What's Wrong With America

The title is intended to be reminiscent of
Thomas Frank’s What’s The Matter With Kansas?.

Well, of course, everyone has their own view on the answer to that question.
Here are some of the things on my mind that do not seem to be widely addressed
(although I think they should).

Consider the following excerpts from a recent news article:

China's industrial policy is bigger concern than yuan, U.S. executives say
By John Pomfret
Washington Post, 2010-05-07


U.S. officials, senators and some economists have predicted that
if China allows the value of the yuan to rise,
it will mean
a smaller trade deficit with China, more American exports and
more jobs for American workers.

Fat chance on both counts, according to the American Chamber delegation.

It might make good economic sense
for China to stop subsidizing its exports with a distorted exchange rate,
but it’s silly to think that
the United States is going to be a major beneficiary from such a move,
the delegation and other business groups are arguing.


For one, the stuff China sells us
has been imported by the United States from other countries for decades.
So if we don’t buy it from China, we’ll buy it from someone else.
Take TVs.
Twenty years ago, they all said “Made in Japan” on the back.
Now they say “Made in China.”
If China allows the yuan to appreciate,
it’s not like TV manufacturing is going to move back to the United States
and RCA Victor will rise anew.
Americans will just buy them from someplace else.

[Note how this view,
which the Washington Post reporter seems to imply
is that of the American Chamber of Commerce team,
is identical to
that of China’s commerce minister, Chen Deming, in his March 2010 interview.]


“The Chinese government is more than happy to keep the focus on the currency
because it’s not the real problem,”
said a member of [the American Chamber of Commerce] team.
“The real problem is China’s industrial policy
and our inability to deal with it.”

[End of article]

Okay, back to KHarbaugh opining.

Everyone no doubt has their own gripe list.
I, for one, think it is just a terrible shame that
America cannot even build its own TVs.
(And, of course, this is just an example of
a whole range of products we no longer
can economically and competitively produce,
for our own market let alone the global one.)

How did this situation come about?

It was certainly not true in the 1950s,
when RCA, Sylvania, and Magnavox, among others,
all made televisions.
(For an extensive list, see this.)

It would seem that the problem is a combination of several factors:
  • Government policies
    which pushed up the cost of manufacturing in this country.
    Especially those which affected labor costs.

  • Decisions by the financial community (Wall Street)
    as to what they valued
    and would provide financing for.
    Demands for short-term profits (next-quarter earnings) over long-term investments are a key example.
    Corporate buccaneering and raiding and leveraged buyouts
    were a major factor,
    where corporations were essentially gutted by their new owners,
    and then left to die.

  • Unions pushed up labor costs
    (ever heard of a union in China?).
    The general pattern was:
    A corporation has a favorable economic environment,
    profits and management salaries rise accordingly,
    and then labor, naturally, wants its chair of the pie.
    Contracts are written.
    Then when the economic climate changes,
    labor is unwilling to give up its “hard-won gains”.

It is sad that such leaders of free enterprise and capitalism
as Arthur C. Brooks of the American Enterprise Institute
do not seem to focus on the key issues.
Brooks, in his 2010-05-23 Washington Post Outlook article,
argues for
“the principles of free enterprise --
limited government, a reliance on entrepreneurship
and rewards determined by market forces.”
Is that an adequate remedy for the forces that have destroyed
America’s ability to manufacture the goods that it consumes?
I do not know, but I suspect not.

The Great Recession is just the beginning
By Matt Miller
Washington Post Opinion, 2010-07-23 (the day it appeared in the print edition)

Here’s a cheery midsummer thought. You know those 15 million unemployed, and that sluggish growth, and the debt hangover and de-leveraging, and those soaring deficits? Well, these woes aren’t our biggest economic problems.

The real test for the U.S. economy starts once we get past the fallout from the burst housing and banking bubbles that triggered the Great Recession. And when it comes to that challenge -- which involves preserving U.S. living standards in a world of global competition -- we either (1) don’t know what to do, or (2) we do know but seem to have little intention of doing it.

A brief trot through history places this moment in context. After World War II, when the United States was the only economy left standing, we began an unprecedented economic run. “You had a 60-year period where every new industry of huge value-added or breakthrough innovation or high risk -- whether it was pharma, biotech, software, personal computing or semiconductors -- were all totally U.S.-based,” Bill Gates said in 2007.

The shared prosperity this dominance made possible built the middle class. But the age of U.S. supremacy had to end sometime, and, starting two decades ago, rising powers such as India and China began the reforms that would make them genuine competitors.

From the point of view of humanity, these nations’ rise has been fantastic news. Hundreds of millions of people have been lifted from poverty, with billions hoping to follow. But for workers in advanced countries, the wage strains were inevitable, as it became feasible to locate more work with low-cost (and, increasingly, high-quality) labor anywhere on the planet.

