How to Transform the US From a Debt to an Equity Economy
I originally wrote this at the end of 2006, largely because of the need to find a way out of mammoth amount of debt in the US economy. This article and the ideas presented are salient to the recent push to drill in Alaska and offshore. While I have heard a great deal of rhetoric from both candidates, little of it makes economic sense. McCain wants to institute another round of supply-side policies despite the fact that the previous two times these ideas were implemented the US increased its overall debt at a mammoth level (see charts below). While I agree with Obama's overall concept he faces a different problem: he inherits a federal government that is deeply in debt. I explained his basic problem here. The problem with both candidates is no one is accepting the fact the US is in a dire situation at the federal level. Dire situations call for radical solutions.
The US' current economic trajectory is unsustainable in the long run. The domestic economy is dependant on foreign capital to finance consumption beyond our production. The US government has issued over $500 billion dollars in net new debt per year for the last 4 years, indicating the budget deficit is not under control in any meaningful way. The US consumer has taken on an enormous amount of debt to finance the latest economic expansion. In other words, debt saturates every level of the economy to a harmful degree.
What I am about to propose is a radical departure from the overall current economic policy of the United States. Implementing this policy will require an incredibly difficult debate and policy application. The application of this program will hurt many people. Ideally, we should spread the pain out among as many people as possible. However, the pain cannot be avoided. In addition, implementation will take a great deal of time. The method of paying for this plan will be extremely controversial, especially among Democratic circles. Implementation will take consistent effort and sacrifice.
THERE ARE NO EASY ANSWERS TO THE OVERALL PROBLEM. The sooner we accept the reality there will be some pain for everyone, the better off the process will be. As a country, we have lived beyond our means for far too long; it's time to pay the bill. We have a very bitter pill to swallow. The best thing we can do is swallow the pill and move on.
The short version of this plan is simple: The US must move from a debt to an equity economy.
Overview of the Problem
The US international trade deficit has trended to a more negative position over the last 15 years. The following chart is from the St. Louis Federal Reserve:
A trade imbalance indicates a country is consuming more than it produces. The country with the trade deficit must borrow money too fund the difference between consumption and production. At the current level, the US must import roughly $2 billion/day to finance its consumption. At some point, creditors will demand a higher interest rate for the increased risk associated with holding US debt. In addition, it is also possible for the host country's currency to drop in value. Should the currency drop in value, the host country has a greater likelihood of importing inflation. Neither possible scenario -- an increase interest rates caused by increased perception of risk or a devaluation of the host country's currency - is beneficial for the host country.
The federal debt situation is just as dire. The problem started with the implementation of supply-side economics in 1981. While the Reagan administration loved cutting taxes, they did not cut spending. As a result, the Federal government issued a large amount of debt, increasing the debt/GDP ration from roughly 30% in 1980 to over 60% in 1988. Bush 43 implemented the same policies with the exact same result. According to the Bureau of Public Debt, the US has issued over $500 billion in net new debt each year for the last 4 years. (For a complete listing of government and revenue and expenditures, please go the historical budget data (PDF) at the Congressional Budget Office.) As a result of Reagan's and Bush's policies, the US federal government has issued debt to pay for growth. Here is a graphical representation of the situation.
At the household level, we have seen the exact same situation develop over the last 20 or so years. As wages have largely stagnated for a large percentage of the population, households have increased the use of debt to finance their lifestyle. As a result, household debt has continually increased, as the chart below from the St. Louis Federal Reserve indicates.
So, why is all of this debt bad? To quote Dave Ramsey, you're making someone else rich. The person that lent you the money gets some of the benefits of your growth. As the amount of debt increases, the lender receives more benefits in the form of higher interest payments. Eventually, the borrower must pay an amount so large that growth is almost painful. While current payments on US debt are not a large amount of money, we have also been the beneficiary of historically low interest rates. It's only a matter of time before lenders realize the US may not pay its debts and ask for a higher interest rate on their respective debt. This is when we will run into big trouble.
So, we've outlined the problem. That's the easy part. Let's move into how to solve this problem. This is where a great deal of pain comes in, because there are no easy answers. In fact, there are only difficult answers that must be implemented.
Priority 1. Balance the Federal Budget.
