America's Economic Problem

In my last article I briefly described the monumental economic and social problems that have been so brilliantly discussed, respectively, by Walter Russell Mead in a series of articles for “The American Interest, and by Charles Murray in his groundbreaking book “Coming Apart: the State of White America, 1960-2010.” 


Another seminal reference, that predates Mead and Murray by about a year, is the piece called “Keeping America's Edge” by Jim Manzi in “National Affairs” (Winter 2010). “The United States is in a tough spot. As we dig ourselves out from a serious financial crisis and a deep recession, our very efforts to recover are exacerbating much more fundamental problems that our country has let fester for too long.” And what are these festering fundamental problems? On the economic side, there is the creative destruction involved in free-market capitalism and the ever-increasing international competition. And on the social side is “the growing disparity in behavioral norms and social conditions between the upper and lower income strata of American society.” As you see, Manzi raised the very issues that Mead and Murray expound upon.


In this article I will concentrate on the economic issues although, as we will see, these issues are inter-related. Many say that the economy will be fixed when the housing industry recovers from the bubble; or when consumer confidence returns; or when companies stop sitting on piles of cash and start hiring; or when the Federal government begins to seriously invest in the economy and green technology, as though the “stimulus” was way too small. I will not argue any of these points since, at best, such measures could bring a temporary reprieve. Our problems are structural and much more serious.


A few statistics will illustrate the problem. Consider, first, our country's transition from an agricultural to an industrial economy. Quoting from Manzi: In 1800, America was a nation of farmers: About three-quarters of the labor force worked in agriculture. Since then, this share has been in almost continuous decline. By the eve of the Civil War, it was a little over half; by 1900 it was about one-third. Today, agriculture employs less than 3% of the work force. This has been great for ¬consumers: Farming is now incredibly efficient, and food is cheaper and more plentiful in real terms than ever before in human history. American agriculture today is also a successful industry; in 2007, the U.S. exported more than $75 billion in agricultural products, However, the agriculture industry can no longer provide employment for very many people.


Just imagine the immense upheaval that occurred around the turn off the 20th century, when two thirds of the work force needed to be employed in something other than farming, and industry was not yet able to provide jobs for all the out of work farmers and new immigrants. Eventually American ingenuity prevailed, with Henry Ford, John D. Rockefeller, George Westinghouse, and many others finding myriad ways to employ millions of eager factory workers.


A lot of pain was endured along the way to this new economic model. “Writing about the onset of the Great Depression, John Kenneth Galbraith famously said that the end had come but was not yet in sight. The past was crumbling under their feet, but people could not imagine how the future would play out. Their social imagination had hit a wall.” (The previous quote and much of what follows has been copied from the marvelous series of ten articles (77 pages) by Walter Russell Mead, that may be found at his blog site “Via Meadia,” 1/24/12 – present)


From the era of the first European settlements in North America up through World War I, the family farm was the key social, economic and even political institution in the country. Unlike the oppressed peasants of Europe most Americans owned and worked their own land. The individual family farm was prosperous and independent and the cornerstone of American democracy. Then the family farm died of abundance; it died of the rapidly rising productivity that meant that fewer and fewer people had to work to produce the food on which humanity depended. The industrial and scientific revolutions of the 19th century made agriculture so much more productive, and brought so many of the world’s hitherto remote and inaccessible lands into productive contact with world centers of population, that old and outmoded methods of production could no longer be sustained.


The same thing is happening today: The 20th century model of the American dream faces the same kind of crisis the 19th century version experienced 100 years ago. International competition and technological advances mean that the American factory worker’s earnings and opportunities are depressed in the way farmers were going to the wall 100 years ago. Our successful manufacturing economy led us to push for free trade; that stimulated other countries to export to U.S. markets and generated the kind of financial flows that undermined the nation-based Keynesian economic model. Just look at the numbers. In 1974, one quarter of the US private sector labor force worked in manufacturing. Today, that share is down to about 11 percent. In parallel with that decline, real hourly wages for private non-supervisory workers have been stagnant for a generation. In 1974, the hourly wage was $4.22; in 2007, before the recession, it was at $4.18 (in 1974 dollars)


Jobs are disappearing in manufacturing and the learned professions for the same reason they disappeared from agriculture 100 years ago: productivity is rising. Fewer hands were needed back then to produce the food we ate; fewer hands are needed today to make all the cars and cell phones the planet’s consumers care to buy. Fewer humans in green eyeshades are needed to do the world’s accounting; fewer typists, stenographers, clerks and managers are needed to get the world’s clerical work done. Automation and outsourcing will combine to limit employment opportunities and income levels for most accountants, lawyers, architects and even some types of medical specialists. (X rays and CAT scans can be read as easily in India as at the local specialist’s office, and given the exponential improvements in software, many other medical processes will become susceptible to outsourcing and automation.)


A century ago, agriculture was in crisis because fewer people were needed to produce the world’s food supply. Today, the middle class is endangered because fewer people are needed to do the world’s routine factory work and information management. In both cases, the economic dislocation and painful change were the side effects of progress rather than the signs of dissolution. The reality last time around was that with fewer hands needed at grow food, more human energy, talent and skill were available to do other things: to produce the goods and services that a more sophisticated and much richer modern industrial society would want and need. This time the emerging economic model will revolve less around “stuff” and more with arrangement, delivery, intelligence, capability and design. And a lot of our economy won’t be about making things at all; it will be about enjoying the freedom that comes when less and less of life revolves around getting the necessities.


Revolutions in manufacturing and, above all, in communications and information technology create the potential for unprecedented abundance and a further liberation of humanity from meaningless and repetitive work. Our problem isn’t that the sources of prosperity have dried up in a long drought; our problem is that we don’t know how to swim.


The real political division in American today is between those who think the old days can come back if only government does the right things (tax rich people; pump enough money into state and local government, health care and the higher education industry; raise tariffs high enough and sprinkle enough subsidies on enough industries to protect and rebuild the manufacturing sector) and those who realize that the past is gone and we must now create a new future. In a very real sense, liberals have become reactionary traditionalists while conservatives have become the new progressives.


But America is good at change. We absorb immigrants better than most. We like new things and like to try them out. We have an optimistic streak in our nature; we believe that change is basically good and that being open to new things will make us happier and better off. Our religious sensibility is future-oriented and believes that God is working through the chaos and uncertainties of life.


Roland Bainton, church historian (1894-1984), used to speak beautifully about the way people learned to open themselves to the changes God had in mind for them, and about the special kind of courage they needed to do that. He would encourage his students to think about something Martin Luther once said: “Christ is my bee. He comes not to sting me; he comes to bring me honey.”