Numerous reports in the media have spilled ink and electrons alike detailing the difficulty the US and other countries are having getting back on economic track. Mainstream sources are especially prone to argue that debt and the banking system are the twin towers of our economic malaise.
These are undoubtedly major factors: A sick banking system, especially one so dominant as what we have allowed to develop in the US, is a risk to us all. Debt? Yeah, well that is pretty bad too, but it is much harder to quantify and accurately characterize. What is demonstrably false is to insist that federal debt is unwaveringly bad and must be avoided. We'll wait until another day to review the lack of regulation that brought on our banking fiasco. But however one apportions blame, it was not America's underclass, or the middle class, that put the economy in the ditch.
But I digress. A recent article in the Wall Street Journal captures the angst so many feel about the sluggish economy. It notes that countries with relatively strong banking systems, such as Brazil and Chile, have experienced relatively strong job growth.
In the US, huge increases in consumer debt have been steadily climbing to unsustainable levels. As the Wall Street Journal notes, “As of March, U.S. household debt stood at 122% of disposable income, down from a peak of 131% in early 2008 but still well above the 100% economists tend to see as sustainable.” The Journal doesn't say it, but the huge increases in consumer debt were fueled by Wall Street's credit card frenzy, action that was implicitly approved by the federal government. It has taken a recession to get that debt figure down.
In any event, an under-regulated banking system, and the mountain of debt it fostered, are only part of the analysis. There is much missing from mainstream sources, including the WSJ and other cheerleaders for the financial elites, for they hold back, unwilling to acknowledge the core contradiction in their analyses.
Japan was among the other countries the Journal reviewed (based on data from the OECD and the International Labor Organization) Again, the emphasis was on national debt, and the reluctance to hire workers that is supposedly the direct result. The obvious bromide is that Japan can create jobs if would just cut spending.
But Japan has a more fundamental problem, and it is a problem that will only spread. The Japan of today is being compared to the Japan of yesteryear; the post-war era from roughly 1960 to 1990. But that gravy train is over. During that time Japan built up huge overcapacity, encouraged by the knowledge that the US was wide open to imports. The US actually took all that free trade talk seriously, as it demonstrated an unprecedented willingness to sacrifice its manufacturing base. Japan took free trade seriously as well, at least the export half. Along the way, Japan became hugely dependent on the American market to maintain growth.
Regardless of how one cares to assess blame on past US-Japan trade tensions, Japan's ability to export to the US has been compromised by unrelenting competition from its Asian neighbors: First the Asian Tigers (Taiwan, Korea, Singapore, and Malaysia) and more recently China. Huge quantities of merchandize that used to come from Japan now come from somewhere else. And it will likely only get worse. Japan's meal ticket in America will never be as lucrative and wide open as it was up until the end of the 1980s. Japan created fantastic over-capacity because it took full advantage of its access to the American market. That market will never be the low hanging fruit for Japan again. Spending, debt, tax burdens? Those are secondary reasons.
Despite the frantic ranting in the US about debt, stimulus spending, and taxes, others seem unwilling to acknowledge the systemic corner into which we have backed ourselves. Policymakers pretend that there is a painless way out. There is not. The mind reels when one sees that many elected officials actually argue that tax cuts are the solution.
Only two issues remain: how much worse will it get before we turn on our antagonists, and who will feel the pain of adjustment? So far, the answer to the second question clearly are the poor and the middle class; roughly 80-90% of all Americans. Unemployment is high, and it will remain high, because many of the jobs are not coming back. This is the reality that the Obama administration did not create but must face. Much of the stimulus money is being spent on Asian imports, which serves to stimulate their economies, not ours. Corporate America, often with government blessing, has created a massive systemic trade deficit with Asia and much of the world, by abandoning factories, communities, and entire industrial sectors, along with the millions of relatively good paying jobs that went with them. All of this in the name of free trade.
So people will not return to work in this economy as they did in the past because those factories that called them back after previous layoffs have moved abroad. The impact has been masked by the willingness of consumers to take on massive debt. Consumer debt, along with government's own deficit spending, have sustained the economy, but growth will not continue without a healthy industrial base.
The banking debacle may have put the economy in the ditch, but the decay has been well under way for decades. This is a fraudulent economic system and completely unsustainable.
There are clear signs that many people finally get this. And the signs that we will make the painful decisions, and actually stand up to America's plundering elite?
That's not so clear.