The
U.S. and Globalization
The current U.S. political discourse involves the angry fantasies of ideology
and revolution, not the complex adjustments necessary for centrist, practical
politics. Are you for less government or more government, are you for a single
moral system or a plurality of them, do you want to build a wall or are you for
an open society, and so on.
Due to well implemented measures after the 2008 financial crisis, the world's
financial system and the economy were literally saved. The patient survived the
Intensive Care Unit, but his recovery has been very prolonged. For some
workers, globalization and technological change started causing economic
problems decades ago. The result has been years of pain by some in this
society. People are now searching for a simple silver bullet, practical
solutions having been stymied by the irresolution of the political system. This
is now all coming to a head with the 2016 U.S. political campaign and the
Brexit.
To advocate some realism in political and economic discussion, we discuss two
independent social variables, and then add a third. This could result in a
useful analysis of the U.S. economy that is true to the facts.
Two Social Variables
Simplicity is the advantage of first considering only two fundamental social
variables.The following considers a 7/1/16 NYT article
by David Brooks, entitled, "The Coming Political Realignment," where
he discusses the present American political debate. That debate, involving
Donald Trump, is substantially about revolution.
"I personally doubt that Trump will be able to pull off a right-left
populist coalition....But where Trump fails, somebody will succeed. And that's
where he is substantively revolutionary. The old size-of-government question
was growing increasingly archaic and obsolete. In country after country the
main battle lines of the debate are evolving toward the open/closed
framework."
We think both variables are fundamentally relevant to a society, and are
therefore useful. Our first variable, a society’s openess, concerns mainly
foreign trade policy (but immigration also). The second variable concerns the
size of government as measured by Government Expenditures/GDP. We put them
together in a country classification table.
COUNTRY CLASSIFICATION
|
Society\Size
Government |
Small |
Large |
|
Open |
U.S. |
Denmark |
|
Closed |
Somalia * |
Former Soviet Union |
It is immediately obvious that closed societies aren't successful; they tend to
go extinct; that’s why there are now so few. These are not places where people
want to live. When Western Germany's Treuhand privatized East German companies,
they were shocked to discover only few Eastern German firms could compete
globally, for instance Carl Zeiss in Jena. The rest of the economy produced
junk, like the Trabant automobile.
It should also be noted that whether the government is large or small does not
have much effect on the success of a society as long as it remains economically
open. Among the developed nations, Denmark is the most heavily taxed in the
world (in 2014, government taxes were 50.9% of GDP), and the Danes are the
happiest people in the world. America is the least heavily taxed (in 2014,
government taxes were 26% of GDP), and we need to reassess how we are going to
do things. **
What happens when globalization - that is the free movement of labor, capital
and technology, makes some people, to use a descriptive British term,
"redundant"?
Economics assumes mobility of labor, when people who become unemployed can be
easily retrained. The reality, at least in the U.S., is very different. David
Brooks writes, "Pittsburgh has come so far from the deindustrialization
days of the 1970s and 1980s (building on the local resources of the University
of Pittsburgh Medical Center and the computer engineering department of
Carnegie-Mellon University). But then I drove through the steel mill towns
along the Monongahela and other rivers. The storefronts and banks were boarded
up, the downtowns deserted. The mills are still operating but they are so
efficient they're eerily empty of human presence....It occurred to me that the
Pittsburgh Renaissance didn't really grow out of the metro Pittsburgh of old.
Instead one Carnegie-Mellon type layer of prosperity and innovation had grown
on top of the old working- class layer, which was still there and in bad shape."
We don't think that steelworkers can easily become healthcare workers or
involved in computers because training for the increasingly technical economy
has to start early. This suggests a role for government, because the private
economy is concerned mainly with maximizing current profit.
Add Time
The U.S. economy should remain open to competition. But now add the complex
variable of time. In market economies, there is not much memory of the past;
almost all effort is applied to efficiently meeting current consumer demand.
Keynes also lamented that there is not much thought given to the future. ***
Yet, like all social systems, the economy also has the dimension of time. The
economic problems of unemployment and low company investment have the dimension
of time. Consider the past training and lives of people as producers, who have
been made obsolete by the changing tastes and technologies of the market.
Consider also the unwillingness of financial markets and companies to invest
for the future, which would increase society’s wealth.
Effective
Government
Without the Fed, financial markets do not automatically self-correct.
Similarly, effective government to correct complex supply and demand side
economic problems is also necessary. These measures are being discussed: On the
supply side, reform education, worker training, the tax system and invest in
infrastructure and research - to make our economy more competitive in
globalization. On the demand side, begin by using the minimum wage to spread
the wealth more broadly. Counter the effects of automation by ultimately
subsidizing service trade workers with a guaranteed income.
This might be useful, a slight general tariff on all manufactured goods,
with the target of eliminating the manufacturing trade deficit because those
funds can be designated for industry. Investing in the future also brings the
collateral benefits of reindustrialization. In a 7/4/16 NYT article,
economist Paul Krugman informally estimates, “…completely eliminating the U.S.
trade deficit in manufactured goods would add about two million manufacturing
jobs.” This requires a feasible increase or reallocation of only 1.5% of the U.S. labor force.
A general tariff would also give marginal companies a chance to improve. The
result could be a more balanced U.S. and international economy, benefiting all.
Summary
To maintain the legitimacy of the open economic system, which is now being
called into question, it is necessary to go beyond the simple mantra of current
profit maximization, to have real policies that improve the lives of people,
considering both their pasts and the future. Slogans, name-calling, wall
building and ideological formulas may make some feel better, but they are
irrational reactions unsuited to solving the complex problems of globalization,
which require appropriate policies resulting from the judgment of facts and
circumstances.
* Beyond North
Korea, a small closed country is difficult to find these days because almost
all are now open to the benefits of trade. The Duke University World Policy Journal compiled a list
of the world's 10 most isolated countries using 2011 data. Of these countries,
Somalia had the lowest 2012 tax revenues as % GDP = .7%. (World Bank
statistics)
** The 2016 World
Happiness Report notes that Denmark is the happiest country in the world,
likely due to its social systems. But its economic growth between 2010 and 2015
averaged only .88% per year, versus 2.28% for the U.S.; however, its General
Government Debt as a % of GDP was only 45% versus 106% for the U.S. A
comparison between the two societies would, of course, be more complicated. (Global
Finance magazine statistics)
*** In "The
General Theory, Chapter 12, (1953)," Keynes noted, "(Short-term)
speculators may do no harm as bubbles on a steady stream to enterprise. But the
position is serious when enterprise becomes the bubble on a whirl-pool of
speculation. When the capital development of a country becomes a by-product of
the activities of a casino, the job is likely to be ill-done."
__
This 7/2/16 Economist article, “The Politics of Anger,” is one of the best we’ve read describing the present political crisis of liberalism across the world. The basic problem is, “Liberalism depends on a belief in progress but, for many voters, progress is what happens to other people.” The irrational Republican party obstructs necessary reforms to the economic system and then fans anger at that system. The result is a mess of incoherent “feel better” slogans at election time, not a real program that can make a positive difference.