Here are the benefits of a balanced budget.
It prevents crowding out. This is a fancy way of saying money that would finance the federal budget deficit is instead invested in private capital. Let me use the current situation as an example. According to the Congressional Budget Office, the US had a $318 billion budget deficit in 2005. That means $318 billion dollars was not invested in the private economy, but instead invested in US government bonds. The larger the deficit, the less money available for private investment.
Psychology and uncertainty. A budget deficit detracts from individual's confidence in the market and the overall economy. As individual's look to the federal deficit, they understand that at some time the government must pay back the money it borrows. That means the government will probably have to either raise taxes (more likely) or decrease spending (far less likely whichever party is in control of the government). Deficits create psychological uncertainty. The larger and more persistent the deficit, the less happy people are and the less prone they are to take economic risks.
One of the primary reasons for the economic expansion of the 1990s was the prevailing sentiment among business leaders that Washington was finally in control of the deficit. This created an environment of confidence which increases economic potential. It's that simple.
So, how do we balance the budget? First, we either let the 2003 tax cuts expire naturally with their built-in sunset provision or we raise them. I would argue against raising taxes immediately because of the current slowing of the overall economy. I would argue we wait until at least the 3rd quarter of the next economic expansion before we consider this. We also need to look at several other options on the tax front, including reforming the estate code, increasing the maximum amount of income subject to social security taxes and certain corporate giveaways. This is all subject to Congressional give-and-take. But, the bottom line is that if we want to balance the budget we first need to increase government revenue.
In addition, spending has to be cut. And honestly,all programs must be on the table. That does not mean all programs will be negatively impacted to the same degree. However, the Federal government spends a lot of money; we have to decrease the rate of spending to a large degree. For the last 6 years, federal spending has increased an inflation adjusted 35%. That level of spending growth is simply unsustainable.
This process of balancing the budget will take awhile. I would guess at least 6 years if not longer. It will take constant concerted effort. And it will mean a lot of people will catch a lot of flack for the consensus decisions reached in the process. This is where political skill comes into play -- the ability to sell this achievement to the electorate in a away that allows Dems to continue the process. It will be a difficult sell -- especially after the Republicans have won elections on easy, something-for-nothing themes. I do not envy any political consultant's job in this task.
OK -- that's the federal side of the deficit. As promised, it is not a pretty picture. However, it is what must be done. Now, how do we deal with the consumer debt?
The first point to make is consumer debt is really a problem of poor wage growth. Save the 1990s, wage growth for most Americans have been stagnant for some time. What has made the "standard of living" bearable is the cost of many things has come down, allowing consumers to feel richer without really being richer. In other words, the central issue is how to create better paying jobs which actually increase wages for most Americans. So, how do we do that?
We take a page from Asian development which has a track record of success. We coordinate three different policies: education, domestic investment, and industrial policy
Priority 2: Education
American manufacturing has undergone a fairly radical transformation over the last 20 years. We have moved from (for lack of a better phrase) a pure brawn model to a brawn and brains model.
But manufacturers, regardless of size, specialty or location, across the USA are reporting a dire shortage of skilled workers: people such as welders, electricians or machinists with a craft that goes beyond pushing buttons or stacking boxes but does not require a degree.
In a survey of 800 manufacturers conducted by the National Association of Manufacturers (NAM) last year, more than 80% said they were experiencing a shortage of skilled workers. In October, manufacturers surveyed by the Federal Reserve Bank of Philadelphia said "finding qualified workers" was their biggest business problem.
The shortage of skilled workers is the result of a number of factors. One of the biggest is that manufacturing in the USA is becoming more high-tech and skill-based as the more repetitive, less-skilled work is moving abroad. Such jobs require greater expertise.
Innovation in the manufacturing sector means that the jobs require greater skills than ever before. According to an analysis by economists Richard Deitz and James Orr at the Federal Reserve Bank of New York, employment in high-skilled manufacturing jobs rose 37%, or by 1.2 million jobs, from 1983 to 2002. At the same time, low-skilled factory jobs dropped 25%, or by approximately 2 million workers.
A paper titled The Changing Nature of Manufacturing in OECD Countries highlights the problem as well. On page 8, the paper notes, "The graph shows that most of the decline in manufacturing employment over the past three decades has occurred in only two activities: textiles and metal products." The bottom line is the developed world is moving to increasingly high-tech manufacturing.
