel labor, valuable not only for free labor but as commodities in themselves.

Later, as the industrial revolution took hold, millions of Europe’s impoverished were allowed in to supply the labor for the factories as well as for the piecework that still occurred in crowded tenements and hazardous sweatshops (as exemplified by Triangle Shirtwaist Factory fire of 1911). Cheap labor was also obtained from China, particularly in the building of the transcontinental railroads; migrant (usually Mexican) labor is still crucial for harvesting fruits and vegetables.

This thumbnail sketch illustrates that cheap labor is the primary reason that business and political leaders have favored mass immigration, and why, for the most part, most business leaders still do. Economists today argue that we need to continue mass immigration (despite the fact that we already have a population of over 320 million people) because an aging population needs an influx of young workers to support (through taxes) the retired elderly—though how immigrants who live below the poverty line and, if legal, receive more in government benefits than they will ever pay in taxes, could perform that function is never explained. And this despite the fact that behind the sunny employment figures of recent weeks are the huge numbers of potential workers who have given up looking for a job and who are therefore no longer counted as “unemployed.”

Now comes another reason why mass immigration may no longer be a good thing: Artificial Intelligence (AI) is rendering many jobs, especially those traditionally occupied by the less skilled worker, obsolete. Factories now use more robotics than human beings and will do so even more as time goes on; many lower-skilled white-collar jobs are being replaced by digital substitutes; retailing jobs are disappearing as more and more consumers purchase goods online (as is illustrated by the emptying out of shopping malls and the closure of brick-and-mortar department stores). In other words, in the near future (if not already), our economy will require far fewer human workers per unit of output than they once did, and therefore demand for human labor (with certain exceptions) will drop considerably. Starkly put, we will not need the labor of our current population, let alone the labor of new immigrants.

What we will need instead is a new way of distributing the wealth that AI will generate. While it is too early in this transformation to specify how the new wealth should be distributed, it is time to begin considering the problem. The profits from AI are now accruing to the corporations in the form of profits and to the corporate managing classes who run the companies and make the big decisions as to how AI will be used. Yet again, the people with no voice in the process are the working classes (including the middle class). In fact, the political system is set up in such a way as to divide and conquer working people (e.g., the breaking up of unions and collective bargaining, the federal trade agreements that ignore the consequences to working people, etc.). The election of Donald Trump, who defeated all the establishment contenders of the Republican party before going on to (barely) defeat Hillary Clinton, is symptomatic of the anger of many citizens—that anger is likely to grow as the very rich get richer and the rest get much poorer and more desperate.

See this article.


The Myth of Cheap Oil

Those of us who drive certainly have noticed that we are paying less for a gallon of gasoline, and if we watch the news, we know that the drop in gas prices is the result of increased crude oil production, particularly in the U.S. Since supply is high, the cost of a barrel of oil has dropped by 40% since June of this year (2014). This is widely touted as good for consumers, who supposedly now have more pocket money to spend on other things, and therefore good for the economy, which is largely driven by consumer spending. So, lower gasoline prices are good, right?

Maybe. There are hidden costs to low oil prices. If the price is less than the cost of extracting the oil from the ground, producers shut down pumps, which in turn means the oil field workers get laid off, which means that they can no longer be consumers. If the economy were otherwise strong, they could get other jobs, but given that the so-called recovery has been weak and has created new replacement jobs that pay less and are less secure, they may have a tough time finding new employment. Low oil prices are also bad news for oil producing countries that depend on oil exports for much or most of their revenues. They may not be able to meet their citizens’ needs or continue to pay back their debts.

Another hidden cost is the temptation for people to drive more, thus increasing the amount of carbon we put into the atmosphere; it may even cause people to buy bigger, less fuel-efficient cars (on the mistaken theory that today’s low prices will last).
Many of these negative effects (and potentially others as well) are not likely to be visible to most people, including politicians, pundits, and economists. Because we have a consumption-driven economy, we tend to believe that lower consumer prices are always good, and that belief prevents us from seeing the longer term negative consequences of prices that are too low. In fact, apologists for consumer capitalism tend to see a silver lining in lower prices in the form of pressure on producers to become more efficient. And where does this efficiency come from? Fortune Magazine recently put it succinctly: “As oil prices drop, producers will undoubtedly renegotiate their ludicrously expensive oil service contracts, slash wages for their workforce and cut perks to bring their costs in line with the depressed price for crude.” Notice that two of the three steps producers will take are cutting wages and cutting perks (e.g., such things as health insurance, which is, in current consumer capitalist terms, a “perk,” not a necessity). In other words, screw the worker.

