9/25/2013 10:30 PM ET|
Can we save the US economy?
Fixing the deeper problems
Yet the real task is tougher: addressing the deep, hard-to-fix problems holding the economy and the country back.
Mainly, I'm talking about the way the economy's potential growth rate has plummeted from 5% a year in 2003 to just 1.8% now, as businesses have made fewer productivity-increasing investments and disillusioned workers have dropped out of the workforce and let their skills erode. This is calculated as the five-year average growth rate in labor productivity and labor force growth.
Both are the fundamental drivers of economic growth.
Right now, real GDP per capita in the United States stands at just over $48,000, down from a prerecession high of nearly $50,000. If a 1.8% growth rate is maintained over the next 20 years, and holding population growth constant, this measure will increase to nearly $69,000. Better, but not great. And that's assuming no recessions or other business cycle turbulence.
If the growth rate rises to 2.5%, this measure grows to more than $79,000. If we could recapture the 3.75% average, it would grow to nearly $101,000. That would be a much more productive economy, helping everyone move forward.
This growth would only come in the context of a reversal of some of the trends that have held back the middle class. And there are signs this is happening. Manufacturing is returning to the United States as costs rise in places such as China and companies recognize the benefits of timeliness and flexibility that manufacturing here at home provides.
CEOs have also been complaining of an emerging skills shortage as baby boomers stop working due to age, physical frailty and death. The CEOs say the millennial generation just isn't up to snuff. Addressing this will require the resurrection of the kind of worker training programs that haven't been seen since the 1950s and 1960s -- either directly at factories or through the vocational and community colleges.
The result of such programs should be a reversal of the persistent decline in labor's share of the economy as wages rise, businesses are forced to hire and invest in new equipment, and "Made in U.S.A." makes a comeback to satisfy new demand coming from places such as China and India.
Resolving other worries keeping CEOs from spending, mainly concerns over taxes and regulations, would expedite this. But much of this work can be done by workers and entrepreneurs outside Washington, which is good news.
There is still hope
For all the problems and tough choices I've outlined, I remain a guarded optimist. Capitalism still works. It encourages new ideas and innovation, and allows a few special people to push everyone forward. Pure capitalism can be rather coldhearted, as we see around the world in low pay and poor working conditions, but the modern American version can work.
The risk is that we don't make the hard choices, and that as growth slows, the situation grows more desperate and people turn on each other. More class warfare. More wealth redistribution. More worried CEOs pulling back. More blame game.
Sort of what we're seeing in Washington right now.
Economists such as Robert Gordon and Tyler Cowen are happy to paint a dark future in which technological innovation slows, automation continues to hollow out the middle class, and society overall makes little progress.
Gordon argues that we still owe much of our prosperity to the wave of innovation between 1870 and 1900, when there were huge advances in electricity, industrial engines, indoor plumbing, communications, chemicals and energy. That bagged us big gains in the speed of travel, life expectancy and urbanization. People went from traveling by horse and wagon to traveling by jumbo jet.
Then, he says, things stopped progressing.
The space shuttle and the Concorde are museum pieces now. We get excited when someone jumps from a hot air balloon at the edge of space when, 44 years ago, American astronauts were walking across the Sea of Tranquility.
More recent innovations focus on workplace efficiency and entertainment, rather than transformational change. The voyeurism of Facebook (FB) and the ability to watch snarky YouTube videos on your smartphone pales in comparison to the miracle of human flight.
If this country is to regain its glory, and end the dark mood that has fallen on so many regular Americans, it needs to quicken its pace and, once more, dream impossible dreams.
This is where I part company with the pessimists. I think we can still do this, particularly if Washington at least gets out of the way.
This will be my last weekly column for MSN Money. I appreciate those readers who've followed me over the years. You can continue to find my work at the Edge Letter, a daily investment and markets newsletter, as well as Dow Jones MarketWatch, InvestorPlace.com and other channels. Feel free to drop me a line at email@example.com anytime.
At the time of publication, Anthony Mirhaydari did not own shares of any equity mentioned in this column.
MORE ON MSN MONEY
VIDEO ON MSN MONEY
1. Bank deregulation has not worked for America.
2. "Free trade" has not worked for America.
3. Double digit inflation in health and education has not worked for America.
4. $4 gas has not worked for America.
5. Overpaid CEOs has not worked for America.
6. Real estate and commodity speculation has not worked for America.
7. A federal reserve at the center of the economy has not worked for America.
8. TBTF has not worked for America.
All of these changes to our system (and others) many put in place to benefit a few, mostly on Wall Street, have partly caused our current predicament. Let's put it back the way it was, now.
Sorry to see you go Anthony. Even though you often took a beating in this forum, your articles generated energetic dialog which I enjoyed a great deal. I don't think many people realize how difficult it is to come up with a fresh story on a regular schedule, especially in these times. It's a lot easier to simply go negative and take shots at the "establishment" every night like the rest of us. Frankly, if you wrote the same thing every night like most of the posters here it would be pretty boring.
I agree with your assessment above and I hope your optimism is founded. I am less confident so I guess I am a pessimist. I have little faith in human nature these days and putting faith in the politicians, bankers and CEO's is far from prudent in my opinion.
Pretty good article really.
"The space shuttle and the Concorde are museum pieces now." Interesting point.
Excellent summation and analysis.
Thank you and God Bless.
Good times, bad times, good times, bad times, etc, etc, the U.S. is based on this, breathe in , breathe out, except this time the GOV got involved and printed and borrowed to keep us from exhaling which prevents us from inhaling, we are stagnent because of this
I greatly enjoyed reading your articles, and it's unfortunate that this is your last for MSN Money. Most of your articles were quite brilliant, however, in this erratic and unpredictable economic environment, it is quite a challenge to completely understand and communicate to mass media regarding the topic of money. Best wishes and greatest of luck for a successful future!
nice article anthony, and i will miss your analysis and thought-provoking articles.
on the subject of fixing America's economy the answer is really quite simple: implement the "grand bargain" developed by simpson-bowles. this can be reviewed in detail at:
www. momentoftruthproject . org
take care and best wishes for more market-beating results ...
Here is what Candidate Obama wanted for our country when he was running for President of the United States of America. He said that "we are five days away from fundamentally transforming the United States of America."
What he meant was what he said in the video, or was it? Or maybe he meant that he wanted to uproot our Republic and make it into something of his liking, something that would allow the "redistribution" of wealth like he promised during the election. Maybe he wants a country where those who produce supplement those who do not produce.
Obama said on February 16, 2008; "Don't tell me that words don't matter." Are we to believe him? Do words really matter? Is "fundamentally transforming America" what he was talking about in this speech? Or is it something else that he wants to do to our country. Only you can decide that. You be the judge.
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