It was at this point in the saga, when research already showed that up to 100 million Americans were living in households earning less than their parents did at a similar age, that -- bam! -- the housing and financial bubbles burst.

Historians may therefore think of the Great Recession as Decline, Interrupted.

The thing to remember is that these are different kinds of events. The bursting bubbles, and the associated market panic and credit freeze, was a heart attack, to which the authorities responded with emergency measures.

But “the fate of the middle class” in a global era is different. It’s more like cancer -- a slower yet more profound threat, requiring a fundamental renewal of American competitiveness. And without a galvanizing “emergency.”

Broadly speaking, there are two big things we need to do. The first, put well (if not in a sexy slogan) by economist Michael Spence in the Financial Times recently, is “to create capital-intensive jobs that have labor productivity levels consistent with advanced country incomes.”

The second big thing is to make sure Americans have the skills to perform these jobs.

How are we doing on this agenda? Dismally. For starters, U.S. elites simply don’t think in terms of a national economic strategy of the kind Spence states so simply. To be sure, the stimulus funded some energy technologies with real promise -- advanced storage and lighting technologies, and power conversion devices, for example -- that are poised to lift productivity in these areas dramatically. Such productivity gains can make higher wages sustainable. But we’re not yet close to the needed scale of public- and private-sector effort here.

And, in any event, why will firms that can locate work anywhere manufacture these breakthroughs in America? As former Intel CEO Andy Grove argued in Bloomberg Business Week recently, it’s not enough to do the product innovation in the United States; we need to do the manufacturing, too. That’s the only way, Grove says, to gain the hands-on experience with products that leads to all subsequent innovations. Surrender the manufacturing and you lose this virtuous cycle -- a logic that leads Grove to call for protectionist measures if need be to make sure America keeps this innovation-to-manufacturing-to-good-jobs link here.

On education, meanwhile, the administration’s agenda, though “bold” by historic standards, isn’t nearly ambitious enough. In terms old SAT-takers can understand, “Race to the Top” is to “needed education reform” as “little seed” is to “giant oak.” At this pace we’re looking at a decades-long fix.

No politician will talk about the prospect of declining living standards. Business leaders who know what’s afoot abroad talk privately about it all the time. The defining question of our era may be this: What do we do if incremental change isn’t equal to renewing American competitiveness, but our political system isn’t capable of producing more than incremental change?

What if waiting for our “Sputnik moment” turns out to be a lot like waiting for Godot?

Ron Bloom Is Obama’s Manufacturing Emissary
New York Times, 2010-09-10

Several [of the Ohio executives] seemed to nod in agreement
when William N. McCreary, a vice president of the NSG Group,
said that

private equity firms and other financiers
frequently asked for an American manufacturer’s
“China strategy,”
meaning that
having an operation in China
made a company more worthy of financial support.

The NSG Group, which makes flat glass of the sort used in auto windshields,
operates in many countries, including China, and is based in Japan.
Even so, Mr. McCreary, who is based in Toledo, Ohio, sounded perplexed by
this lack of faith in American producers.

“The private equity world is heavily on the side that you have to be in China,”
he said.
“It thinks the U.S. is not a place you make things.”

[What traitors!
Is it American money these Wall Street financiers are allocating?

A story is really demanded on the details behind this situation.]

Economic policy needs common sense, not Fed magic, for long-term growth
By Fareed Zakaria
Washington Post Op-Ed, 2010-11-29


The investment manager and guru Jeremy Grantham ... points out that
over the last generation,
American government has created conditions that
encouraged everyone to keep accumulating debt.

But far from getting a bang,
the country’s growth rate actually slowed down over that period.
In fact,
the effect of all this government-subsidized debt has been deeply destructive.
It created asset bubbles in stocks, bonds, commodities and more.

One stunning chart in his letter underscores the extent to which
the Fed created what he calls “the first housing bubble in history,”
meaning the first time that
U.S. house prices rose dramatically across the board -
and are now falling just as dramatically.

Debt-fueled growth “is, in an important sense, not the real world,”
Grantham writes.
“In the real world, growth depends on real factors:
the quality and quantity of education, work ethic, population profile,
the quality and quantity of existing plant and equipment,
business organization,
the quality of public leadership (especially from the Fed in the U.S.),
and the quality (not quantity) of existing regulations
and the degree of enforcement.”

[Thank you, thank you, thank you for saying that.]

This strikes me as the common-sense view of economics.
We can push and pull fiscal and monetary policy all we want,
but long-term growth depends on these broader and deeper factors.