Lest we think that this is no big deal, simply the cost of doing business in a competitive environment, let’s remember that we have gone through this before.
Remember when most of the goods on retail shelves were made in the United States? Well, some of you may well be too young to remember, but in fact, there was a time when America was a manufacturing nation, when we exported more finished goods than we imported, and when our foreign trade was balanced in our favor (our last trade surplus occurred in 1975, almost 40 years ago). This shift was initially touted as good for American consumers, but since the consumer is also a worker, eventually it hurt consumers—but not to worry, we simply imported more and cheaper (in all senses) stuff, so that poorer American worker-consumers could keep buying. We even changed our ethic from one of savings to one of borrowing.

Consumers unable to keep up with the spending needed to keep the economy “growing” turned to their credit cards and their home equity: the result, most recently, was the implosion of the financial sector in 2008. While it is commonplace and correct to blame the big banks and financial institutions for the 2008 debacle, blame also rests on everyday consumers, who willingly ramped up their borrowing to finance their over-budget spending (not just on food, but expensive electronic gadgets). Irrational exuberance was not limited to Wall Street—it walked on Main Street as well.
But what were worker-consumers to do? From all sides they were pounded with the message to get out and shop—interest rates were low, credit was easy, and housing prices would rise forever. It was our patriotic duty to go out and shop, as President George W. Bush reminded us after 9/11. So we shopped, and shopped, and shopped. Until we dropped.

And in the ruins of the economy, we can see the long-term cost of lower prices. We traded away our industrial birthright for a mess of consumer pottage, only to realize too late how lacking in nutrients such gruel really is.

Actually, I’m not sure we realize that yet.

Why Infrastructure Matters

An article in today’s New York Times (July 23, 2013) tells us why infrastructure is important to the overall economic well-being of our country. The article summarizes a study by several economists of the regional differences in upward mobility across the United States. The study found that where one grows up is an important factor determining whether or not one can move up from poverty to prosperity. The authors found a correlation between a number of factors and mobility, including quality of education, but one that struck me (perhaps because for many years I depended on it) was the quality of public transportation. Atlanta is cited as one of the cities with the worst prospects for upward mobility, in large part because the city is segregated by income, i.e., poor people live in their own neighborhoods surrounded by other poor people and these neighborhoods are distant from the good paying jobs. The article gives several examples of low-wage workers who have long commutes from home to work and who must transfer buses and/or trains several times to reach their jobs. The time they spend commuting is lost to other activities, such as earning an associate’s degree or spending time supervising their children’s homework, or even working a second job to increase their income.

Good public transportation is an essential service depended upon by low-income people in every city, but the emphasis on automobiles and their roads and highways literally leaves poorer people behind. Cars are expensive to purchase and maintain, gas is increasingly expensive. The choice is often between a car and food on the table and rent. Yet oddly, while we are willing to spend billions on road and highway improvement and construction, we are unwilling to support public transportation; it’s as if prejudice against the poor dictates transportation policy. Indeed, given how much is invested in the conveniences of the well-off and in rescuing the rich from their own follies (TARP, etc.), there seems to be a pervasive prejudice against the poor, as if being poor were their own fault, or as if a large population of disadvantaged children were of no importance to society as a whole. But in the long run, when public services are neglected, the entire nation suffers.

Wealth and Taxes

We all know that there is a high and increasing inequality of wealth in this country. It is a truism here that the rich get richer and the poor get poorer, but now also the middle class is getting poorer as well. As a result, there is much talk about “income redistribution,” though the term is more frequent among conservatives, who use it to accuse the liberals of being socialists who want to confiscate the assets of the rich and hand it over to the poor. As conservatives see it, this is taking legitimately earned money from those who actually did the earning and giving it, no strings attached, to those who are unwilling to work. They imply that the lazy are jealous of their betters.

The rhetoric of the liberals does nothing to alleviate the conservatives’ anxiety, although it can fairly be said that their anxiety is more histrionic than real. Given how cozy both conservative and liberal politicians are with the people who are after all their donors, there is little danger that the wealthy will have their assets seized.

