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The Unrepentant Traditionalist
February 3, 2009
Avoiding Depression
by Frank Creel
The dismal science, as they call economics, is dismal mainly because it is not really a science. Science has to do with predictability based on observation. In economics, the actors are mostly invisible to single observers, and they are predictable only in the statistical sense. Rogue elephants abound.
Economics is also dismal because, if economists agree on anything, it is that cyclical fluctuations are inevitable. An economic forecaster who predicts that the good times will roll forever quickly becomes a professional laughingstock.
A quarter of a century ago, I asked an economist friend if we might sink into another great depression. No way, he replied. We learned our lesson from the last one, and there are too many safeguards in place, he assured me. Despite his assurances, I remained skeptical because, at the time, the hollowing out of our economy had already begun.
A few years earlier, I had seen a graph of manufacturing and public sector employment with the lines intersecting at around 19 million jobs apiece, with manufacturing employment declining and public jobs on the upswing. The graph had filled me with foreboding for our economic health.
In 1974, 26 percent of the job force was in manufacturing. By 2003, that percentage had fallen to 12.5 percent. Today, it is around 11 percent. The downturn we are now in will no doubt shrink this further.
A modern economy has three fundamental elements: entrepreneurs, workers, and bankers. If any of these elements upsets the system’s harmony through laziness, incompetence, greed, or injustice, the resulting imbalance will punish all three because all are interdependent.
Workers earn and save; bankers hold their savings and make them available for investment; entrepreneurs borrow capital and create new lines of production. When workers do not sell their labor too cheaply and are able to accumulate savings, when bankers provide commercial liquidity at a reasonable interest rate, and when entrepreneurs make wise investments, the almost predictable result is a vibrant economy like the one Americans created and enjoyed for most of the 20th century.
What happened to that economy? Why are we in the mess we are in?
Many blame the lack of regulatory oversight in the mortgage industry. Others cite the obscene greed of the financial sector in the derivatives and credit-swap markets. Still others point to CEOs making 500 times what they pay their line workers.
There are grains of truth in all these claims. All those were destructive of the harmony needed for an efficient, reality-grounded economy. But the main cause of our troubles has been overlooked.
We are in an economic mess because the American worker has been asked to do the impossible — namely, to provide for the needs of his family in direct competition with overseas workers who are not paid even subsistence wages. This is a gross injustice against American workers. One result is that most American families can no longer afford their mortgages if the wife does not also work outside the home. Another is that the national savings rate has plunged to zero. Outsourcing and offshoring have become mainstays of the national economy, with the steady replacement of well paying manufacturing jobs by jobs in the service and public sectors.
No recent administration has been bothered by these disasters. To our political leaders, from Reagan through Bush II, these developments were the normal accompaniment of free trade and the much-to-be-desired transition to a global economy. Dislocations could be managed with more generous unemployment compensation and job retraining. The American economy was headed to a more advanced evolutionary state of new manufacturing in the information era, supported by extensive employment in the service and public sectors.
Now we get support for our computers and phones from “Rachel,” speaking with a heavy Indian accent — turns out service jobs can also be offshored. Now public sector jobs are also on the downturn because the housing market bust has reduced tax revenues across the land. Now Silicon Valley is hanging on by the skin of its teeth. Now India graduates more engineers than we do, and an Indian institute of technology is ranked third in the world after MIT and UCLA-Berkeley.
All of this, I think, is the direct or indirect consequence of our systematic disrespect of the American worker, who, on a level playing field, can successfully compete with any worker in the world.
To avoid slipping into another great depression, our first priority must be to rebuild our manufacturing base with enlightened trade policies and the rapid creation — through the rulemaking powers of the governments of the industrialized economies — of global wage parity. Along the way to that goal, we must also avoid rewarding, through bailouts, rescues, and stimulus packages, those who disrupted the economic harmony we used to enjoy.
In all things, we need balance and moderation. This is especially true in the care and maintenance of our livelihoods.
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The Unrepentant Traditionalist is copyright (c) 2009 by Frank Creel and the Fitzgerald Griffin Foundation. All rights reserved.
Frank Creel, Ph.D., has been a columnist for the Potomac News, Woodbridge, Virginia. His op-ed articles have been published in the Northern Virginia Journal, the Washington Examiner, The Washington Times, and the New York City Tribune. In 1992, his A Trilogy of Sonnets was published pseudonymously by Christendom Press.
See a complete biographical sketch.
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