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Edward Corcoran Headshot

Growth Is Killing the US Economy

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Growth is considered the foremost driver of prosperity. The growth rate of
Gross Domestic Product gives an immediate measure of how well a national economy
is functioning. Such economic growth drives business expansion and job creation.
Low US growth rates in recent years directly contributed to high unemployment
rates. And actual unemployment is undoubtedly higher than the standard figure
which does not include people out of work who have given up looking for jobs.

Countries with declining birth rates fear economic stagnation and recession.
In many, aging populations raise questions of how a declining percent of working
age adults will be able to support a modern economy. Among industrialized countries,
the United States appears to hold a significant advantage with some projections
showing population continuing to grow to 400
million people
, driven largely by continuing immigration. This contrasts
markedly with most other advanced economies. Indeed, in Japan the birth rate
is already below replacement levels. Nevertheless, population growth from immigration
does not significantly improve the economic standing of the existing population.
Immigration does indeed drive economic increases, but much of this increase
is absorbed by the immigrants themselves, with minimal
to wages of the existing population. On the other hand an increase
to 400 million Americans would mean a much more
densely settled country
, with attendant requirements for new schools, shopping
areas, work places and roads. Physically, there is little doubt that the United
States could accommodate such an increase, but this would put more and more
stress on the environment. Why would the nation want that?

With an aging population living longer, the need for more working age adults
seems self-evident. But thanks to modern production, the total needs of the
population can actually be satisfied by a relatively modest percent of the population.
As late as 1900, some 41% of the US work force was engaged in agriculture. Today,
less than 2%
of the work force feeds the country, as well as providing foodstuffs for export
and raw materials for biofuels, particularly ethanol. Similarly, construction
has been an important element of economic growth. But if the population is steady,
then requirements for new homes, new roads, and new facilities significantly
lessen. Many requirements shift from new construction to upgrading existing
facilities or adding new amenities, meeting new "needs." In the 1950's,
for example, the average new home was only 983 square feet; by the 2000s it
was up to 2300
square feet
, despite declining household sizes. This reflects higher standards
for the number of bathrooms, the "necessity" of a family room and
office or den. Household appliances and automobiles have considerably longer
lives than past models, when a car with 100,000 miles typically seemed to be
on the point of disintegration. Energy remains a critical requirement, but production
is not so labor intensive. Overall major increases in productivity in recent
decades mean that core requirements (food, shelter, clothing) can be met with
a relatively small working force.

Growth is seen as an essential element of successful business, but there are
other models. For many years "blue chip" utility stocks paid regular
dividends and were considered a solid foundation for the overall economy. For
many of these companies, growth was modest or even nonexistent. Zero growth
did not mean stagnation, as new technologies were developed and implemented.
Today, many of these utilities are involved in dramatic shifts, with coal plants
being replaced by natural gas or renewables. But the utilities involved are
not necessarily growing any larger. In actuality, growth is not an essential
element of a successful advanced economy. Even in developing economies with
widespread poverty, growth is often less important than a more equitable distribution
of wealth.

Jobs are a central challenge of a steady
economy. So if productivity doubles over some period of time, a company
can produce twice as much. Labor costs per item are cut in half, but profits
do not necessarily rise due to competition among producers. And if demand does
not double, better productivity simply means fewer jobs. Indeed, many sections
of US industry now employ significantly fewer workers than in years past. Productivity
increases often translate into employment decreases. This has become a critical
feature of the US economy. Although there is a specter of an inadequate number
of workers to support an aging population, reality is just the opposite: there
is an excess of workers not needed in the economy.

While economic growth could absorb some of these excess workers, a steady-state
economy does not provide the demand growth needed to justify expansion. The
problem is exacerbated by the fact that many of the workers without jobs lack
the specialized skills needed in a modern economy. If, say, 75% of the available
workers can meet 100% of the national requirements, what to do with the other
25%? That is an essential task, how to absorb more workers into existing economic
structures. Labor regulations offer one obvious approach. Shorter work weeks
and longer vacations would require companies to hire more workers to maintain
output. If all companies were required to do this, domestic competitive positions
would remain largely unaffected. Prices would, of course, rise but so would
total wage payments. Higher wage rates could also support more secondary jobs
in the service and leisure industries: theaters, restaurants, vacation trips
and social services would all provide additional jobs. Exactly how this could
play out is uncertain. But what is certain is that there needs to be some basic
realignments in the economy or unemployment will remain unacceptably high. Hard
times increase hostility
. The economic decline of a significant portion
of the population coinciding with the immense accumulation of wealth by a few,
creates a deep divide which can easily fuel widespread unrest. And it also fuels
declining international respect for a United States no longer seen as a nation
built on equality.

Growth also serves as a vehicle to move wealth from workers to privileged classes
- those with significant financial assets. If someone buys a house for $100,000
and several years later sells it for $200,000, then there is a $100,000 capital
gain that essentially represents no value increase at all. If the cost of everything
doubled, then this capital gain would essentially be irrelevant. But if inflation
is modest, then this is a windfall for the owner, a windfall not available to
those without the financial assets to buy a house. If there are a million such
transactions, then there are a million relatively well off people who are now
even better off than they were, and some million(s) of others who are relatively
poorer. Indeed the search for such unearned appreciation drove much of the housing
bubble, with banks, mortgage brokers, and insurance companies profiting handsomely,
protected from the eventual losses which resulted in many thousands of foreclosures
affecting citizens with limited financial resources.

The same motivations drive much of the activity in the stock market, with the
same wealth transfer effect but on a larger scale. While capital gains from
real increases in company value provide real increases in worth, most gains
from appreciation, like gains on real estate increases, simply do not represent
any real increase in value. Much money put into the stock market is not put
in to promote a business expansion, but is put in for speculation. People "make"
money by "playing" the stock market. Typically, if someone wins, someone
else loses. But with steady appreciation of prices, when someone wins, someone
else also wins, but less. The losers are the people who cannot "play"
efficiently, or who do not even have the assets to "play" at all.
The net result is the same as with real estate, except on a much larger scale.
Wealth again transfers from everyday workers, people without significant financial
assets, to the privileged groups that do have the assets. So while dividend
paybacks from the stock market largely reflect actual working profits, capital
gains typically allow "investors" to "make" money, often
lots of it, without making any real contribution at all to the economy. The
ultimate in this trend is the rise of ultrafast
where differences in milliseconds can result in large profits but
provide zero economic benefits. Such economic "growth" goes not to
decrease poverty but to increase the wealth of the privileged classes.

The core economic challenge of the XXI Century is not growth, but sustainability
- creating an economy that provides a comfortable life for all its workers,
supporting not an equal distribution of wealth but an equitable one based on
each person's real contribution to society.