In fact, I don’t really believe that there is any widespread resentment of wealth per se in this country, probably because most Americans still believe that, with a little luck and a lot of dedication, they too can one day be rich. So far as I can tell, making more money is a key component of most people’s American dream.

So if there is little resentment of wealth, what is resented? An answer may be in Alexis de Tocqueville’s book on the French revolution, “The Ancien Regime and the Revolution,” published in 1856. De Tocqueville examines the economic and financial situation of France prior to the Revolution and discovers that one of the more important factors was not wealth per se, particularly of the aristocracy (many of whom in fact had little money), but what he calls “inequality of taxation.” The aristocrats had political clout, as did the capitalist class (the bourgeoisie), and they used that clout to gain tax reductions and exemptions for themselves; the petit bourgeoisie and the peasants had no such clout, so the burden of taxation was shifted to them. France had a punitively regressive tax system, not a punitively progressive one.

As Warren Buffett has so memorably reminded us when he declared that his secretary was taxed at a higher rate than he was, the American tax system has also become regressive, and for the same reasons as in pre-revolutionary France: those with political clout have gained reductions and exemptions for themselves at the expense of everyone else. Note that Buffett was not complaining about the disparity of income between himself and his secretary; I doubt that he sees anything at all wrong with that. He was complaining about the inequality of taxation.

People are not very worked up about the wealthy for being wealthy. Indeed, there is a good deal of admiration for the rich, especially for those who have created their wealth by producing services and products of use and desirability for everyone, such as Steve Jobs, or who entertain us, such as Tom Hanks. Getting rich is a laudable goal in America, and those who have gotten rich are often idolized. The problem is inequality of taxation. Americans believe that everyone should do their fair share, and when they see wealthy individuals and hugely profitable corporations not doing their fair share for the country that has so richly rewarded them, Americans get resentful.

Are We Really a Nation of Takers?

It is now a commonplace among conservatives to state that America has become a nation of takers—too many people are living comfortable lives on the public dole. (This reminds me of Reagan’s famous “welfare queen” driving around in a Cadillac.) The point was recently concisely argued in the Wall Street Journal by Nicholas Eberstadt, a resident scholar at the American Enterprise Institute, a conservative think tank that espouses capitalist ideals and, as its website asserts, “freedom.” Dr. Eberstadt has the academic qualifications to make his point: after growing up in Manhattan, he attended Phillips Exeter Academy (current tuition for boarding students is $44,470 per year), and then completed his undergraduate and graduate degrees at Harvard (current base price as quoted in the 2012-2013 catalog, $37,576 per year).

Eberstadt notes that “entitlement payments” have increased markedly since 1960, both in dollars and in the sheer numbers of Americans receiving some sort of government handout. “Entitlement transfers—government payments of cash, goods, and services to citizens—have been growing twice as fast as overall personal income.” The portion of the total federal budget devoted to these transfers has increased from a third to nearly two thirds. Disability payments have risen as well, too often for vague complaints such as back pain and “sad feelings.”

The result of this largess, Eberstadt asserts, is a “flight from work,” particularly among males of prime working age, men in their thirties. This flight from work is a moral problem, caused by the “moral hazard embedded in the explosion of social-welfare programs” since 1960 (the year Kennedy was elected president, i.e., Year 1 in the takeover of the government by liberals!), leading to a “something for nothing mentality” that will undermine “civil society.” This does sound dire.

Like most conservatives, Eberstadt believes that it is the government’s handouts that are causing the flight from work and therefore the moral hazard. But perhaps he puts the cart before the horse. Perhaps people have been turning to government handouts because good jobs have become increasingly hard to find, and keeping a good job is no longer a sure thing even for conscientious and loyal workers. Manufacturing jobs, which in the 1950’s were the backbone of the working middle class, have been shipped abroad by the container load. From 28% of all jobs in 1968 to 9% in 2011. These were jobs largely filled by men. These jobs have been replaced by service sector jobs, which are generally lower-paying than manufacturing jobs, often tedious beyond words, and increasingly competed for by women. Real purchasing power of the average worker has declined over the last several decades, which is one reason why even married women with children now have to work—the typical middle class family simply could not make it on the male “breadwinner’s” income alone. The increase in permanent temporary work illustrates the pressure being applied to workers in general—the loss of security, benefits, and loyalty in favor of the bottom line for bosses and financiers (just compare today’s CEO salaries to those of the 1950s or 1960s).

