There is a lot going on with the economy at the moment and it seems that very few people, neigh hardly anyone, is really grasping the situation. That in and of itself is pretty remarkable.
Recently the media has sounded worries about "stagflation", which is what I have been addressing here for years. The fundamentals behind all of this should be quite obvious, but no one seems to be addressing these fundamentals. A recent New York Times article called Totally Spent by Robert Reich, whom I do respect, hinted at the issue, but even he failed to completely grasp it.
In Totally Spent Reich stated:
"WE’RE sliding into recession, or worse, and Washington is turning to the normal remedies for economic downturns. But the normal remedies are not likely to work this time, because this isn’t a normal downturn.This is all true. Reich's assessment of the situation is spot on, but when he comes to addressing the situation that's when he goes off course.
The problem lies deeper. It is the culmination of three decades during which American consumers have spent beyond their means. That era is now coming to an end. Consumers have run out of ways to keep the spending binge going.
The only lasting remedy, other than for Americans to accept a lower standard of living and for businesses to adjust to a smaller economy, is to give middle- and lower-income Americans more buying power - and not just temporarily."
The remedy that Reich proposes is this:
"The only way to keep the economy going over the long run is to increase the wages of the bottom two-thirds of Americans. The answer is not to protect jobs through trade protection. That would only drive up the prices of everything purchased from abroad. Most routine jobs are being automated anyway."Okay, well, he's sort of on the right track, but not really. The keys here are "automation" and "abroad". As I stated back in 2003 (National investment program and Labor in foreign countries), the only real solution lies in both improving wages abroad and increasing ownership of capital among the broad population. At that point automation, which is what we need more of, can actually be a real benefit.
The thing is that the Democrats and the "pro-labor" folks have it all wrong. Improving the economy is not about "protecting jobs", indeed protecting jobs is the worst possible thing we can do. The best way to understand this is to look at the fundamentals.
Improvement in the standard of living, which is what the economy is all about, is about increasing production. More than that, it is about increasing efficiency, and efficiency basically means producing more with less human work or less energy invested. The way to increase efficiency is through automation, not "increasing wages" for Americans. Increasing wages for Americans is what drives jobs overseas, so you can't increase wages in America without increases in wages in foreign countries as well without expecting to lose jobs in the process.
The only solution is two fold. First, increase the distribution of capital ownership in America and secondly work to ensure that wages in the rest of the world rise as well. At present, the exact opposite of these two things are what is happening. It is true that wages are going up in foreign countries, but not as rapidly as they should be, and in fact American policies work to keep wages in foreign countries down, they do nothing to help them rise.
The major key though is distributing capital ownership. Capitalism is all about capital ownership. The owner of the capital is the one who owns the rights to the profits. Workers have no rights to profits, indeed the workers are the ones who work to produce the profits that the capital owners take from them, thus the problem that America finds itself in today. The wealthy have become exponentially more wealthy over the past 20 years, while wages have completely stagnated over the past 30 years. The reason that the wealthy have become exponentially more wealthy as wages have stagnated is because productivity has increased, but all of the gains from that productivity have been realized via profits and thus they are realized by the capital owners and executives.
But we really shouldn't be trying to increase wages or to make people dependent on wages, what we should be doing moving to a situation where the share of capital ownership is more evenly distributed, where every individual is "a capitalist". As automation and computerization, etc., play a larger and larger role in production, individuals have to share ownership of the "means of production". That is the single and only possible solution to the long term economic problems that will be faced in a progressive and technologically advancing economy. The road that some places in Europe have taken, especially France, has been to limit the advancement of technology in order to preserve the role of the worker, thereby limiting profits and productivity. This does preserve a more equal distribution of wealth, but it also limits economic growth and the creation of new wealth.
In America we have taken the opposite tract; we have allowed and encouraged the advancement of technology and productivity, but we have completely left the worker out of the loop and thus all of the rewards have gone to a relative few capital owners. This is why we find ourselves in an economic predicament today and until this fundamental problem is addressed the American economy is going to continue to suffer the problem of increasing productivity while the working classes aren't able to drive demand for goods because they have too little income.
There really is no reason why an economy in which productivity is increasing should have any type of recession. The only reason we are having economic problems is because the fruits of the labor of workers is not being paid to those workers, and because the fruits of capital ownership are not being shared by the population. Over the past 30 years the cost of education and skill acquisition has gone up dramatically. Worker knowledge and productivity has gone up dramatically, and mechanical efficiency has gone up dramatically. That all means that we can produce more with less effort today then we could in the past, and workers have been key to these4 advances, even shouldering the higher cost of education themselves, but there has been zero payoff to workers. All of the fruits of these advances over the past 30 has gone to capital owners, and capital ownership has remained largely consolidated in the hands of a small few. Thus, those small few have reaped the rewards that have been created by millions of workers in America and around the world.
But in order to continue to encourage economic development, we cannot turn to "job preservation" or "wage increases" as the solution to this theft from the working class. The only real solution is to enfranchise the working class with capital ownership, and that is why my proposition of a National Investment Program is the only solution that can address the future economic development of America.
The economic situation in America is very, very different than anything we have faced in the past.As Robert Reich correctly points out, we are now reaching the end of a series of stop gap measures that people have taken to deal with the phenomenon of stagnant wages and increasing productivity. Those steps are primarily the entry of women into the workforce, thereby increasing the number of income earners per household, the extended use of credit, and working longer hours. But we have reached the end of that road. Once all the women have entered the workforce, once we are all working the maximum number of hours that we can healthily sustain (we are already past that, hence some of our healthcare problems), and once we have maxed out our debts (which is the current problem) then there are no more stop gap measures to take. We have finally reached a tipping point in our economy where fundamental structural changes are required in order to continue economic progress and to prevent a long term economic decline and possible depression.
The key to remember is this. As long as productivity is increasing, there is no real reason why any economy should ever go into decline. The only reason for an economic decline during a period of increasing productivity is an improper distribution of the fruits of productivity, such that all of the fruits go to one small group, thereby leaving the other group unable to sustain or improve their standard of living, in spite of the increasing capacity of the economy to enable such progress.
The tools and techniques for extending economic growth in the American economy over the past 30 years are all used up now, they will not able to continue working any longer. Taxes have been cut over the past 30 years to the point that they can't be cut anymore. Interest rates have been lowered to the point that not only can they not be lowered any more, but increased lowering has now also become ineffectual. Workers have already done everything that they can to keep pace, aside from going back to increased working of children there isn't much more that families can do to improve their revenue streams. And now costs are rising, and will continue to rise for fundamental reasons. There is only one meaningful solution, and that is the broad distribution of ownership of capital.