POSITIVE TRENDS

We have been through a long period in which the economic news has been far more bad than good. The 2008 financial crisis left us in dire straits, conditions that I believe many Americans do not appreciate. Most of us understand that things have not been good, but the effects of the crisis are not fully appreciated. We, by and large, have not taken into account how much government policy has avoided the full consequences of those conditions of '08. The Recovery Act, the bailout of AIG, and the rescue of the auto industries saved hundreds of thousands of jobs directly and probably millions if one considers all of the possible effects. Of course, trying to prove all that is to prove a negative. The fact is we didn't lose all those jobs and so we will never know how bad things could have been. But for those of you who are interested, compare the relative numbers of jobs lost in this latest crisis with those resulting from the financial crisis of 1929 and you can see why many believe we skirted a depression of the magnitude of the 1930s.

But now in 2013, where are we? Is there reason to be optimistic for the coming years? Where will we be in ten years? Lately, I read two articles that give me a good dose of optimism. Warning; I am not an economist, but if I were teaching economics today – as I did during my teaching career – I would share with my students these two articles that report on two separate fundamental areas of the economy. These two areas have been problem areas and, given their weaknesses, have been instrumental in creating the conditions that contributed to first, the crisis and second, our inability to bounce right out of the resulting recession.

The first article is by Adam Davidson and is entitled Welcome to Saudi Albany?¹ It reports on the inordinate number of deposits of fossil fuels across many areas here in the United States. The deposits promise to make our nation energy independent. I recommend the article to you. The second article is by Charles Fishman and is entitled The Insourcing Boom.² I recommend it and want to make a few comments in this posting regarding its content.

This second article I found not only optimistic, but also providing evidence supporting a recurring claim I have made in this blog. Overall, the article gives a helpful and highly understandable review of this nation's manufacturing history since 1960. It describes the cycle our manufacturing sector went through in which it first soared and then went into decline. The prime reason for its decline is attributed to our high labor wages and contentious labor union relations. Due to a host of reasons, not the least of which are studies showing that in many industries, given all the added costs with outsourcing jobs to nations such as China, no savings have been realized. The article lists the factors that of late have encouraged many of our larger manufacturing corporations to begin moving their operations back to the US. It focuses on the decisions that GE has made. One of the factors that GE and many other firms have relied on in making their moves profitable is changing their assembly line strategies. It is this change that reflects what I have been referring to in past postings.

I have stated that many businesses in the private sector have adopted more collaborative strategies in their production processes. Read the following description of how GE's GeoSpring project has changed in its appliance division:

The GeoSpring project had a more collegial tone. The “big room” had design engineers assigned to it, but also manufacturing engineers, line workers, staff from marketing and sales – no management-labor friction, just a group of people with different perspectives, tackling a crucial problem.

“We got the water heater into the room, and the first thing [the group] said to us was 'This is just a mess … .'” Not the product, but the design. “In terms of manufacturability, it was terrible.”

The GeoSpring suffered from an advanced-technology version of “IKEA Syndrome.” It was so hard to assemble that no one in the big room wanted to make it. Instead they redesigned it. The team eliminated 1 out of every 5 parts. It cut the cost of the materials by 25 percent. … [B]y having those workers right at the table, looking at the design as it was drawn – the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.³

To me, this description encapsulates the strengths of federalist thinking. The business types who organized their efforts in this fashion will not use the term federalism to name what they are doing, but that's how I see this process. It demonstrates the power of federating oneself with others to tackle demanding problems. I am encouraged by this article and believe, if it is describing enough of a trend among businesses in the manufacturing sector, that it portends a healthy development for our economy in the future.

1Davidson, A. (2012). Welcome to Saudi Albany? The New York Times Magazine, December 16, pp. 20 & 22.

2Fishman, C. (2012). The insourcing boom. The Atlantic, December, pp. 44-52.

3Ibid., pp. 48-49.

ATTACKS ON A VENERABLE AGREEMENT

In this last posting for 2012, I would like to make a quick comment on the fiscal cliff. As I write these words, the President and Congress are trying to hammer out a compromise to avoid the cliff. Of all the “disastrous” outcomes resulting from going over this cliff, I believe the elimination of unemployment benefits for the long term unemployed is the worst. This is unconscionable. Beyond its immorality is the fact that it adds to the narrative many have been speaking and writing about; i. e., that the one percent has created a social system that has abandoned what long had been the tacit agreement between the economic classes. That agreement was that the rich were permitted to do those things necessary to create their wealth in exchange for an economy that provided the jobs and income that allowed a middle class to be established and maintained. The deal also included opportunities that if pursued through education, hard work, and yes, some luck, would provide some entry into the upper income class. While I don't believe this agreement has been totally abandoned, it has come under severe challenges.

Joseph E. Stiglitz¹ argues that in the past recent decades, this deal has eroded away and a new agreement has taken its place. Let me apply the perspective I have been developing in this blog to what Stiglitz highlights. What I see is that after World War II, through the fifties, sixties, and into the seventies, the weakening perspective of federalism finally lost a hold over our ideal visions of what governance and politics should be. In its place, we have had the ascendance of what I have been calling the natural rights construct (or the classical liberal view, as it is known in philosophical circles). There are those among us, like those who are known as libertarians, who even radicalize its tenets. This view, through the years, had become more and more popular. Finally, those most enamored by its message of liberty were rewarded by the election of its most noted standard bearer, the trans-formative president – Ronald Reagan. And with his election, Reagan and his Reagan Republicans have been able to implement their preferences in many areas of public policy. For example, labor unions, that have played such an essential role in creating the middle class among the working class, have been the target of anti-union policies – the latest being experienced in Wisconsin and Michigan.

The work of the natural rights advocates has not been a small project. For one thing, they have to undo the mountain of public policy we generally call the New Deal. This was the plethora of programs and benefits the federal government put in place to meet the challenges of the Great Depression. I always taught my students a way to get a handle on all these specific policy initiatives was to think of three Rs: Relief, Recovery, and Reform. Not original with me, this handle categorizes the three major aims of the New Deal: address the human needs of those who were in dire distress due to the severity of the depression, get the economy turned around and headed towards prosperity, and put into place those programs and regulations that would, at least in theory, prevent a recurrence of another depression.

But all of this – and it was not accomplished without a lot of opposition from the conservatives of the time – could not have been done without an underlying understanding among the citizenry that this nation was one based on a congregational commitment. This commitment placed a mutual responsibility on the shoulders of each citizen for the welfare of every other citizen. The reforms of the New Deal were based on the realization that the older vision of this mutual responsibility was no longer viable. That vision primarily placed responsibilities on private charities and religious organizations. With the rise of the corporation which revolutionized our whole economic structure, the nation could no longer rely on such private agents that mostly operated in the context of a rural society. By the 1930s, our urban based labor class needed government to respond to an emergency such as the Great Depression. And so the New Deal was instituted and, by and large, we still live under its protection.

But today, too many of us have obliterated this conception of mutually responsible citizenry. Slowly but surely, without such a strong sense for the commitment, many of the elements of the New Deal have been scaled back or are under attack. Even the most cherished programs, such as Social Security, have been threatened by formal proposals from those who most ardently voice the principles of the natural rights construct. And I will end this year by stating as simply as I can, that civics education with its adoption of the natural rights perspective as its main guide toward determining its content, has helped enable these attempts to transform our basic and historically honored agreement.

1Stiglitz, J. E. (2012). The price of inequality: How today's divided society endangers our future. New York, NY: W. W. Norton and Company.