Bottom line thinking has so thoroughly replaced other values, what one might call the virtues of a truly civil society, that it has become a ubiquitous metaphor, infecting many areas of thought other than accounting and finance. It is used by human resources administrators, health professionals, therapists, educators, politicians, environmentalists, visionaries, and religious leaders. “What’s the bottom line?” is often used as a (rude) interjection when one wants someone else to get to the point. The bottom line is a moral hazard, because it reduces everything to one thing, profit or loss.

Mr. Eberstadt may be correct in asserting that government handouts permit, if they do not outright encourage, dropping out of work. If that is so, he and his cronies might well ask why this moral decay, if that’s what it is, has fallen upon the American people in recent decades. The conservatives believe that government transfers are the sole and sufficient cause for the flight from work, but could they be merely the means for effecting an escape from the onerous conditions created by the capitalists themselves? If the option of meaningful and reliable work is not longer available, can a man be blamed for not being particularly interested in the alternatives, minimum wage at the corner convenience store, or little better at the call center where he has to sit on his prat all day peering at a computer screen? If the option of higher education at a reasonable and affordable price has been taken away, is there any reason for a high school student to study hard for his finals?

Although CEOs and other management types, as well as those who have had the privilege of attending Phillips Exeter and Harvard, seem to think of workers as mere cogs in the business and economic machinery, those cogs themselves do in fact have minds, they have eyes to see what’s going on, and they think about what is going on. They are not idiots. They know a bad bargain when they see one. They know who the real takers are.

If the conservatives sincerely want people to work rather to continue living on the dole, then they should turn their attention to the creation of jobs truly worth having. That will mean skimming off a bit less for themselves from the Blessed Bottom Line.

Nicholas Eberstadt, “Yes, Mr. President, We Are a Nation of Takers,” Wall Street Journal, January 25, 2013.

Energy and Diminishing Returns

In his book The Collapse of Complex Societies, Joseph A. Tainter identities a number of factors that contribute to the decline and fall of civilizations, i.e., complex societies.  Among the major reasons he cites is what economists call diminishing returns on investments.

Tainter argues that complex societies exist to solve problems, such as resource needs, and that as problems become more complex, often through population expansion, the society becomes more complex also, particularly in terms of administrative or managerial functions:  government bureaucracy, information processing, social organization, and so forth.  But complexity brings its own problems, one of which is that as more energy is invested in obtaining the increased resources necessary to sustain the society, the per unit benefit of those increases tends to decline.  He cites such examples as the conversion from wood to coal as a source of fuel in Europe in the late middle ages and early modern period.  As the population increased, more trees were cut down, resulting in deforestation over wide areas of Europe.  Eventually, there were not enough trees left to supply the people’s needs for fuel, so Europeans turned increasingly to coal; but coal is much harder and more costly to obtain that trees had been—coal sources were located at considerable distances from where the fuel was needed, it was buried underground, and as more of it was mined, people had to dig deeper to get at it, and so on.  The per unit cost of the energy obtained from the coal was higher than the per unit cost obtained from wood.

Fortunately, industrial technology discovered other sources of fuel, oil and natural gas being the two most important ones, and for over a century the industrial world has obtained its energy from these two new sources (although coal still remains important, particularly for industrial uses such as electric plants and steel mills); yet now we are entering a period when the return on investment in oil production is declining, as oil reserves become harder to discover and exploit and as the oil obtained from new finds tends to be heavier and require more refining before being usable as gasoline or diesel.  It is possible, even likely, that geologically speaking, the Earth will never run completely out of oil, but we may reach a point at which we simply cannot reach what remains or cannot afford the costs of obtaining it.  Big industries might be able to continue to afford the cost of oil to produce certain essential products such as plastics for limited uses, but the average citizen likely won’t be able to afford filling up the tank of an SUV with gasoline.  “Peak oil” may simply mean “way too expensive oil.”

Thus, the real question for modern industrial societies, the United States in particular, is not whether or not we will run out of oil, nor even when, but rather at what point oil will simply be too expensive to rely on to provide the energy our complex technological civilization requires.  Developing alternative energy sources is not, then, exclusively a matter of preserving the environment or reversing global warming.  It is not even a matter of so-called “energy independence” (a political rather than scientific or economic issue, at any rate, given the global extent of all markets today—many people would be astonished to learn that the United States exports a great deal of oil and oil products, as well as importing them).  It is rather a matter of civilizational survival.