However, as the evidence from the Federal Reserve and NAM indicate, the US workforce is not ready to make this transition. This means, quite simply, that Americans must go back to school. And high school education must be expanded in important areas -- especially math and science. This is what the Asian countries did and still do for the most part. They concentrate education in the primary areas -- the American equivalent of K-12 -- and make the program much more demanding than their American counterparts.
In addition, we need to improve access and the cost structure of trade schools in huge proportions. There are industries which are currently in their end -- stage, at least in the US. Textiles lead the way, as do other more purely brawn-oriented manufacturing. Employees in these industries must be given the benefit to retraining if they are able to make the transition. If they aren't, we must insure their respective pensions are secured so they can live-out their retirement in dignity.
Priority 3: Targeting high-growth industries
This is the final area to discuss, and frankly it won't take long. The bottom line is there are several industrial areas that everybody knows show high-promise as industries of the future. Alternate energy development probably tops the list. The world's energy resources -- particularly oil -- are either at their peak or near their respective peaks. The world market is in desperate need of a true alternative to oil/petroleum as a means of energy. And it's time a country spent the capital necessary to develop one or all of the possible alternatives. I cannot speak to the possibilities. However, I know they are out there.
Two of my personal pet projects are stem cell research and nano-technology. I am sure there are others.
The primary way we target these areas is with money - as in massive amounts of federal dollars going into think tanks, research groups and universities to develop these ideas. Pure research has consistently demonstrated itself to be the mother of most of the greatest inventions. Therefore, funding pure research is the best way to develop these industries.
Paying for all of this.
I mentioned above that this would be the most controversial aspect of this idea. I guarantee I wasn't lying. However, before we get there, let's sum up the basic problem. At a time when the US economy needs a large infusion of cash for investment, it doesn't have it. The Federal government is in debt up to its eyeballs. Foreigners are financing our trade deficit. And consumers have already taken on debt in near-epic proportions.
So where do we get the money?
We open up Alaska and the Coastal reefs for drilling. I realize the controversy this idea will generate in Democratic circles. However, governing is about difficult choices. And we have a ton of them to make. Just as importantly, the US economy stands near a very dangerous precipice. We are completely dependant on foreign investors to finance our way of life. The federal government is facing serious financial problems. The US consumer hasn't seen a meaningful pay raise is some time. In other words, we have very serious problems. Weighing all of these problems against environmental interests is difficult. However, the long-term benefit of this program (as in 50 years from now) outweighs the drawbacks.
However, we do the following. First, we earmark a large amount of the proceeds from this specifically for investment in the above-mentioned programs. We do this through higher royalty fees and a high tax structure on the companies that develop these areas. Secondly, we put in place stringent environmental regulations. Finally, we put in place provisions about using American resources -- as in American manpower resources -- to perform the work.
So - why should we do this? Frankly, we have little economic or financial choice. The US economy must make the transition to the 21st century. We have little national savings to pull on. We have a government issuing debt like a drunken sailor. And, we have a set of resources that can develop the cash flow to allow us to pay for the above ideas. Just as importantly, as we make the transition we create a large amount of high-paying jobs. The bottom line is this solves a lot of problems.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
There are two ways to solve the economic problem that don't involve drilling off our coasts.
First, decriminalize all drug use and release persons in jail for possession. Second, allow legal cultivation of marijuana and encourage home production. Fund more research into THC and cannabinoids,which hundreds of studies show kill many types of cancer cells, as well as provide relief from numerous maladies. The government estimates the market for marijuana in the US at 35 billion annually. Right now, that is all untaxed. It is America's number one cash crop, ahead of corn and soybeans. Last year, in California, the legitimized medical marijuana industry brought in 2 billion.
Second, begin converting conventional agriculture to sustainable agriculture by implementing use of biochar made from agricultural waste. The process can also produce diesel. Biochar, (charcoal made at low temperature by pyrolysis)is a soil amendment that reduces fertilizer use by 10%, and increases soil life and fertility tremendously by creating the perfect home for mycorrhizal fungi. At UH they just turned sewage sludge into biochar, another exciting application.
