Fixing American – Meeting Challenges

05/05/2017 03:36 pm ET

The underlying challenge is to reinvigorate the American Dream, that anyone with hard work can do well in life. The post-war years had seen prosperity spread broadly over the nation as the economy grew substantially. But in recent years, the dream has not done well, in particular as the job market has shrunk. Unemployment levels have been relatively low, but this is partly due to definitions of unemployment. A more accurate measure of how many Americans are working is the labor-force participation rate: the percentage of all working-age adults who are currently employed. That figure hit a peak of just over 67 percent in 2000 and has since fallen to around 63 percent today. America is now home to more than 7 million jobless men between the ages of 25 and 54, the traditional prime of working life. Overall, compensation is dropping and it is increasingly difficult for workers to earn a living wage. At the same time, America has one of the highest incarceration rates in the world, while over half a million people are homeless.

As the American Dream has faded, some of the causes are obvious, such as a shift of manufacturing plants overseas. But a number of purported causes, such as the presence of illegal aliens or the threat of Islamic radicalism, actually have a minimal impact on the economy. Focusing on such superficial problems mainly serves to distract attention from the underlying challenges. All of these are complex and even intractable; none are amenable to short-term solutions. Some of these challenges predate the republic, others are arising from rapidly changing economic and social conditions. These central challenges include:

  • Deciding who belongs to “We the people..” Initially it was strictly white Christian males. Even Thomas Jefferson, the author of the stirring words that “all men are created equal,” talked of exterminating Native Americans and was himself a slaveholder, as was George Washington. Native Americans remain repressed to this day. The Civil War resolved the slavery question, but it took another 100 years to resolve major racist legal restrictions. Racist remnants range from voting restrictions and limited economic opportunities to groups actively insisting that America should only be a white Christian nation.
  • Deciding how immigrants fit into America. Over a century ago, an influx of Chinese laborers on rail and infrastructure development spawned a backlash. Nevertheless, America has welcomed millions, putting into practice the inscription on the Statue of Liberty, the physical embodiment of America's Beacon of Freedom: "Give me your tired, your poor, your huddled masses yearning to breathe free..." America became a Melting Pot, or more accurately a stew of complementary elements. Real assimilation typically took a couple generations, but immigrants all wanted to become Americans. Yet now the conditions that welcomed the earlier huddled masses no longer exist. The open West faded away long ago as did a vibrant, growing economy in constant need of fresh labor. The new huddled masses can fit into the economy only at the very lowest levels. Without a Ladder of Success they are stuck in a stagnant underclass. Acutely aware there is no American Dream for them, many do not even seek to become Americans. In fact, it is becoming increasingly difficult to even define what it means to be an American.
  • Reassessing corporate responsibilities. Corporations are the main economic engine of society. The government sets the framework they operate in and expects them to support society as a whole, all their stakeholders: government, owners, workers, customers and the communities where they work. Taxes provide revenue to the government while regulations set their operating parameters. Unfortunately there has been increasing acceptance of Milton Friedman's assertion that "there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.” This has legitimized a widespread belief that shareholders have every right to take care of themselves first and has helped spur pressures to eliminate regulations as a drain on profits, ignoring the fact they they provide critical protections for both workers and society at large. Results have included the shift of manufacturing to overseas locations and a very significant rise in executive compensation.
  • Addressing technology changes. Some time ago that meant the cotton gin and steam engines; then radio and airplanes. Now the internet and computers are changing the economy so fast it is difficult to even keep up with what is happening. A major impact is the automation of jobs, from toll takers to assembly workers, secretaries to research assistants. In the near future, millions of drivers for trucks and taxis may no longer be needed. Exacerbating the problem, residual jobs often use less skilled (lower pay) workers. Brick and mortar stores dwindle as on-line sales climb. Mandating shorter work weeks, longer vacations, and more family leave could slightly increase the number of jobs, and losses in the production sector could be compensated to some extent with increases in the service sector. But the overall trend is clear – the future economy will need fewer and fewer workers. How to meet this challenge is unclear. One suggestion has been for a Universal Basic Income, but there is no clear proposal on how to do this.
  • Dealing with climate change. This is a difficult topic to address as it is unclear exactly what the scope will be and the extent to which human action is responsible. Nonetheless, it is clear that major changes are already happening. And there is a potential for devastating impacts on coastal areas, as well as major changes in water, agricultural and storm patterns. It has also spurred major technological shifts, especially in energy supply. Coal use has plummeted, fossil fuels are increasingly stressed, while wind and solar continue to expand. This has resulted in major shifts in profitability for some of the largest corporations in the world, as well as major shifts in job profiles. Not surprisingly, many are bitterly opposing changes, often denying that anything is even needed. A latest example is the highly publicized effort to reinvigorate the coal industry with negligible effort to help workers transition into other economic fields.
  • Limiting wealth accumulation. This is also a difficult topic to address as a basic element of the American Dream has been the opportunity to work hard and get rich. But the problem that the country faces now is that too many people have gotten to be too rich, often with minimal contribution to society; they hold assets that society needs. There badly needs to be a social discussion and general agreement on what constitutes excessive wealth and how to go about limiting it. And this is obviously a conversation that the very rich would very much like to discourage.
  • Paying for some one else. The recent health care reform effort highlighted the difficulty in determining the extent to which society is responsible to pay for those who cannot, including disabled, sick, mentally ill, hungry children, homeless and unemployed. The basic social attitude is that those lucky enough to not have to face such conditions are obligated to help those less fortunate. But it is difficult to make the case when a situation is due to a person's own actions, as when decades of unhealthy living lead to diabetes, or when poor work habits leave someone unable to pay for extensive (and expensive) end-of-life care. Worse yet, some people game the system, feigning disability or claiming nonexistent job searches. This is also an area where society needs to establish reasonable criteria.
  • Accepting a steady-state economy. Businesses are under constant pressure to grow. Stock market growth and asset appreciation drive much economic activity. But much of this growth does not represent real increases in value, but only in valuation, and this clearly benefits mostly those who already have money. Growth clearly cannot continue indefinitely. Indeed, if it were not for immigration, the American population would have leveled off some time ago, as it already has in much of the Industrialized World. A steady-state economy does not have to be stagnant; its dynamism can come from newer businesses and technologies constantly replacing older ones, but not necessarily growing. So, for example, utility companies were attractive investments for many years, even though they grew little, if at all. But they provided steady and reliable service, as well as steady and reliable jobs and steady and reliable profits.
  • Controlling the financial system. Originally set up to provide resources to businesses, the financial system has gradually become simply a means of extracting wealth from the economy. An ultimate example is High Frequency Trading in which buying and selling at millisecond intervals allows specially equipped traders to skim money off the stock market without any contribution at all to society. As in any economic sphere, consolidation allows economies of scale, but also provides a potential for domination. Financial institutions use a wide variety of instruments, such as bundled mortgages, to gamble with customer assets. This was a central contributor to the 2008 real estate bubble but their status as “too big to fail” got them government subsidies to recover. And their huge customer base means that seemingly small individual charges get consolidated into major income streams, supporting out-sized salaries and benefits for many financial executives.

