Republican John Sidney McCain III is trying desperately to back away from his "fundamentals of the economy are strong" line, even going so far as to say he meant American workers. But not so fast. In fact, it is the fundamentals of the American economy that are in dangerous trouble. Let us count the ways. I’m going to have to give you some straight talk, my friends:
1. Debt. The nation is deeply in hock to creditors worldwide. We used this line of credit to finance the housing bubble, wars in Iraq and Afghanistan, tax cuts to the richest Americans, rebate checks that went into the ether and the privatization of hundreds of billions of dollars in government services. It’s paying for the bailout of Bear, Sterns and it stands to take a devastating shock from Freddie and Fannie. From government to business to consumers, Americans are debtors, and most of the debt has been pissed away on war, sprawl, speculation and corruption, as opposed to building something for the future.
As the economist Nouriel Roubini has pointed out, the current account deficit in the ’90s came back as investment in private innovation, but for the past eight years it has been used to finance deficit spending and debt. Moreover, now much of this debt is held by nations that do not necessarily wish us well, including China and the petro-states such as Saudi Arabia.
This situation dangerously limits our options in foreign policy. It makes it a near certainty that living standards will take a big hit as we have to pay it back. Remember, when the Soviet Union collapsed, the first people in the door were the bankers, wanting to be repaid for the debt the Bolsheviks defaulted on after the 1917 revolution.
2. Banking. This is the worst banking crisis since the Great Depression. Institutions are mired not only in debt they can’t work out — asset values keep falling — but highly complex "innovations" such as derivatives. This is why Warren Buffet years ago called them weapons of financial mass destruction. The result is a credit crisis and a workout that will take years, further exposing future generations of taxpayers to lower living standards to pay for the cleanup. It also is blowing a huge hole in an economy that has grown more dependent on "financial services" for jobs as its manufacturing sector collapsed. Nobody knows where bottom is right now. We’d be having bank runs now if not for the "socialist" safeguards put in place by the New Deal and fought and denounced by Republicans.
Meanwhile, investment banking has imploded, as this profession became the haven of sharpies pumping up the next bubble and making obscene fees by pushing a constant stream of unsound "products" and mergers that served only one purpose: short-term gains. I’d feel sorrier for all these Lehman and Merrill people losing their jobs if their institutions hadn’t come to be based on peddling deals that caused millions of Americans to lose good jobs that have mostly been replaced by low-paid service employment, deals that gutted communities and American production. Yet, again, their greed and "risk taking" has moved the entire system to the brink.
3. Human capital. America is badly trailing its 21st century competitors in math and science. Even an affluent state such as Washington has an abysmal high-school dropout rate. As China builds hundreds of universities, we struggle to fund the ones we have. We’re not building the workforce that will be needed by an advanced nation in the new century — although this is cloaked by the transfer of wealth from the Baby Boomers’ parents. Wealth created in another America.
Millions of Americans struggle just to get by, often working two or three jobs. Wages have stagnated for seven years, despite rising productivity. Our health-care system is a disaster, especially not focused on prevention, and leaving 47 million people with no coverage. (Republican John Sidney McCain III, who has had government healthcare his entire life except for when he was a POW, promises the "market" will fix this.) Meanwhile, the foundations of the great American middle class of the last century — well-paid, secure jobs; pensions; benefits such as health care, and Social Security and Medicare are either slipping away or targeted for destruction by the McCain-Palin administration.
We have not a clue what to do with millions of low-skilled, non-English-speaking immigrants who are not going home. They lack the ladders up available in a manufacturing economy. The result: a permanent underclass. Another one is brewing in former manufacturing states. Add in the worst income inequality since the eve of the Depression, and it will be interesting. Can American Idol, crap bought on credit from Wall Mart and "babies, guns, Jesus" keep distracting the economic losers?
4. Wall Street. It’s soon to be eclipsed as the world’s financial capital, and no wonder. The very foundation of shareholding has been debased and sold for dross. This takes more control of our financial destiny, and the ability to attract capital, out of our hands. Once powerful Lehman Brothers was forced to grovel to a sovereign wealth fund from Korea — which said no. The casino that is Wall Street has vaporized the nest-eggs of millions of Americans, even as CEO compensation kept rising, pushing forward a social crisis of retirees who must work until they die (but, of course, not in "our economy" of the rich and well connected represented by Republican John Sidney McCain III).