Both of these can generate many new industries employing people in jobs that will sustain life without destroying the planet.
On the surface these seem like crazy ideas but as I researched them, especially the second one, they seems sound.
Biochar has the potential to remove most petro-carbons from commercial farming. Think about it. When they burn down a part of the rainforest, the resulting charcoal causes even the crappy soil to produce like crazy for a few years. What if we were to replace the char? Perpetual high yields without the chemical fertalizers [etc.] leaching into groundwater.
As for the MJ idea, I know Canada, who makes buckets of cash on BC bub, would not like the idea. I would save a bucket of cash on prisons.
With the dollar underwritten by property values and so many properties worth less than is outstanding on the mortgage the nation is in negative equity.
The idea sounds like a non starter to me.
http://greenteeth.blog.co.uk/2008/06/18/dear-darling-4332378
The best way to balance the budget is not debt service and inflicting misery...it's creating wealth..!
We need to reorganize our economy take what works best from other systems and once again establish a balance, balance and moderation are the key secrets to life and all things..this applies to our economy as well..
We've had unbridled capitalism that puts Corporations over people, they even gave corporations "personhood"..! How is a corporation a person..? It's not..!
We need to think as futurists...if we focus once again on the fact that the purpose of government is to Serve The People this will lead us out of the darkness..
It's not about Capitalism or Socialism it's about Serving the People and using what works..
For any issue or new resolution ask how does this Serve The People..?
darthdarcy
I fully agree with you, the resources and system most needing citizen-taxpayer help is that which builds America. However it has been proven time and time again (as in the Trickle-Down/Supply-Side fiasco), that most of this incentive and tax-monies goes instead to the wealthiest Corporations.
Most realize it was rape America went through during Trickle Down era. Also that it is actually "Small Business" that has always been backbone of taxes and jobs in America, and that instead should have been invested (incentives) in.
Today from deregulation and merges America is realizing the stranglehold these Mega Corp-Giants have over America (outsourcing factory/jobs and technology), literally today in control of the US-Gov... along with the influence of foriegn-gov's. We need to seriously curb and break up these Monopolies, capitalizing instead on what we do have building America, Small Business and American citizens.
Can you give me a point A to point B explanation of exactly how "unbridled capitalism" put corps over people?
I seet hat so much on this site but no one can ever give a clear explanation on how that comes about.
One example. Right work laws.
Your boss hands you a loaded gun and tells you to go kill his rival. You refuse and are fired on the spot. You have no recourse. Your boss can be charged if they can prove that he conspired to commit murder but it is unlikely. The company is considered uninvolved.
Further, it could even be company policy and the company would still be inculpable.
Corporations are considered people by supreme court decision, but they are never held accountable in criminal courts. They cannot be arrested but you and I can. They have, in essence, more rights than I do by that very fact.
I'm not sure about the unbridled capitalism thing, but I do know that regulation against predatory practices would have avoided the current mortgage crisis.
Great post Hale. Thanks.
Humans share a fundamental flaw: A difficulty in appropriately balancing immediate gratification with longer-term good. Humans will almost always choose the immediate gratification over defering immediate gratification in favor of saving and working toward a greater future good. This tendency can be overcome, but not without significant thought, planning, and most of all, self-control.
Americans either start thinking, start planning, and develop some self-control, or we, our children, and our grandchildren will pay a terrible price for our current failure to do so.
Our decisions today will effect not just us, but generations to come, it's time for some responsibility.
This national change starts with each individual.
Educate yourself, plan for a better future for you and your family, stop spending unnecessarily, start saving, and cultivate in yourself and your children the ability to say no to yourself when you need to. There are few greater things you could give to your children than an ability to exercise appropriate self-control.
"Theres a good life
Right across the green fields
And each generation
Stares at it from afar
But we keep no check
On our appetites
So the green fields turn to brown
Like paper in fire"
John Mellencamp
How selfish of me! I have been so wrapped up in myself that I have put my retirement, healthcare, my housing situation and my childrens education over Wallstreet payoffs.
We've been running 30 years on that cowboy worshipping 19th century idealism and Washington and the reminiscers have been avoiding reality.
Don't preach to me about my appetites when I see all of the money I worked hard for (and expended my health for) become consolidated into the hands of the few who have worked the least.