These complex and interwoven challenges are the main causes of an economy that fails to promote general prosperity while supporting wealth capture at the top. In the end, all politics is not only local, but personal, with decision-makers understandably reluctant to take actions which hurt them individually and inclined to “trade favors” with others. Democratic institutions become more and more encrusted with legacy procedures and democracy becomes more and more unresponsive to the general welfare. This is democratic sclerosis, a disease characterized by increasing difficulty in performing routine tasks as a body's systems simply become hardened and no longer function efficiently. Vested interests naturally resist change. But this does not simply apply to a handful of rich or powerful constituents, but to thousands, millions, of everyday people who also protect their own individual interests, particularly personal, short-term interests. Millions of people have vested interests in specific aspects of legislation and can respond with loud campaigns (often orchestrated by major interest groups) in regard to some specific legislative effort with few, if any, voices speaking for broad public interests. Even more bothersome is that much favorable treatment is invisible to the average citizen, buried deeply in obscure sections of laws or regulations.

Top politicians, often reflecting business interests, provide realistic-sounding rationalizations – “trickle-down” economics, estate taxes as ”death taxes,” or regulations as stifling commerce - for favorable legislative treatment. It is easy to blame self-centered politicians for slighting the underlying challenges listed above. At the top of the list, racial discrimination is particularly difficult for politicians to address, especially in some parts of the country. But the more the economy deteriorates, the harder it becomes. So failure to address the challenges at the bottom of the list exacerbates the ones at the top of the list. In the end, the fault is not with the politicians, but with the people who have elected them. In the immortal words of Pogo, “we have met the enemy and he is us.”

Yet “us” is not everyone, but mainly the favored classes who for years lived in the comfort of their own environment with little attention to trends slowly undermining the nation, becoming active civically only when the problems reached down to them personally. This is well illustrated by a recent article of workers protesting the moving of the Rexnord Bearings plant from Indianapolis to Mexico. It is an unfortunate situation to be sure, but reflects a logical culmination of years of inattention to trends, then a desperate effort to cling to disappearing jobs and finally dismay at their disappearance. In contrast, a neighboring Carrier plant has largely remained open. But jobs there are also disappearing due to automation. Only now are people beginning to plan, and train, for a new future.

Addressing these challenges requires first of all broad civic involvement by the citizenry. Lacking that, it is hard to see how a broad prosperity could once again spread over the nation.

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