The Economy - Part III

In the late eighties and early nineties several enormous changes in the global economic picture began occuring which would have tremondous impact on American society. Among those were: the recovery of much of the world from the damaging effects of WWII, as evidenced in the growing economic and political strength of the European Union and the developing countries of southeast Asia, including the growth of market capitalism in South America; the mass utilization personal computing and its impact on global capital flows, transportation and logistics, as well as manufacturing; the end of communism and the sudden approximate doubling of the global labor force, which driven by free trade, essentially "devalued" much of the American work force.

The combined influence of these differing factors equated to "a perfect storm" for the American worker. To illustrate this, I would turn to the "piece of the pie" analogy frequently used. At any given moment, the global economy may be seen as a large pie, with each country possessing a slice of the pie, determined by the size and strength of its national economy [Note: This is an "old economy" analogy. Today, it might be difficult to determine exactly where one slice differs from the next.] Following WWII, the U.S. had more than fifty percent of the entire pie. We wisely understood, that such dominance was not to our long term benefit and would undoubtedly lead to additional wars and global instability if we did not help in dividing the pie more equally.

The trick in doing this while simultaneously allowing your share of the pie to either remain the same or grow slightly larger is to increase the size of the total pie - or the global economy - over time, and this is largely what has occured. Developing countries such as China, India, Russia have tended to grow at a faster rate than the Developed countries of Western Europe and the United States. While good Chinese growth in Gross Domestic Product is roughly 10%, reasonable U.S. growth is around 5%.

This does mean that all else being equal, the global economy will become roughly the same over time. This doesn't mean everyone will be equal, but that the extremes of wealth and poverty will be reduced and tend toward a more or less stable "middle."

With all of our dissatisfaction about our own system, the corruption that has crept in, etc., it is extremely important to understand that "sharing the wealth" of the planet has been a deliberate and intentional bi-partisan goal from Harry Truman to George Bush. And, that this "sharing" and promotion of global economic growth is seen as an alternative to World Wars.

In my opinion, this policy is unique in human history and represents a major step forward in human development and away from the laws of the jungle and the survival of the fittest. It is, in essence, an extension of the idea of social contract. And, although I do not agree with many aspects of the Bush Doctrine, its basis...i.e. stable and peaceful democratic societies adhereing to a democratic-capitalistic economic system, in which everyone gains. [George just uses the laws of the jungle to get there.]

Our present dilemma - i.e. the threat of global economic collapse - lies in trying to take "short-cuts" to the end goal. Short-cuts in the form of everything from pre-emptive war to economic policies that negatively impact the American economy.

In the great scheme of global economics, historically, economies are initially built on exports. In other words, initially, workers do not have the money to purchase the very goods they produce. They achieve this through exports, accumulating savings, financing their own development, creating economic strength and a middle class, eventually evolving into a mature economy.

Participating in this global system, the United States shipped so-called "obsolete jobs" overseas, anticipating that those jobs would be replaced by new jobs in the New Economy. The new economy jobs were to be found in three major areas: services and high tech products. Services had two basic components: low wage retail service workers, ranging from store clerks, to restaurant workers, to yard mowers and higher paid financial services workers. Segments of the financial services and high tech categories (as well as the entertainment industry) were to provide the "export" segment of the American economy. We called it the New Economy or the Post Industrial Economy.

In this, however, three critical mistakes were made: a failure to comprehend the extent of failure in the American education system; a failure to control borders and virtually unlimited illegal immigration; and a failure to understand how easily the "new technology" transferred across borders. Failure to adjust free trade policies and the flight of American manufacturing jobs abroad to these realities coupled with a failure to obtain intellectual property rights to protect our high tech innovations suddenly left a situation wherein instead of remaining the same or slighly increasing, the average American's "slice of the pie" began getting smaller.

Much of this began during the Clinton Administration. Falling real exports, due to these factors, led to the alternative of attracting foreign investment. If we couldn't compete in the global import-export market effectively, we'd make it up by "selling a piece of America itself." This, in turn, meant that the U.S. consumer market had to remain strong, in the face of falling or stagnate wages. The means for achieving this was through cheap money and easy credit.

In this manner, the total U.S. economy continued to look good to voters and foreign investors, while in reality we began to build the house of cards. Rather than being based on the production of actual goods and services, GDP growth now became dependent on "over-valued assets." It hit first with the dot.com bubble under Clinton and the housing bubble under Bush.

Next comes: If cutting taxes in time of economic decline is stupid, cutting taxes in time of war is self-destructive.