Don't try to push that Sean Hannity style, shame on yourself rhetoric on the American public who are being systematically evicted from their homes and dying of industrial era cancer while CEOs and clever investors upgrade their jets annually and occupy several multi-milllion dollar homes and spend more money on hookers than they are willing to pay their employees.
Let's talk more about "self control", - how is $9 trilion to occupy a country the size of California with no ROI. How about giving billions in tax cuts to the oil companies that are gouging us using Wallstreet manipulation?
Americans don't need lecturing, they need a better deal. The money is there, it's just in the hands of 1% of the worlds population. If you don't have any ideas on how to help Americans get a fair shake and hope for a decent life, don't preach to us.
That's funny. For being in the lower 99% and living in California my life is just fine. And so are the lives of just about everyone else I know.
I definitely think that our untapped oil reserves are a huge resource for new revenue that MUST be developed.
The Bakken field in North Dakota alone has the potential to generate $18 trillion of new revenue for our economy, and cut the price of oil in half.
This field is NOT controversial, like ANWR or the continental shelf are. However, with the new Global Warming hysteria, I wouldn't be surprised if we see a huge backlash from the left wing to try to prevent the hundreds of billions of barrels of oil in those fields from being recovered.
$18 trillion? USGS says there's at most 4.3 billion barrels, so even if the investment was only breakeven, you're saying oil will be over $4000 a barrel.
No, there are hundreds of billions of recoverable barrels of oil there. About 5 billion are recoverable with today's current technology. Much, much more is recoverable with modest improvements in technology.
It's disturbiing your relatively short paragraph professing 'all programs must be on the table' when it comes to spending cuts fails to provide any critcal view of Obama's spending proposals
Yep, the best way to save money is to stop spending it on new boondoggles.
But I don't blame Bonddad for what he said. It's a very brave thing to say 'everything is on the table'.
I'm still puzzled as to why something like Medicare, where the federal government has essentially a monopoly on it, can be allowed to continue growing like a rocket shooting into the stratosphere. I thought the whole point of a single payer system was to make health care delivery efficient?
The quality of care certainly isn't improving by 10% per year, so why should the bills keep going up by that much or more? I think it's evidence of too many bureaucrats who have said "This is off the table" for far too long.
MediCare grows by, for example, disallowing the Federal Government the opportunity to negotiate drug prices under Part D. That is the most ridiculous and expensive loophole the RepublicRats ever passed and signed! MediCare should pay the Lowest Price available to any buyer, as they insist in acute care in hospitals.
Why does Medicare keep going up? Because many older Americans who once would have been deemed not worth treating (too $$) are now receiving treatment for advanced cancer or heart failure. Where older Americans once suffered with near blindness because they could not afford cataract operations, now they are allowed to see. And where once a broken hip meant sure death within a year or two (if that long), now older Americans actually recover and live many more years (although breaking a hip is still the beginning of poor health for many).
Actually giving people health care is expensive.
A bitter pill to swallow - FOR THE UNDERCLASS! The Wallstreet Oligarchs who got us into this mess get richer from it.
Dear Bonddad, the people are tired of unchecked Capitalism, regardless of the smoke-an-mirror formulas and statistics.
"THERE ARE NO EASY ANSWERS TO THE OVERALL PROBLEM." - There sure as hell is. We can start with taking the money back from the snake-oil salesmen who now have it. Americans are tired of hearing the same "economist" formula bullshit peddled as a way to justify gross consolidation of wealth.
FDR reversed this course and gave Americans (90% who are the working class) decent lives for their hard work and patriotism, something you "free market" cheerleaders claim impossible now and tell lies about it not working previously. Well, it worked for 1/2 a century until Nixon, Reagan, Clinton switched systems in a midnight raid. When your masters took the New Deal from us, they put us straight back into slavery and poverty.
Consider your deal rejected. I'm giving the establishment a choice - bring back the New Deal or similar or I will be "outsourcing" my representatives and media from now on.
There's your "bitter pill".
A nice idea, but it's simply not going to happen. We're never going to see the sort of social reformism of the 1960s Great Society, let alone the 1930s New Deal, again in the US. I think the closest we'll stray in that direction is with federal legislation over healthcare, but even then (see Obama's universal coverage plan) we can expect it to be a huge giveaway for private insurance interests.
