I’m beginning to see a number of articles cropping up on economic stagnation in the United States. Between the two articles I’ve read today there are five charts: per capita health care spending, rent as a percentage of median income, changes in sales concentration from 1982 to 2012, corporate birth death rates, and share of employment by new firms. Here’s a snippet from the article by Charles Hughes at E21:
The American economy is stagnating. The creative destruction of old businesses exiting and new ones starting up has slowed. Fewer people are working at new companies. These trends have only accelerated post-recession. Many of the fresh new entrants hailed as disruptive startups, such as Uber and Facebook, have been on the scene for a decade or more.
This stagnation reduces the amount of competition and the rate that new ideas are introduced. Economic growth and individual workers both suffer as a result. How much have things slowed down, and can anything reverse it?
while here’s a sample of the article by Noah Smith at Bloomberg View:
What can be done about Amerisclerosis? There was hope in some circles that President Donald Trump would follow through on his campaign pledge to restore U.S. competitiveness and efficiency. It’s still early in his presidency, but so far little movement in that direction has materialized.
There is no obvious solution on the horizon. But as with Europe and Japan in the 1990s, the crucial first step is to recognize the severity of the problem. A general awareness of sclerosis is helpful in generating the urgency to find solutions at all levels of society — government, business and community.
The charts provide some hints on the contours of the “obvious solution”. They’re not that difficult to recognize:
- We need more basic production in the U. S. not less. Too little basic production makes it very hard for the U. S. economy to recover after an economic downturn.
- Stop subsidizing big companies. Help workers, consumers, and small businesses rather than big businesses. In particular stop subsidizing big banks and financial institutions. Break up monopolies.
- Slow the subsidies to health care. The Congress knew that was necessary 20 years ago; they just didn’t have the guts to follow through.
- Reduce the deadweight loss of government. That doesn’t mean a return to the world of The Octopus or The Jungle. It means distinguishing between the regulations that we want and need and those that aren’t working, aren’t necessary, or not wanted.
I also think it means less military adventurism but I appear to be in the minority on that.
Our present economic conditions are not laws of physics. They’re the results of decisions, of policies. In aggregate those decisions have resulted in an enormous concentration of wealth in very few hands and stagnation everywhere else. To change the present tack or, more accurately, doldrums, we’ve got to make some different choices.
You raise a point I want to draw attention to: when demand is being satisfied by imports it reduces both the will and opportunity to invest domestically.
Add to this that many businesses once reliant on making things people want are now essentially banks; they can get profits more easily thro7lugh finacial chicanary than slogging through R&D and earning the trust of a customer base.
That’s something I’ve been whining about for more than a decade. Keynes’s model for dealing with inadequate aggregate demand works fine when a) governments act quickly; and b) countries actually produce the things that it’s people buy.
I believe that the scholarship of the future will show pretty clearly that American fiscal stimulus has mostly boosted the economies of other countries. It’s a globalized economy now and we have no mechanisms for dealing with it.
The additional factor that I want to point out to you is that when there are sectors that are heavily subsidized by the government but not owned by it investment will inevitably be drawn into those sectors and out of the sectors that don’t receive subsidies. Everybody likes betting on a sure thing.
To a large extent that’s because we are doing the wrong stimulus when we are willing to do stimulus at all. Tax cuts do nothing compared to an increase in unemployment benefits, or a WPA type program, where the stimulus goes to people who are going to spend it.
Any monies spent on a stimulus will eventually end up in the hands of the upper 0.1% (foreign or domestic), but we aren’t maximizing the numbers of hands it passes through before it gets there.
You are right about the military interventionism and Trump risks getting mired in Saudi war crimes in Yemen, Israeli-motivated war crimes in Syria, and m-i complex war crimes in Afghanistan. Russian dignitaries have just noted none of Afghanistan’s neighbors wish a continued American occupation there.
To say nothing about Mosul where war crimes run amok and rumor has it Trump will attempt to turn the Iraqi government against its naturally Iranian ally.
Hopefully Rand Paul is warning him about this today as he is meeting with him, and not content to discuss health care.
It’s not just tax cuts. When most of the things that poor people buy other than the rents they pay are made in China or grown in Mexico or Chile, no form of stimulus is as effective as if we were doing more basic production.
An interesting set of comments, but all leave out two intertwined issues.
People don’t produce here because the cost to produce elsewhere is cheaper, and consumers will by so many goods on price. You produce here at great peril. Consumers have become accustomed and reliant on relatively cheap foreign goods.
The usual retort is that domestic production will lead to jobs for people who can then afford the more expensive domestically produced goods. This is way too simplistic. After all, how did the opposite occur in the first place. But let’s set that aside. We have what we have today. How do we get from here to there?
My eyes were caught by the graph showing rent as a percentage of income — it went up continuously, even during the recession.
Certainly matches up with something I said to friends, its not engineers at microsoft, amazon, google, facebook, apple who are making fortunes — its the landlords and owners of land in Seattle and San Francisco.
Additive manufacturing means that at some point the cost of transportation will be a more significant factor in cost than labor.
Let me give an example of what I mean. Without China’s official policy of food independence we’d be selling a lot more agricultural produce to China, particularly wheat, rice, and soy. Not to mention pork and chicken (China has caps on the amount of chicken it will import from us). Since the U. S. is the 500 lb. gorilla of agricultural equipment manufacturing, we’d probably start manufacturing more farm equipment, too. At least at the margins producing more steel, mining more coal and iron. All basic production.
Properly understood, the financial sector is simply manufacturing money. Manufacturing money has much less overhead than the overhead of goods and services, and the finished goods are then used as the raw material for manufacturing more money.
For fractional reserve lending to be useful, existing money must be leveraged to create new money, and with the lifting of regulations designed to limit the leveraging abilities of financial factories, we have “Bankers Gone Wild”. These “bankers” are not limited to the traditional banks.
Limiting credit creation will result in two effects. First, lending will be reduced because of the restrictions of creating “safe” credit. Second, manufacturing non-regulated credit will become substantially riskier. There will be no safety net for investment credit.
These two effects will cause additional effects. It will be more difficult for consumers to obtain debt, and therefore, credit creation will have a lower return. Because the financial industry has become a less safe environment, investors will need to invest in real production or bury their cash in the backyard.
(Because money is backed by credit, any dollars on any ledger will be used in one way or another. Refusing to invest does not mean that it will not be invested. Banks either use these non-invested dollars as raw goods in their manufacturing process, or they will charge a service fee if they cannot use the money. Except as cash, it can never be “un-invested”.)
Debt-free consumers cannot consume at the rate debt burdened consumers can, and trade-deficit dollars will have limited uses in the US. Financial investments will be either more risky or less profitable, and US debt is limited to the amount purchased by the government. More simply, the credit creation and debt purchase processes will be profoundly disrupted.
Investing in unconventional ways will be disrupted, also. As more money is invested in property, art, beanie babies, baseball cards, etc., the investments will increase in price but not value, and at some point, the top will be reached negating any returns. Due to the nature of credit-backed money, most schemes will fail.