5. The dollar. It’s no longer the world’s only reserve currency, which means our endless line of credit is running out. A weaker dollar not only makes American assets worth less, it also raises the specter that our overseas creditors may cut us off and run for the exits. They’re already diversifying out of dollars, unthinkable even 10 years ago. Exports can’t offset this danger (see No. 7).
6. Infrastructure, investment, research. We obviously have the transportation infrastructure for a 1960s: a cheap-oil, car-dependent society, now aging badly. Years of tax-cut ideology have left cities and towns, counties and states, with inadequate everything else, too. This will have serious competitive consequences. So, too, will our flagging investment in science and research, which also built the American Century. These, along with education and health care, are the building blocks of a nation that will prosper. We’re discussing lipstick.
7. Manufacturing. Big ticket items such as Boeing jets (increasingly outsourced to overseas subcontractors) can make American manufacturing still seem strong by some measures. It’s not. Check out any Midwestern town. The great trade deals of the 1990s have not worked out as advertised. We need to admit that and find some new solutions. Hundreds of thousands of former textile and apparel workers in the Carolinas didn’t become bankers or software engineers (yet the white ones will vote, cow-like, for Republican John Sidney McCain III and his mega-millionaire wife). Meanwhile, development of new industries is hobbled — solar is being done in Germany.
8. Regulation. American markets, once the envy of the world, are no longer trustworthy. Only regulation ensures the best of market forces. Without it, you have the jungle ("our economy"). Now McCain and Palin are talking about "reforming Wall Street." Why, that’s just like Obama, and they’re white! Dig deeper, and the two believe the problem is too much regulation. Behind the scenes is the father of deregulation, and one of the baby daddies of this disaster, Phil Gramm, who prospered mightily from helping Wall Street and banks in the Senate, then going to work for them. Another McCain adviser: John Thain, who just got more than $9 million for helping wreck Merrill Lynch in the deregulated environment. Another: Carly Fiorina, who nearly destroyed Hewlett-Packard and eliminated thousands of jobs buying Compaq, an anti-competitive deal made possible by no anti-trust enforcement in the Republican years. Her paycheck when she was fired by H-P: $42 million.
9. The world economy. It’s in a slowdown thanks to America’s meltdown. It doesn’t help that our foreign policy has decomposed into pre-emptive war and empty saber-rattling.
10. Government. Incompetence, crony capitalism and corruption make solving these problems that much more difficult. America has a mixed economy, even after 27 years of conservative rule, so bad government is a rotting fundamental. Thomas Frank, in The Wrecking Crew, writes that conservative ideology argues against competent government. Because, you see, if government solved problems, people might like it. Now we’re unprepared to draw capital and talent in a competitive world or to deal with the crisis of global warming. And all those guns and armies are ultimately vulnerable to debt and economic collapse, as has happened to every empire in history.
Those are the fundamentals. And the polls show, at best, a tied election.
Good points as always.
I’ve seen signs over the past 3 or 4 years that the conservative tide has reached its high-water mark. Those signs are at the local and state levels and may not be enough to prevent one more Republican win at the national level.
As much as another Republican presidency would hurt, it may be necessary in the long run. If the ‘people’ vote Mcain & Palin into office despite all of the news we have about their true natures and agendas, the things they do in office may be enough to precipitate the crisis we need to act.
We Americans like to think of ourselves as heroic (what nation doesn’t) but our history actually speaks of waiting until the literal last minute and then reacting. Once roused, we have shown great capacity to change things. We have shown absolutely no capacity for preventive action or taking action soon enough to be cost-effective.
Civil rights, air pollution, water pollution, and even Y2k were done as last-minute, can’t deny it any longer, acts of change. We now spin them as progressive, but they were reactive. Enough people are in denial about Global warming, peak oil and theocracy that we take no action.
Much of this is because the current money owners see no profit in change and do profit from things as they are. When the crisis (or crises) come there will be profits to be made then, as we will not pay attention to the price tag as we ‘all pull together.’