There's just not a constituency for the alternative in either party. The Democrats and Republicans really represent the financial elite in this country, and that class of people regard social reforms as both unviable and outdated and as infringements on their own economic self-interests. Expecting Wall Street oligarchs, who are Democrats just as often as Republicans, to disembowel themselves to better the lives of the majority of Americans isn't very realistic.
The real bitter pill in this story is coming to grips with the lack of a real political choice in this country. Lesser of two evils there may be, but if you're searching for a genuine political alternative then you're going to have to look outside the two party system.
Federal legislation over health care does not create new doctors. It does not create new nurses. It does not create new radiologists. It does not create ANY new personnel. So how does giving everyone free health insurance help if their are already not enough medical field employees. You think the waiting rooms are packed now? Wait until everyone has health insurance and there is no one to treat them in a timely manner.
Correction to your number. That 90% from above is more like 97%
Otherwise, I think that many of the tough choices DO include changing the entire makeup of our tax system. It is antiquated, no longer serves our needs and is in dire need of an overhaul.
Things that were not taxed historically to encourage growth are now mature businessess (like oil drilling leases and other fees in CA). Things that are emerging businesses that could use subsidies (like alternative energies) are getting nothing or a tiny drip-system of subsidies.
Many of the ideas from above will probably work. I think the time horizon is part of the problem. We need a short-term, middle-term and long term strategy here.
There are no silver bullets and if drilling is our best short term strategy then ok, let's discuss it.
Unchecked capitalism has raised our standard of living to unimaginable heights.
Have cared to look at unchecked government spending as the real culprit?
First on the list of programs to be cut are all those multi-billion dollar contracts of the war-profiteering, warmongering military-industrial complex. Start with a 25 percent cut in military spending, get rid of the joint strike fighter project (among others), and make our military more efficient and smarter. Keep the programs that are really needed (those that are beneficial to the troops instead of those wasteful, unnecessary programs that put billions in the pockets of corporations) and focus on intelligence so that we can respond with the right amount of force quickly and efficiently, and only when it actually affects national security, instead of using our military to create/assist regimes that serve U.S. corporations.
As for the jobs that will be lost by such cuts, transition the displaced work force to work on rebuilding our nation's crumbling infrastructure.
yep, you get it 73.
The MIC is where all our taxes go and don't benefit anyone except the corrupt few.
Best case, one could consider our massive military spending as a jobs program.
I suppose I should look up the numbers (of people employed).
MIC employs lots of technical people. Seems like those people shouldn't be
hard to retrain, esp since the military has been doing COST (consumer off the
shelf) for quite some time.
Bill Clinton cut the military and intelligence agencies. Then we had 9-11. Thank you very much.
OK, so let's say we open up drilling in Alaska.
Do we honestly think gas prices will go down?
And if they really did, then everybody would go, "oooh, whew. that was awful with those outrages gas prices. Now that I can afford to pay for gas again I am just going to take that extra money and put it into a SAVINGS account!"
Bullsh**.
They would go straight to freakin Walmart to buy another big screen TV.
We need to start investing time and money into what the future of this country needs to be with EDUCATION and ALTERNATIVE ENERGY. We need something to be proud of. We need to start exporting more than debt and tobacco. We need to inspire our children to want more than money and stuff for themselves. We need to reclaim power and have the balls to be innovative for the sake of innovation again and not for the sole purpose of obscene profit.
You are correct. You can't legislate responsibility.
Bitter pill to swallow? He says "We" but he means Gens X and Y. They're screwed, not you precious boomers. Don't worry, you'll all get your social security and never grow old. Cynical? You betcha! You'd be cynical too if you were of a shafted generation.
Totally agree. Best revenge for Gen X and Gen Y - underemployment. Why should I spend time working when so much of what I'd earn would be going either to go to pay off rich foreign investors or pay for the retirement and health care of people (boomers and the self-styled "Greatest Generation") who elected the bozos who got us into this mess. Why doesn't the U.S. just default on its debt and screw both of those constituencies? It's not like it would make the future anhy worse for Gen X and beyond.
Another Young Republican whiner who was spoiled rotten by his parents... Where are the moderators when we need them?
