Grim Fairy Tales - Economic Growth and the Future of the US Economy

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American GDP is something north of fourteen trillion dollars.  Currently, GDP growth is anemic at best, so while it is not actually negative, it's not as if we're seeing any kind of healthy increase, even as 150,000 people join the workforce every month and the real unemployment rate is over 15%.  But to read even the most pessimistic pundits, there is an odd, yet profound sense of certainty that the American economy will get back on trend at SOME point - the debate is really around when, and whether that process can be expedited.  But no one expresses any doubt that by 2015, or 2018, or even 2021, America will be back to having a booming economy with a healthy unemployment rate under 5% and GDP growth in the 4-5% range.  It's true.  Go see if you can find anyone postulating American GDP declining over the next ten years.  I'll wait.

But what you'll notice is that none of these prognosticators explain where the growth might come from.  The growth is taken as a given, as if it is impossible to conceive of an America in decline.  I submit we're already there.

The American economy in the 21st century is predicated on two mutually supporting platforms.  The people, increasingly, work in service type jobs, and three quarters of GDP is consumer spending.  So the expectation, assuming someone is not postulating the imminent return of full-scale manufacturing employment to the US, is that there will be enough service jobs that pay enough money to support consumer spending that exceeds that which we saw in the peak of the housing and household credit bubble.  But that seems mathematically impossible.  Wages are flat, or falling.  Unions have collapsed, benefits and pensions are dying, people are expected to contribute to their own retirement (or what?  Well, that certainly remains to be seen.  But two words come to mind.  Cat.  Food.).  Energy, food and commodity prices are rising, a trend that cannot be expected to slow, and there is a kind of callous sense of heartless disinterest in the suffering due to economic hardships in our communities.  Public sector employment is declining steeply, the manufacturing and construction sectors are smoldering wreckage, and any job that can be outsourced to a place with cheap labor costs continues to vanish.

We can invent things.  But with the depressed economy, spending on R&D in the public, private and academic sectors is low and falling.  And when we DO invent something, the billions of dollars generated by building it go to offshore factories.  Even nominally 'good' trends can serve to reduce American economic activity.  For example, software is an area where America is strong, and yet virtually all the interesting innovations, from Web Services to Big Data Analysis to Core Operating Systems are happening in the Free Open Source community.  Sure, having access to Linux and Android and Tomcat and Hadoop can drive both innovation and employment, but it's hard to miss the fact that none of these immensely popular and necessary tools are being produced and sold by companies that employ people.

And when you look at sectors that do have some healthy growth, the picture only gets darker.  So-called 'Homeland Security' and 'Defense' spending account for a significant measure of US employment, but what is the multiplier effect of building a nuclear submarine, a secret radar system or drone aircraft?  These contracts provide jobs, but they do nothing to contribute to further economic growth beyond the retail consumer spending of those employed.  The prison system is similar - providing a lot of low-wage jobs in local communities at an immense economic and social cost.  In our narrow-minded quest to incarcerate vast segments of our poor and disenfranchised population in order to make our cities safe for more retail service jobs, we create a cancer that eats away at our society from below.

Most of the talk is around a "Green Industries" segment, but have you noticed that nobody can really tell you what that means?  First, any 'Green' or renewable energy technology will necessarily remain a niche technology as long as fossil fuels can maintain their artificial price advantage.  If we priced fossil fuels correctly, taking into account the negative externalities such as pollution and Global Climate Change, gasoline would approach $10 a gallon and there would be a real market for alternative transportation solutions, not to mention the sudden availability of R&D dollars for alternative energy generation solutions.  In fact, if we were to price fossil fuels and their carbon emissions correctly, Global Climate Change would very rapidly cease to be a problem.  People sometimes talk about a "Marshall Plan" for reducing greenhouse gas emissions, and this is precisely what that would look like.  Unfortunately, it simply is not going to happen.

But more to the point, is there something we call 'Green Industries' that genuinely could make a major contribution to American GDP growth?  What would it be?  Can we really make enough solar panels, windmills, fuel cells and weatherstripping to replace even a fraction of the depleted manufacturing base? I sure don't see how.

So here we are, on a treadmill headed slowly downward.  Unemployment is high, wages are flat, household debt is high.  So consumer spending is down.  As a result, the private sector seeks to avoid high employment and capital spending.  There is an immense and real need for infrastructure spending - roads, rail, sewage, smart grid, bridge maintenance - but in this political environment, fueled as it is by deep economic fears, there is no appetite for government spending, even when the Fed can borrow money literally at no cost.

So I'm stumped.  I recognize that few foresaw the massive technology driven growth of the 90s and early aughts, but at least there was an understanding that technology would contribute in some fairly large way to GDP.  Now?  Now technology consumption is a huge piece of American spending, but it's all imported.  The hundreds of billions of dollars generated by manufacturing our electronic devices goes to the GDP of developing nations.  And there's nothing to be done about that.  It was a race to the bottom, and we lost.

In the area around Vail, Colorado, there was over the last couple decades a great influx of wealth.  People of means wanted to live there, wanted a cabin there, wanted to vacation there.  The price of everything skyrocketed, from rents to home prices to everyday essentials.  Art galleries and upscale restaurants drove out supermarkets and bowling alleys.  Ultimately, there was a crisis as nobody could afford to live in Vail except consumers.  They wanted their hotel housekeepers, their waiters and busboys, their cops and janitors and plumbers, their dry cleaners and retail clerks.  And those people couldn't afford to live there.  The service providers had to scramble, subsidizing commutes, setting up private bus lines to bring workers as much as a hundred miles from where they could afford to live, even setting up dormitory - type accommodation for workers to stay in town.  This is a cautionary tale.

America cannot simply become a financial services economy sitting on top of a huge population of low-wage service workers catering to financial sector wealth.  If financial and corporate interests continue to strangle unions, export jobs, hold down wages and limit necessary government spending, they will find themselves living in walled compounds in an increasingly dystopian landscape of poverty, hatred and violence.  Certainly, they will have the option to leave for Switzerland, Germany or Dubai.  But one wonders if they even realize that if the American middle class consumer goes the way of the dinosaur, they will have to find a new supply of readily-influenced customers with significant disposable income to replace them - and that does no appear to be forthcoming.  At some point, it simply HAS to be in the interest of the plutocrats to make sure there are enough Americans with enough money to sustain their profit growth.  One wonders how bad things will have to get before they act on that interest...
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