Politics and Reality

In the current political climate, real problems have been ignored while solvable problems have been turned into intractable dilemmas for political purposes.  The great irony is that the Republican Party, which is most responsible for the debt problem facing the United States, is now using that problem as the "crisis" which keeps the government from addressing the real problems.

 The debt problem is fixable, make no mistake.  The U.S. is not broke.  Getting the country out of debt will take some new revenue, but that revenue will enable the government to deal with those changes in the world and at home which demand attention if the United States is to continue to be a country which provides real opportunity for prosperity to its citizens.

 The real problems, the ones which are being ignored in all of the "debates," are complex and scary.  I will address two of these in this posting.

 The United States, in its current employment configuration, faces a potential dilemma of long-term, maybe permanent, high unemployment.  The employment picture in the U.S. is decidedly dark.  While major corporations are sitting on billions of dollars in profits from current operations, over fifteen million Americans are looking for work.  The average working class family has seen a drop in its income since the year 2000 and the new jobs which are being created are in the lower paying sectors of the service industry.

 Pundits and commentators go on the media to say that businesses aren't hiring because demand is still slack, or the markets are still too volatile.  The debt crisis in Europe is blamed.  Anti Illegal-immigration fanatics argue that American jobs are being taken by those who cross our borders without permission.  Others blame outsourcing, pointing to all of the jobs which have been sent to lower wage countries.  All of these arguments are either false or off the mark.

 Demand is higher than it was in 2009, yet unemployment hasn't changed.  The European Debt crisis is a problem for investment banks, yet it hasn't seriously dented the volume of trade between the U.S. and the EU.  Illegal aliens are not taking the jobs which have been wiped out, because they've been wiped out, and that's the problem.  While the truest standard claim for job losses, outsourcing, has caused many jobs to leave the U.S., it is far from the main culprit for the level of unemployment that plagues us now.  The simple fact is that over seventy percent of the jobs lost to Americans over the past thirty years have been lost through automation.  Jobs which used to be done by humans are now being done by machines.  That process is irreversible.  It will, in fact, continue.  It is being fed by two things.  The first is just the process of discovery in the area of new technology.  The second thing is the business policy of profit maximization.

 Every technological advance is two-edged.  It has the potential to create new avenues of human endeavor, and thus, new jobs, or it has the ability to be applied in ways that reduce the need for human labor.  The policy of profit maximization predisposes business managers to use technology to reduce their human workforces.  The largest single cost in any business is the cost of human workers.  Every job that can be eliminated means that much of the money which would have been spent on a human worker will now become part of the profit the business generates.  Look at every restructuring plan of companies which have fallen on hard times.  The plans all call for layoff and/or job elimination.  The best example I can think of is that of General Motors.  In 1980, GM employed almost a million workers.  It built poor quality cars, but still possessed over sixty percent of the U.S. auto market.  Today, GM produces fine cars, sells as many as it did in 1980, and employs only seventy thousand workers.  Without a loss in quality or a loss in production, it has shed ninety-three percent of its workforce in thirty-one years.

 So, we have two problems, one of which is obvious and seemingly intractable, while the other, which is largely responsible for the first, is praised as the basis of successful enterprise.  Profit maximization, however, is the poison bullet which will kill Capitalism.  Slack demand is caused by unemployment.  Those without jobs cannot afford to spend.  Those with jobs are worried about their job security and hold back on spending.  Demand would increase if companies stepped up their hiring.  Companies which have wiped out jobs, however, can produce without new workers and don't need to hire.

 Ironically, we can see this progression working in those countries which have been the beneficiaries of our outsourcing.  The new jobs created in those countries have created higher demand.  The new demand, however, has created the push for higher wages and we have seen some of those jobs being brought back to the U.S. because the companies that outsourced them have found it is cheaper to have them done at home.  Higher demand is created by higher employment and good wages.  People use their income to buy goods and services.  When they have more, they buy more.  When their income is secure, they buy more for the future.  When their income is less secure, their time horizons shrink and they buy only for current needs.

 Profit maximization militates against the long-term health of the economy.  It makes all employment less secure.  It creates higher unemployment.  It destroys the very markets that drive the American economy.  Remember, over seventy percent of the American economy is based on consumer spending. We are no longer the nineteenth century America where the biggest customers for business were the government and other businesses.  Our economy is now based upon the worker who is the main consumer.

 In order to create higher employment, we will have to shift our business model form a profit-maximization model to a sustainable one.  Does every business need to grow?  There are many businesses which generate regular profits and provide good jobs without trying to squeeze every dollar out of operations.  Should businesses be thinking about the future? Yes they should.  Profit maximization also leads to the blurring of ethical thinking that characterized the investment meltdown.  Bright, young men and women tried to manage the risk inherent in the investing world by shifting it to someone else.  The investment bankers bundled bad mortgages into bond-like instruments and sold them to other banks, or had them insured through credit-default-swaps.  They knew that these "securities" were toxic, but they thought it was okay to pass them on as long as it minimized the risk to their companies and maximized their profits and bonuses.  It was the thinking behind these practices that was toxic, and it will always be.

 In my next posting, I will discuss the real problem of energy and climate change, another set of dilemmas which, in the Republican world of debates, doesn't exist.