Here in the midst of Moca Almond Bubbleland with an official floor unemployment rate of 15 percent (double it for the real rate and blame it on seasonal agricultural labor, our embarassment), we don't think much about manufacturing. Nevertheless, it's useful from time to time to glance over at the thinking emanating from the rusty regions of the nation that once drove the national economy.
Manufacturing once controlled finance; now finance controls manufacturing, government and much more. As far as finance, insurance and real estate (FIRE) interests are concerned, industrial agriculture is just another kind of manufacturing, except that it's easier to manipulate and has the best labor situation in the country because it's dominated by undocumented workers who must live their lives in the US in the legal shadows.
We've already seen what FIRE can do with housing (and even now is planning to do again), The same simple, out-of-control "logic" is operating in agribusiness and, with the new farm bill (to be discussed later), it's on steroids. We hear the constant plaintive whimpers of local government economic development staff lamenting one more manufacturing firm offering more permanent jobs looking at and rejecting Merced as a plant location. The latest business concern is water. Imagine!
Merced doesn't want any business that will raise wages. It's a threat to the "Valley Way of Life" our politicians extol in glossy brochures, TV commercials and dim-witted speeches as the economy limps on like a character from Samuel Beckett -- Malone Dies, for example.-- blj
The 2015 Economic State Of The Union: Get Ready For The Next Debt Crisis
By Charles W. McMillion
My basement is full of 30-plus-year-old reports with titles like "America at the Crossroads," "America's Two-Minute Warning," and "America's Competitive Crisis." These reports and hundreds more were written at the national, state and city levels by America's top business, labor and academic leaders in the 1980s. Their warnings of lower U.S. living standards -- the reality that America now faces -- received tremendous attention at the time but, in the end, were ignored.
Post-WWII prosperity and strong growth gave way to U.S. and global economic weakness to the point that Bretton Woods' core link of the U.S. dollar to a fixed gold price collapsed in 1971 yielding a far weaker dollar. Troubles mounted with soaring OPEC oil prices in 1973 and 1978. How could the United States sustain its uniquely broad and rising middle-class living standard in a rapidly modernizing world of cheap labor and land with globally and instantly mobile technology and capital? What could prevent global factor price equalization from destroying the American middle-class, the U.S. economy and security?
It was clear that U.S. companies faced the choice to rapidly "automate, emigrate or evaporate." But there was a political divide. Many thought that all levels of government (so successful during WWII and in addressing the Soviet "Sputnik" and other challenges) had vital roles to mobilize a new, more productive, competitive policy path. Others, who seemed largely ideological or self-interested even as they surrounded themselves with American flags insisted that government was the problem and merely needed to get out of the way with lower taxes and less domestic and trade regulation.
Ironically, it was President Reagan's high profile Commission on Industrial Competitiveness that first brought to prominence the threatening "new realities" of global competition and the urgent need for forceful, new government competitiveness policies in foreign trade, science, education, venture capital, infrastructure and much more. It was vital to nurture a future of "computer chips not potato chips."
Democrats were generally enthusiastic, but Republican suspicion of government quickly hardened into adamant opposition and an even deeper faith in tax cuts, deregulation and "free" markets -- "voodoo economics" to Reagan's vice-president and later President G.H.W. Bush.
With tax cuts, deregulation and little more than a few, politically driven (and temporary) voluntary trade restraints, the new, oil-based trade deficits of the 1970s were quickly joined by a reversal of long-established U.S. manufacturing trade surpluses. Unending manufacturing trade deficits began in 1983 and first exceeded -$100 billion per year in 1986. Sustained deficits in the full U.S. Current Accounts deficits began in 1982 and first exceeded -$100 billion per year in 1985.
There was some expectation in 1992 with the election of Bill Clinton as president that the country might get serious about the fierce global competitive challenge. But the policy dominance of Goldman Sachs' co-chairman Robert Rubin and his narrowly self-interested Wall Street entourage quickly converted what was a partisan divide into a triangulated and then increasingly bipartisan Wall Street-dependent political money chase.