The sad facts behind Rick Perry’s Texas miracle
By Harold Meyerson
Washington Post Op-Ed, 2011-08-17

[Here Harold Meyerson states with admirable clarity
why America has lost so many jobs over the last decades.
Unfortunately, while he states the problem clearly,
I do not see where he proposes a viable solution to the problem.
For what I do consider viable solutions,
see, e.g., the recent books
Clyde Prestowitz, The Betrayal of American Prosperity and
Eamonn Fingleton, In the Jaws of the Dragon.]

Rick Perry’s Texas is Ross Perot’s Mexico come north.

Through a range of enticements
we more commonly associate with Third World nations —
low wages, no benefits, high rates of poverty,
scant taxes, few regulations and generous corporate subsidies —
the state has produced its own “giant sucking sound,”
attracting businesses from other states
to a place where workers come cheap.

Perry’s calling card in the presidential race
is his state’s record of job creation
at a time when the national economy floundered.
Yes, Texas has created lots of jobs,
though that’s partly a reflection of the surge in oil prices,
which in turn created tens of thousands of jobs in the oil and gas industries.
What Perry touts in his stump speech, however, isn’t the oil boom
but, rather,
the low-tax, low-reg, handouts-to-business climate that prevails in Texas.
It’s the kind of spiel that businesses hear every day
from leaders of developing nations — Mexico and, even more, China.

Consider the Texas that Perry holds up to the rest of the nation for admiration.
It has the fourth-highest poverty rate of any state.
It tied with Mississippi last year
for the highest percentage of workers in minimum-wage jobs.
It ranks first in adults without high school diplomas.
Twenty-six percent of Texans have no health insurance —
the highest percentage of medically uninsured residents of any state.
It leads the nation in the percentage of children who lack medical insurance.
Texas has an inordinate number of employers
who provide no insurance to their workers,
partly because insurance rates are high, thanks to an absence of regulations.

Perry seems quite comfortable with the state’s lagging performance
in what we might term the pursuit-of-happiness index.
Consider his indifference toward education:
In 2008, the state comptroller found that
12 percent of Texans lacked high school diplomas
and that the level would rise to 30 percent by 2040
unless the state’s commitment to education was considerably increased.
This year, though, when confronted with a $27 billion budget deficit,
Perry did not raise taxes but instead slashed $4 billion from K-12 schools.
In this regard, the equation of Perry with China’s leaders is unfair to China:
The Chinese understand that the better educated their people become,
the more high-skill and high-compensating jobs their nation will attain.
No such understanding seems to have permeated Perry’s brain.

In one significant particular, though, Perry’s policies fairly ape the Chinese.
Over the past eight years, the state has given businesses
nearly $500 million in grants and financial incentives to help them expand.
Perry’s economic vision is the kind of race-to-the-bottom mercantilism
we’ve come to expect from developing nations in the globalized economy,
although, as China, Brazil and India illustrate,
many such nations have begun to provide citizens with
more schooling and better jobs as they grow wealthier.

[The important point is that,
in the eyes of the leadership, and no doubt many of the people,
of the nations Meyerson mentions,
the race they are pursuing, and indeed have largely won,
is not a “race to the bottom”
but rather a race to see which nation can master and control
the manufacturing and technological lead
that will determine their future success.]

No comparable developments can be seen in Rick Perry’s Texas.

Now Perry wants to take his model national.
In “Fed Up,” his campaign manifesto,
he says the federal government has gone too far by passing laws
“regulating the environment, regulating guns, protecting civil rights,
establishing the massive programs and Medicare and Medicaid,
[and] creating national minimum wage laws.”
These are all endeavors, he argues, that should be left to the states.

I could understand how
a governor with a good record on providing medical insurance, for instance,
could argue that his state’s plan is one the nation should emulate.
But when the governor of the state with the highest level of medical uninsurance
calls for dismantling the national programs
and letting states go their own way,
that’s industrial-strength chutzpah.

What Perry either ignores or doesn’t know is
how greatly Texas has benefited from
the investments and regulations of the federal government he despises.
He grew up, he tells all who will listen, on a small, hardscrabble Texas farm.
But it was Franklin Roosevelt’s Rural Electrification Administration
that brought electricity to those farms,
which, left to the mercies of the market,
would have remained dark for decades.
The New Deal threw money at Texas,
bringing it dams, highways and schoolhouses.
The cumulative effect of policies such as the federal minimum wage
has been to diminish the disparity that long existed between
the industrialized North and the more poverty-stricken South.

Perry wants to unravel the national social contract
and once again have us go state by state,
with the low-wage, low-reg states dragging down the others,
much as Chinese mercantilism has dragged down wages and living standards
across the United States.

He is the 21st-century, homegrown version of the Manchurian candidate.

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