It may be necessary to get closer to the disaster before enough people can see that it is, indeed, a disaster. Like you, I see all the signs of the fall of empire. Every one ever founded has fallen. We will be no different. Will it be now or later?
There is bitter irony for me in the fact that seeing a McCain-Palin win as necessary for precipitating change is too much like the view that since Israel must re-build the temple before the rapture, Palin supports Israel.
Good points. Its scary out there but there are some high paying jobs posted on employment sites. Here’s 2 of the newest employment sites from About.com’s top 10 employment list.
https://www.linkedin.com (professional networking)
https://www.realmatch.com (matches your perfect job)
There is a fantastic job out there for everyone!
This is an excellent article. The 10 points are true, and I applaud how Mr. Talton is expressing this.
I would like to add a few comments.
With respect to item #3 (human capital) and item #7, which mentioned “software engineer” — something crucial is missing.
We have a **surplus** of human capital now. We have a lot of skilled people who are laid off or who can’t find jobs. There are plenty of software engineers who are out of work. I think that having Microsoft in Seattle may be distracting, but realize that Microsoft hires about 0.5% of its applicants, and rarely hires software engineers who are over 40. Not all of the 40 year-olds are stupid and outdated.
I know excellent engineers with advanced degrees who are teaching school, cutting hair, and in other lines of work, because they can’t get jobs. Too old for Microsoft. Too old for Google. Don’t want to be a contractor. Out of the field.
The US is wasting its human capital. In my view, it is unfortunate to imply that there is a shortage of human capital here, when we have so many people out of work.
When 500 of us were laid off from the Kennedy Space Center, we were told to become janitors and burger-flippers, because Sean O’Keefe, the NASA Director, said “engineering is for Indians, and not Americans.”
Now, to be fair, you are correct in saying that we are not currently developing human capital, but realize this. People have seen that it is stupid to pursue careers in math and science, so why bother? They have seen too many people like me, who worked at famous tech companies, got promoted, and did very well, and then were suddenly thrown under the bus because “Indians work cheaper” and “engineering is for Indians.” The payoff for multiple tech degrees and a high skill level — the NASA director told me to work at Wal-Mart, cleaning toilets.
Who would be stupid enough to follow my path? Why take 6 levels of college calculus, and write software to launch space shuttles, if the result is that O’Keefe consigns you to cleaning toilets? (with great sarcasm, scorn and snickering??)
In the end, none of the ideas you proposed are going to work unless we develop some of those good jobs you are talking about. Then there will be a motivation to pursue math, science, manufacturing, etc.
Spot on. This blog should be required reading for everybody. Keep up the good work.
Easily the best short overview of the subject I’ve seen. Excellent work, Mr. Talton.
I’ve seen the crap Indian and Mexican engineers and techies have put out and it should make NASA and us think twice about flying or driving.
An excellent article, as are virtually all on this blog — the only blog I read every day. I’ll pass this around, as I’ve done with lots of your articles. Keep on keepin’ on!
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculators. 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.” — John Maynard Keynes, 1936, The General Theory of Employment,
Interest and Money
“We have always known that heedless self-interest was bad morals; we know now that it is bad economics.” — Franklin Delano Roosevelt, 1937
And it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them.
https://italian.about.com/library/anthology/machiavelli/blprince06.htm
Mike, have you considered a job in China? I have no doubt you could find someone to hire you, possibly not at the same rates as NASA, but relative to the local economy you could do nicely (give or take a little cultural adjustment).
If you can adapt your calculus to the mining industry then Canada or Australia might be options, perhaps even Africa.
I agree that human capital is not just about training and schools (although the US is struggling in that area) it is also about whole-life commitment and opportunity. People are not stupid, if you don’t offer a viable career path, no one will train, if they don’t train why bother with schools? Each part of the chain hangs on the other links.
In the software engineering game, one really good experienced engineer is worth a dozen enthusiastic young typists. The accountants try to measure keystrokes and volume of code but without a good team leader the recent graduates tend to reinvent old mistakes, produce ever growing code but go backwards in terms of project completion.