Virtually every Congressional Republican and the Clinton administration assured that giving unprecedented investor guarantees but otherwise deregulating U.S. trade with Mexico would assure the then U.S. trade surplus with Mexico would permanently expand -- thereby creating thousands of high-wage American jobs -- while also ending illegal immigration, assuring stability in Mexico and helping the United States reduce its trade deficits globally.
To those involved, all these assurances seemed absurd even at the time. The U.S. trade surplus with Mexico vanished in NAFTA's first year with ever-greater U.S. trade losses thereafter. The promised never-ending surpluses now total -$1.1 trillion in accumulated losses to Mexico under NAFTA. The U.S. now imports more vehicles from Mexico than all U.S. vehicle exports to the world.
Chronic trade losses that first appeared and soared at the start of the Reagan administration have exploded, with full Current Account losses since 1982 totaling -$9.9 trillion. Globally, just since 2000, the U.S. auto/vehicle/parts industry's trade losses alone total -$1.9 trillion including record losses of about -$165 billion just in 2014. Since 2002, the United States has suffered large annual trade losses even in the Advanced Technology Products (ATP) category; the annual ATP trade deficit with China in 2014 was over -$100 billion for the first time.
With a wide range of very aggressive trade and industrial policies with a focus on growing its manufacturing sector, China's economy has tripled in size since 2000 and, measured by purchasing power, overtook the U.S. economy in 2014 to become the largest in the world. Even in its current slowdown, China is growing three times the U.S. rate so, if the current pace continues, China will be vastly larger and more powerful than the United States in each forthcoming year.
Over the 12 years of the Reagan-Bush presidencies ending in 1992, federal and household debt had soared by half-again as much as the total growth in GDP. "We borrowed it all," I told President Clinton at his pre-inaugural "Little Rock Economic Summit" in December 1992. The naively anti-government "free" market Reagan Revolution was a failure. Not only did it replace making goods and services with falling wages and a dependence on massive borrowing for imported goods and domestic services, but it sold the pernicious lie that there is no common U.S. public interest, only powerful private interests promising low wages and prices to downwardly spiraling workers.
What I could not even have imagined then is that every four-year period from 1985 until today has seen federal and household debt soar by more than the total nominal growth in GDP. Indeed, since 2000, debt has grown 2.6 times as fast as GDP growth. ($255 of debt for $100 of GDP under Bush and $270 for $100 of GDP under Obama.)
Combined Federal and household debt from the beginning of the republic -- including world wars, a civil war and severe depressions -- through 1980 was $2.26 trillion, 79.0 percent of GDP.
It is now -$31.19 trillion, 177.7 percent of GDP.
This debt is now only slightly off its 2013 all-time high of 179.6 percent of GDP, but far above its level of 160.8 percent of GDP in September 2008 when Wall Street's financial system collapsed and was bailed out.
Today's debt level is far above its peak level of 137.9 percent of GDP at the end of WWII.
After more than 30 years of relentless hollowing-out of the productive U.S. economy, what can be said of the few thousand most extremely rich, their politicians, media celebrities and pundits who claim to be uncertain or mystified about falling living standards and rising insecurity among almost everyone in the United States not working directly or indirectly for Wall Street's crony capitalists? They have now privatized the original definition of the national competitive challenge so that it is merely how can the globally networked few assure their freedom to pursue their fantasies while keeping a strict lid on wages to the disgust of everyone else.
With any real discussion of a productive U.S. trade and competitiveness policy off the table, endless posturing over soaring and clearly unsustainable debt seems silly. There is no alternative.
The real question now seems to be is this: Is it possible to reason with the all-powerful crony capitalists and, if not, how do Americans best prepare for when the unsustainable stops again?
-- Dr. Charles W. McMillion is the recently retired president and chief economist for MBG Information Services, a past contributing editor of the Harvard Business Review and associate director of the Johns Hopkins policy institute. He was a founder and policy director of the bi-partisan Congressional Competitiveness Caucus.