The boomers' SS is already bought and paid for. The SS trust fund is sufficient to cover the costs until most of the boomers are dead. And it is the boomers' money sitting in that fund. Most of it came out of their pay, not yours. But your beloved President told you otherwise and you swallowed it.
Furthermore, as boomers leave the job market there will be an abundance of jobs for gen-x and gen-y. Boomers, on the other hand, had to fight and claw to compete for jobs, and their relatively low wages reflected the glut of workers. So don't come here and whine about how tough you have it. Suck it up, move out of your parents home, and make a life for yourself.
I agree with some of your post but not the part about the SS trust fund being bought and paid for by boomers. The trust fund is an accounting gimmick. It was raided years ago by greedy pols interested only in getting re-elected.
One problem I see is that we assume that the job/employment set is limited to the US.
I don't believe additional training/eductaion will be of much use -- why train more engineers, programmers, scientists, etc. when US Corporations are already moving those jobs to India, China, Brazil, and other countries who have people just as bright/educated, but making 1/6th or less what an American would get?
I believe that as long as the US allows Corporations to exploit 3rd-world country labour, the American job situation will continue to deteriorate. Remember, "Labour" is no longer limited to "jobs requiring physical labour."
Why is that exploiting? FYI, America has lost it's hunger for success and the emerging countries are now what we were when growing.
You're absolutely right, which makes the way Dems call for universal college for all at the same time that they're fighting for 400,000+ annual H1B visas for highly skilled foreign workers to flood the country so galling.
Why educate and train people when you're swamping them with foreign competition that will drive down their wages, reduce their benefits, and raise their expected workload?
Why hire a fresh US grad, train them in house, and pay them 100k per year to work 40 hours per week when you have 50 other Indian and Chinese H1B visa workers that don't need training, and are willing to take 50k per year and work 80 hours per week?
And yet, that's exactly where the juxtaposition of education hype along with flooding the country with highly skilled immigrants gets us.
If you think training Americans is the solution, then you better simultaneously reduce the flood of competitors coming into the country so they have a decent job once they finish.
They are not as bright, educated, they are just cheaper. I have to deal with H1-Bs on a regular basis in my job and they are usually very unskilled and unmotivated.
However, they work for pennies on the dollar so they hire more of them and employers usually exploit the talented, now way underpaid as consultants to spend 100% of their time correcting the immigrants screw-ups.
I would really like to go to India and turn my 9th grade report-card into and MBA.
I know a scientist that hired an H1B visa person as a technician. He couldn't speak English at all. He routinely screwed up pretty much everything for about a year. But he worked pretty hard. She was the type that watched everything he did over his shoulder. Most other people that worked for this person were very bothered by her micromanagement and would quit. But now after 5 years, the guy is good at what he does. He can speak English now, though he still has a pretty heavy accent. And the two of them argue like an old married couple. She renews his visa now, saying he is 'irreplaceable'. He has published several scientific papers now, written by her, even though he doesn't understand the science behind it. He probably couldn't read his own papers and explain what they mean, let alone write them.
Perhaps he's 'irreplaceable' now, but when he was first hired, you could pretty much have scooped any American off the streets and they would have been just as capable of achieving the same level of expertise, if they could have endured this lady's personality anyway.
But I've often wondered why she had to hire someone from China to do this. Personally, I think it's because with the threat of deportation hanging over their head, they can be abused in ways that American's wouldn't put up with.
Yep. CEOs and corporate board members who pursue that path should be stripped of US citizenship and deported to the countries where they export jobs.
Perhaps there should be a new amendment to the constitution declaring that elected officials will be responsible for a percentage of the national debt that they incur.
You forgot the most important way to transform from a debt to an equity economy. Retirement reform.
We owe ~$87 trillion in unpaid bills for SS and Medicare. Every child born is handed ~$30k of the national debt, and ~$200k of retirement bills.
If we reform retirement funding, we can change that. I have 3-4 decades to plan my retirement. I've already started a 401k and IRA. But the government takes my FICA taxes and immediately sends them to retirees. They don't set aside one cent for me.
Rather than receiving compound interest over 50 years, we pay compound interest on the trust funds. We can never get ahead, because the system is structurally flawed.
