Before getting into this posting’s business, this writer
hopes that all the readers of this blog enjoyed the Fourth. In a time of noted division among the
electorate, the nation’s shared holidays take on a more strident quality. Hopefully, yesterday served to encourage a
spirit of unity.
And now to the business of this
posting. Inevitably, civics teachers must
deal with economic information. When
this writer taught seniors in high school, the last year being 2000, Florida
mandated that these students take one semester course in American government
and one semester in economics. The
economics course was one that approached the subject from the macroeconomic
perspective. But even the government
course would have to deal with economic factors and developments that affect
the nation.
For example,
when dealing with interest groups and lobbyists, there are business and labor
groups that sponsor lobbying efforts to influence public policy. Surely, given the current political array of
issues, one that dominates a lot of media attention is how economic development
affects civic matters and, therefore, calls upon citizens to pay attention to
the state of the economy. One
issue: there has been a great deal of
political action and consequent governmental concern over the state of
depressed wages among many Americans.
Some attribute
Trump’s election to the presidency as being an expression of this concern. His ability to win states in what is commonly
referred to as the rust belt, directly reflects the discontent with the paucity
of good paying jobs, jobs that were part of the manufacturing segment of the
economy. This blog has addressed how
foreign competitors have allured many manufacturing concerns from this nation
to theirs. And there has also been the
advancement in labor saving machines referred to as automation.
A question one
can ask is: what happened, why are
American workers subject to these detrimental conditions? William K. Tabb addresses this question.[1] This and later postings will share some
quotes from his book that provides an interesting and informative account of what
is affecting the economy, why these factors are viable, and how government and
Americans in general have conceptualized these changes.
In terms of
the economy’s structural weaknesses, Tabb writes:
Short-term speculative gambits, the
maximization of shareholder value, and the pressure of debt on companies and
households produced [in the years leading up to the 2008 financial crisis] a
growth dynamic that is not dependent on rising real incomes of American, but is
built on asset bubbles, capital gains, and debt-driven consumption. Technology, globalization, and the ability of
firms to reset employment contracts (so they no longer tied worker pay to
productivity) caused employment to become less well remunerated and more
insecure.[2]
If this writer were to use this quote
in the classroom, he would emphasize several issues.
For
one thing, there is the issue of businesses, in the search of cheaper labor
costs, having moved their manufacturing activities to such countries like
China, Vietnam, and India. It is
difficult to compete against Chinese workers who make on average between $250
and $500 a month. In America, in
“right-to-work” states (were weak to non-existing union representation exists),
the average worker makes at minimum three times higher wages then those Chinese
workers and, therefore, can’t compete.
Tabb
writes on: “Serious social control of
the economic surplus, channeling it away from speculation and into job
creation, is essential; major redistribution of income and reorientation of
priorities are required.”[3] This reference focuses on how capital is
being invested and how it should be invested to meet the maldistribution of income
the nation is experiencing. First though
a word concerning how this is a “maldistribution.”
One
can argue that if one believes in capitalism, then wages are simply yielding to
demand and supply forces. But that, to
many is an abstract notion. What is real
are comparisons. And in the minds of
many, one compares how well he/she is doing with how previous generations of
Americans did or with how one did in earlier years. And the immediate past was a bit unusual.
Taking
the post-World War II years – 1945 to 1965 – as the immediate past, America was
the sole manufacturing nation in the world – or just about. Why?
The war effectively destroyed the manufacturing capacities of just about
every industrial nation of the world. Both
in European and Asian (like Japan) countries experienced sustained bombing from
above. Bombing sorties effectively
leveled the industrial facilities of the belligerents. Because of the protection the oceans
provided, America was sparred.
So,
for the years following the war, America supplied the world with manufactured
goods and there was little or no competition in those related markets,
including the market for workers. This led
to higher wages and Americans became easily accustomed to the better lives
those wages allowed. But starting in the
1970s this began to change. Today, the
amount of manufacturing jobs once prevalent is but a small percentage of what
it was.
This
has also led to what this second quote highlights. That is, capital has been directed toward
financial opportunities – stock markets, bond markets, lending opportunities –
and away from manufacturing. This can be
risky. Suddenly, over a few years, money
can be attracted to artificial opportunities – like mortgage portfolios with
high risk mortgages as happened in the years leading to 2008 – and financial
bubbles result.
People become aware of the rising
profits such bubbles are generating, furthering the bubble effect. But bubbles eventually burst, and the
resulting loss of money and the accompanying undermining of the viability of
financial institutions cause panic and that further intensifies the collapse of
those institutions undergirding the global economy. That is what happened in the 1930s with Great
Depression and almost happened in 2008-09.
As it was, many of those institutions are no longer in operation.
A future posting will look at an
important question. Are such developments
the result of what government does or are they the result of what markets
do? This basic question or how one leans
in one direction or another, goes a long way in determining if one is a left of
center, liberal or a right of center, conservative; if one is a Democrat or a
Republican.
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