Thursday, October 07, 2010

"shaggyct" of Huffpo commenters pool

"shaggyct" writes on the current economy:

Those who are obsessed with government spending can't see the forest for the trees. Government spending didn't get us into the mess we're in. Neither did high taxes, since we have one of the most generous tax regimes in the industrialized world. Not even the property crash is to blame, since we've had those before and survived, although it was the straw that broke the camel's back.

Our problems are far deeper and more systemic than that, and if we are remain competitive in the 21st century, we have to think about our economy in entirely new ways, and rid ourselves of antiquated ideological notions that bear no relevance to a modern, highly competitive globalized economy.

First of all, we are no longer an agrarian society. Conservatives love to romanticize an imagined era of new frontier independence, but home schooling isn't going to get their kids far when they have to compete in the global workplace with an Indian counterpart who has two Masters degrees, speaks three languages, and since he isn't burdened with immense student debt like his American counterpart, he can afford to work for less. The high-paying jobs of the 21st century are knowledge-based, and can increasingly be performed by the best candidate anywhere on the planet.

In the past, we've been able to grow our way out of recession. This is why successive administrations, Republican and Democrat, have decided that deficits don't matter. Foreign investors and central banks have seen things the same way, which is why U.S. debt has generally been viewed as a sound investment regardless of our deficit. But this time, organic growth is not going to save us, especially since we're now a consumer based economy without consumers. And we certainly aren't going to grow our way out of it by slashing public sector spending, although both parties should aspire to reduce inefficient spending.

The overarching problem we have is that America is no longer competitive. Our workers are more expensive than their foreign counterparts and increasingly less qualified. We now rank 27th in the world in the percentage of students graduating with science and technology degrees, and 48th in the quality of mathematics and science education. Given that much of America's economic growth in the past fifty years has been directly attributable to our supremacy in science and technology, that should terrify everybody. Conservatives may like to think that rugged farmers and individualists built this country, but where would America be today had IBM, Microsoft, Google, HP, Lockheed-Martin and Boeing been founded in China rather than here? That scenario is becoming increasingly likely in this century, given that China has now surpassed us as the world's largest high-tech exporter.

While our public debate is consumed with trivia, ideological food-fights and social issues, the Chinese government is making enormous investments in biotechnology, infrastructure, medical research and alternative fuels, providing hundreds of billions of dollars in seed money to spawn the new industries of the 21st century. While we argue about tax cuts, our biggest corporations are making record profits. This allows them to hire more workers and expand, but this time they are doing it overseas. They are reinvesting in nations with superior telecommunication and transportation infrastructure, emerging economies with billions of new middle class consumers and ahighly skilled workers who can afford to work for less and still achieve a high standard of living. That is why we are not seeing any trickle-down effect in this country. Even if trickle-down ever worked in the past, it is an absurd notion in the 21st century.

The third problem we face is a collapse of economic mobility, which is the measure of how many children grow up to exceed their parents' economic standing. Other than the United Kingdom, America now has the lowest level of economic mobility in the industrialized world. It is no coincidence that the nations who rank highest in economic mobility, such as France, Germany, Denmark, Finland and Sweden have the most generous social safety nets, while the United States and United Kingdom have the highest concentration of wealth.

Before anybody screams "Class War", let me explain why wealth concentration is such a threat to capitalism itself, particularly in a consumer economy. It has been demonstrated conclusively that every dollar owned by somebody in the top 1% generates only $0.15 - $0.25 of economic activity (depending on which study you read), while every dollar owned by somebody in the bottom 20% generates $3-$4 of economic stimulus. And here is why. A middle class consumer spends a much larger proportion of their earnings on domestic goods and services. Much of this goes to small domestic businesses, who in turn can afford to hire more workers, grow their businesses and sometimes become the big corporations of the future. Meanwhile, a billionaire spends relatively little of their wealth on domestic goods and services. They may invest it, but typically in large corporations, who as I explained above, are increasingly expanding overseas in any case. That wealth is not trickling down to small businesses that aren't listed on the stock exchange.

In other words, wealth concentration stifles entrepreneurs, cripples small businesses and suffocates economic growth.

Somewhere in the past thirty years, we decided as a nation that we were going to transition from a manufacturing to a consumer based economy. Nearly all of the illusory economic growth since 1980 is the product of middle class consumer spending, which itself has only been made possible due to cheap credit, asset bubbles and consumer debt. But now the middle class has been stretched to breaking point by high cost of living, stratospheric student debt and healthcare premiums and outsourcing. Without a prosperous middle class, we cannot survive as a consumer based economy. And our middle class cannot be prosperous if economic mobility is being stifled by wealth concentration. Who in the middle class can afford to start a business today when they're struggling just to keep afloat?

So what is the answer? As I said at the beginning of this diatribe, we need to think in radical new ways if we are going to adjust to the new paradigm in which we find ourselves, and perhaps learn a lesson or two from those nations that are leaving us eating dust right now.

America is like a Windows operating system. The longer it keeps doing the same thing, the slower it gets, and eventually it will need to be rebooted.

Not everything that involves the private sector is good, and not everything that involves the government is bad. The world is much more complicated than that. But the private sector is not going to bail us out this time, which leaves the government as the only entity with the muscle to get us moving again. We need to invest in education, infrastructure, R&D. We need to encourage and help people to start small businesses. We need to ensure that money is no barrier to students seeking a college education. We need to reform education, and begin by slashing the ridiculously long schoolbreaks that made sense in an 18th century agrarian society, but serve no purpose today. We need to invest in our biggest asset, our people, making sure that they are not at risk of losing their homes if they seek retraining.

Every day, I get accused on this forum by so-called conservatives of being a socialist. But capitalism was designed as a means to promote economic mobility, not as an end in itself. Our obsession with the means rather than the end is actually destroying everything that capitalism was intended to achieve, and that is why by advocating for emergency government investment in our future, I consider myself a bigger capitalist than any of those well-intentioned folks who attend Tea Party rallies and call me a Marxist.

We have a choice this year. A vote for the GOP is a vote for regressive policies that will set us back for decades while the world passes us by. The Democrats may not be perfect, but they certainly understand these big picture concepts far more than the small minded nihilists in the Republican Party whose ideological fervor is the biggest threat that capitalism has ever faced.


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