Societies that fail to respond appropriately to the problems created by their own complexity tend to fragment into smaller, less complex units, as the Mayan civilization broke into small swidden villages scattered over a wider area.  But as sophisticated as the Mayan civilization was, in terms of population, it was relatively small compared to U.S. and world populations today.  World population in 1492 (several centuries after the Mayan collapse) was a mere 500 million, and economies and cultures were still largely local rather than national or global.  Today, world population exceeds 7 billion, with China alone having twice as many people as all the world in 1492, and our economies and cultures are irrevocably intertwined and interdependent.  We cannot feasibly fragment into small states or swidden cultures today.  Nor is it feasible to return to some imagined Golden Age of the 1950s or 1780s.  Our solutions can only apply to the future, not to the many pasts of human history.

Given the intrinsic importance of energy to our industrial, scientific, and technological societies, solving the problem of the increasing cost of oil is crucial to the entire world, not just the United States.  To prepare for “peak-cost oil,” we need to invest now in alternative energy sources, including nuclear power, and stop the political and partisan wrangling and one-upmanship that impedes our ability to save ourselves.

Is Inflation the Answer?

Everyone is concerned about debt.  The national debt.  The European debt.  Their own personal debt—credit cards, underwater mortgages, college loans.  What to do about debt will be one of the major issues of the November elections at all levels of government; what we decide to do about debt will affect not only the elections and government policies but also the lives of individuals.  Will my taxes go up?  Will my home be foreclosed?  Will I be able to afford basic living expenses after I graduate?  Will the future be better or worse?

The positions of the two major political parties are predictable.  The Democrats will blame Wall Street and call for more government stimulus spending.  The Republicans will blame big government and call for lower taxes and big cuts, at least in so-called “discretionary” spending (i.e., no cuts to defense).  Both sides will wave the unemployment statistics as support for their positions.

Meanwhile, some economists, those of a Keynesian persuasion, will support the Democrats’ position and also call for more inflation.  Inflation, they argue, will reduce the value of all debt, thus making it easier to pay down over time.  Paul Krugman, the Nobel laureate and New York Times columnist, has called for an inflation rate of 4%.  (The current inflation rate is about 1.7%.)  Looked at from the “big picture” angle, more inflation certainly would reduce the real value of all debt.  If one borrows $100 today, and the inflation rate is 4%, a year from now your debt is worth $96 (in current dollars, adjusted for that 4% inflation).   Which is to say that what is worth $100 today will be worth $104 in one year.  But your debt document will still read “$100.”  A steady 4% inflation rate over several years will indeed reduce the value of your original debt amount considerably, thus making it easier to pay off.

Provided:  That your income has at least kept pace with inflation, but preferably has pulled ahead of it (say 5 or 6%).   In other words, for the inflation-reduces-debt game to work, income also has to inflate, i.e., increase.  So that next year your income needs to be at least 4% higher than it is today, but again preferably more like 5 or 6% higher.  There was a time back in the day when incomes did in fact keep pace with or exceed the rate of inflation.  Good times, those.

But it has been some time since that was the case.  As everyone knows, incomes have remained stagnant for at least two decades, well since before the 2008 financial meltdown.  In fact, a root cause of the financial crisis was the decrease, relative to costs, of all forms of income:  people were trying, very unrealistically, to maintain their spending levels, even as their purchasing power declined, by getting deeper into debt.  Notice that as housing prices escalated, banks were offering and people were accepting bigger and bigger mortgages with lower and lower down payments and trickier and trickier payment schemes (e.g., low teaser rates followed by whopping balloon payments), and everyone was counting on continued inflation to cover those escalating debts.  Why else would people refinance their homes in order to use the equity to buy stuff or finance college educations for their children?  Because, whether explicitly or not, they were counting on inflation to reduce the value of their debt.  Same for the various levels of government.  Projecting today’s costs (entitlements, wars, building projects, salaries and benefits) into the future when those costs, in the form of debt, would be worth less was simply a massive way of imitating what individuals were doing with their mortgages and credit cards.