Bush proposed ONE solution. If implemented, we would be better off for it. Instead of trillions in bills, we'd have trillions in future surpluses.
But there are other ways. I think a "baby bond" solution would work. We could give every child a $10k retirement account upon birth. Nobody could withdraw from it or borrow against it, including the government. It would be invested in a highly diversified international portfolio. It would grow for ~70 years until retirement, then they could choose the traditional systems, or take the money. If they don't take the money, it gets put back into the pot for others.
"But the government takes my FICA taxes and immediately sends them to retirees. They don't set aside one cent for me."
That's how the system is designed to work! We take care of our parents and our children take care of us. At inception it enabled the country to eliminate poverty among the elderly almost overnight - it was a brilliant plan that continues to work. Obama has a plan to bolster the program to insure that the program is alive and well when you need it. Bush and Republicans want to destroy the plan - they have always opposed it.
You're buying into Karl Rove talking points. The "ideas" you espouse are part of a plan to steal from the poor and give to the rich. You are being duped.
It's a DEBT BASED system. My point is that we can transition to a EQUITY BASED system without much pain, and the rewards would be immense.
I simply cannot justify telling my young children, their unborn children, and perhaps their unborn grandchildren that they have to pay my way, when I have literally decades to pay my own way. Burdening young kids with hundreds of thousands of dollars of unpaid liabilities is a crime against humanity, as far as I'm concerned.
If I go into bankruptcy, they don't burden my kids with the bills. Sure, they might not get anything as an inheritance, but they're not going to pass on my bad debts to them. But the government has no problem whatsoever in doing so. It's horrible.
At inception, it worked well because there were 10 workers for every retiree, and those retirees died within 36 months of the time they stopped working. Now that there are and will continue to be more retirees than workers, and those retirees are rather inconveniently staying alive 25-35 years after they stop working, there's a crisis. Obama's 'solution' places the financial burden where it will hurt the most- on working families who have managed to gain a bit of financial security. The risk takers who leave a good paying job to take a risk to create a small business- the kind of businesses that employ the majority of Americans. Social Security is a Ponzi scheme that unfortunately worked for a time, and now many view as too important to lose. We need forced savings- compound interest over a lifetime of savings is the road to a comfortable retirement- take a look at the municipalites in Texas that opted out of the Social Security program if you're not convinced (or perhaps ask your congressman, who has also opted out). Do not burden a working family with a tax when they could be applying that resource to their own retirement.
"I would argue against raising taxes immediately because of the current slowing of the overall economy."
Where is the data to support this supposition? In any other science, one contrary observation would be enough to reject this hypothesis, but in economics, people keep repeating this as if it's fact despite our having TWO contrary data points in the last 30 years. Reagan and Clinton both increased taxes and the economy boomed.
So where's the data?
I think that raising taxes can be a boon to the economy, IF AND ONLY IF every dollar of that new tax revenue is used to reduce the deficit. That's what Clinton did.
Raising taxes and simultaneously raising spending by an equal or greater amount as Obama is proposing is perhaps the worst possible thing we can do for the economy today.
Obama didn't say he would increase spending. Fox News said that Obama would increase spending. It would be almost impossible now to find anything that we aren't already flushing money down.
I disagree with the "IF AND ONLY IF." I also believe that if the money is invested in things that give a return, e.g. infrastructure and education, that can also be a boon.
Clinton also benefited from the "peace dividend," so it wasn't just the higher taxes that allowed him to reduce the deficit. He was able to cut the growth in spending in half.
Hale,
Perhaps drilling for oil makes sense, but my understanding is that we are unlikely to discover any substantial deposits. What we do extract will make some people very rich (actually a few wealthy people even wealthier), but it is not likely to be much more than a holding action. In the studies on peak oil that I have seen there is far too much emphasis on anticipating the peak event and not nearly enough on its consequences. If we can make a rapid move to alternative fuels then the peak become far less significant. If we can't then we all have a good idea of what the future holds.
We need to cut our oil consumption and develop alternative energy sources. Drilling for more oil might be a means to that end, but if it isn't then why do it? We need to move toward an alternative energy economy as soon as possible - the transition coiuld not be too precipitate.
You must be logged in to comment. Log in or connect with