But the problem for both governments and individuals was that, while debt was increasing, incomes were not.  The very people who had to pay for that debt, individual American debtors and taxpayers, were not benefitting from inflation; that is, while their debts were increasing, their incomes were stagnating, and in many cases (adjusted for inflation) were in fact declining.  Something had to give, and it gave.  The circle of debt and spending turned vicious indeed.

At the present time, there is no reason to believe that, should a 4% inflation rate actually occur, incomes will be affected.  With an employment rate consistently hovering in the vicinity of 9%, with many people working at less than their peak (underpaid, part-time work, etc.), with still others dropping out of the labor market in despair (and therefore no longer counted as “unemployed”), and with older unemployed workers resorting to taking Social Security early, there is little incentive to increase wages and salaries at all, let alone to keep pace with inflation.  So a 4% inflation rate will not help, but in fact hurt, the college graduate with $40,000 in student loans to pay off on the wages of a waiter or barista; it will not help the retirees on fixed incomes and with savings held in savings accounts and CDs; it will not help the middle-class family with an outsized mortgage and only one wage-earner, who in any case may have taken a big salary cut when he/she was laid off and finally found another job after months of looking.  And it will not help any level of government when income and property taxes are down because of lower wages and devalued real estate.  Taxing the rich, however the rich are defined, will not help much.  It’s the middle class that finances both the economy and governments, so if the middle class is shrinking (rapidly), both the economy and government are in permanent trouble.

In big picture terms, in computer modeling and theoretical terms, inflation might look like the answer to our debt problems; but in personal terms, in terms of individuals trying to live in a world both of debt and inflation, it looks like no answer at all.

Can Innovation Save Us? Part Deux

In my first blog on capital-I “Innovation,” I noted that Apple employs some 40,000 workers but that it was not easy to determine how many were actually American workers employed here in the U.S.A..  On Sunday January 22, 2012, the New York Times published an article that provides better and more up to date figures:  Apple currently employs 43,000 people in the United States and 20,000 abroad, for a total of 63,000 direct jobs.  However, like many companies, Apple does not itself manufacture every component and part of its products; most of that process is contracted out to other companies, mostly located in a variety of Asian countries (the glass covers of the iPhones, interestingly, are made by Corning, but for the most part in factories it has located overseas, primarily to save shipping costs).  The end product is assembled in modern Chinese factories (not owned by Apple) by approximately 200,000 workers.  These workers, the article notes, work 12 hour days 6 days a week and earn per day about what unskilled workers in the U.S. make per hour.[1]  Try to compete against that, regardless of how innovative you are.

Tellingly, the article pointed out a point similar to one I made in my earlier post, that “ ‘If you scale up from selling one million phones to 30 million phones, you don’t really need more programmers.’ ”  Thus it would appear that computer programming careers will never be sufficient to soak up the unemployed and the new-to-work graduates here in America, despite the optimistic rhetoric to the contrary.

The New York Times’ article’s excellent and clear description of globalization focuses on digital products, particularly smart phones (using the iPhone as the primary example) but the description fits most products and commodities today.  Clothing, furniture, automobiles, wines and spirits, processed and specialty foods, are examples of finished products that circulate globally and which more often than not consist of materials and parts made in multiple locations and countries.  On its website, General Motors brags that it sells over 7.5 million vehicles in over 120 countries, much of that product in China.  It also manufactures in many countries—meaning that most of those cars being sold in China are not being shipped from the United States (though some of their parts are).  General Motors is an American company in one sense but an international one in another.  Ford and Chrysler are also now international as much as domestic companies; so are Toyota, Honda, BMW, and Mercedes, which manufacture in the United States and in other “foreign” countries.

Basic commodities and raw materials are also internationalized. Oil and gas, lumber and metals, agricultural commodities, minerals and rare earths come from everywhere and are shipped everywhere.  Alaska ships oil to Japan while Saudi Arabia ships oil to the continental United States.  Given all the shipping back and forth of commodities, it seems particularly out of date and even futile to hope that any country can be truly energy (or any other commodity) independent.  To revert to genuine energy or economic independence would probably set all economies back to the middle ages.  Modern life would be impossible in a world of truly self-sufficient nations.

Will education and training save us?  Will graduating more engineers keep us on top?  Population says probably not.  It is difficult to pin down accurate, comparable figures, so consider these hypotheticals (based on the best 2008 data I could locate):  China appears to be graduating, or close to graduating, only enough engineers to equal .01724% of its population, while the United States is graduating enough engineers to equal .045% of its population.  By percentage of population we look pretty good.  But then note that .045% of the U.S. population is roughly 140,000, whereas .01724% of the Chinese population is 520,000!  Some sources suggest that in 2011, China may have graduated as many as 1 million engineers; if true, that is still a smaller percentage of the total population of China than the U.S. produces, but nonetheless a distinct advantage to China in sheer numbers.  No wonder the New York Times article explained that Apple manufactures abroad in part because “The company’s analysts had forecast it would take as long as nine months to find [the needed number of] qualified engineers in the United States” but that “In China, it took 15 days.”  Our population disadvantage vis-a-vis much of the rest of world will increase as other more populous countries continue to develop.  Perhaps, then, we should start looking to other relatively small developed countries for insights into how to prosper among the whales.

All this to point out that we are moving to a time when to talk of the or an American economy will no longer be meaningful, at least not in the way we have thought of it in the past; we will be talking of a world economy as if it were our economy, because that is what it will be and is already becoming.  Consequently, we will have to shed our old ways of thinking about ourselves and the rest of the world and re-imagine who we are and what role we can play in a world that will continue, despite our right-wingers’ protests, to integrate and other countries to develop.  Individual Americans are going to have to rethink education and career and lifestyle choices and determine what is truly worthwhile and what they really want and how to achieve that in this new global terrain.  Politicians will have to be more truly knowledgeable and genuinely pragmatic and future rather than past oriented (as opposed to ideological and dogmatic).  And because the putatively American corporations and CEO’s are now truly global rather than local or national in their vision (“ ‘We don’t have an obligation to solve America’s problems.  Our only obligation is to make the best product possible.’ ”), the federal government is going to have to learn how to manage and coordinate the economy on behalf of American citizens, who after all do not, individually or collectively on their own, have the power to balance the weight of the global corporations, based here or not.  For the federal (as well as state) government to do that requires that the American citizen also must be a whole lot smarter, more astute, and more global than he or she currently is.

Will that happen?  Not if the Chinese continue building universities and colleges faster than we have been building stadiums and prisons.

[1] “How U.S. Lost Out on iPhone Work,” New York Times, Sunday January 22, 2012, p.1 ff.

So Many Things, So Little Prosperity

A couple of years ago, I was invited to the house-warming party of a friend and former colleague.  As I drove into the neighborhood, I noticed many cars parked along the streets, and in fact had to park some distance from her house.  In the course of the usual small talk of greetings, I mentioned that there must be a lot of parties going on in the neighborhood, what with all the vehicles parked on the streets.  “Oh,” she said, “those are all my neighbors’ cars.  They can’t get their cars in their garages because they’re full of stuff.”  She described how, whenever neighbors left their garage doors open, she could see household things piled up right to the door.  She mentioned that many families in the neighborhood were having trouble making their mortgage payments.

This struck me as emblematic of the current economic situation in the United States.  While it is all too true that much of the blame for our recession belongs to Wall Street, some of the blame must be assigned to Main Street as well.  I don’t know how many of my friend’s neighbors bought the stuff in their garages with money obtained from second mortgages or lines of credit on the now long-gone equity in their homes, or with maxed-out credit cards.  But I do know that across the United States people resorted to such measures in order to maintain consumption habits that their wages and salaries could no longer sustain.  It is these consumption habits that led to an historically low rate of savings and high rate of household debt.  Consequently, we had houses so full of things that we had to store the overflow in our garages (and attics and basements).

Click here to read the full article.  You may also wish to read “The Way Forward,” a recent report by the New America Foundation, analyzing the current economic situation and proposing a program for a long-term solution to the problem.

Why This Recession, Part 3 Surfeit

Why This Recession (and Those Yet to Come)?

Part III: Surfeit

          In this current recession many middle-class Americans are re-discovering an old truth:  there can be too much of a good thing.  One can have too much house, too many cars and big-screen televisions, too many cell phones, computers, and electronic gadgets; too much food and too much debt—too many consumer goods overall.

          Since the end of World War II, we have grown accustomed to the notion of endless more, but now may have to get used to the idea of enough, just as our pre-war ancestors did. 

To read the full essay, go to the Why This Recession page.