The New Economy
Where We Go From Here
America is ready for a re-set. Everyday life has come to an unprecedented near-stop that would have been inconceivable at the beginning of 2020. With the U.S. Presidential election coming in November, the time is perfect to evaluate where we are and to envision the Country we want to live in. We are collectively in a great pause, with both great potential for shaping our lives the way we really want and alternatively for a return to the same-old-same-old.
Policy-makers have a big responsibility to come up with answers to big questions. As individuals and as a society, do we want a return to the old normal? Now that we have seen what life is like without work or with less income, we can really see what works and doesn’t work in our economy and the way resources are allocated. As a nation, does our work and the money we make create the Country we want? What is the right balance between work and leisure? What needs to change in our economy and the way we live? Do we want to rebuild our Country and require our political leaders to come up with the resources to improve out lives and fix what is broken?
America’s response to the pandemic is a wake-up call. What we as Americans value itself has become problematic. Our national economic security does not just depend on liquidity and velocity of the money supply, easy money and low interest rates. Boosting consumer spending and service employment is not the long-term fix economists and political leaders hope it is. Income redistribution and social programs benefiting lower and middle-income Americans may boost demand for consumer goods, employment and housing, but will not guarantee prosperity for our Country on a long-term basis.
Consumption and finance dominate our economy. The consumer and services economy alone do not generate the kind of higher-paying jobs that will significantly increase the income and wealth of most Americans. We are increasingly just moving money around, and our money tends to accumulate in an increasingly concentrated sector of the economy. We have seen the result in the flatlining of American household income and wealth when adjusted for inflation over the past half-century accompany the insufficient allocation of funds to bring our infrastructure up to 21st century standards.
The decline of America’s industrial base threatens national security and our way of life. America’s shrinking industrial base makes in increasingly difficult to modernize and maintain our infrastructure. The decline of American heavy industry and manufacturing and the shift to a consumer, service and finance based economy along with the loss of high-paying, skilled jobs, coincides with the deterioration, obsolescence and neglect of America’s infrastructure and the public realm. In the absence of government contracts on an ongoing basis, the private sector alone will not re-industrialize America or allocate sufficient resources to infrastructure and the public realm. Moreover, consumer goods are increasingly manufactured abroad, and the auto industry, aerospace and defense industries employ a shrinking labor force as production become increasingly automated.
Building and modernizing airports, high-speed rail, road and bridge improvements, modernizing the grid, developing non-fossil fuel energy, waste removal and recycling plants, building water and gas pipelines, cleaning polluted lakes and waterways, cleaning the air we breathe, building hospitals and school buildings, managing forests to provide wood and minimize fire risk, flood control, maintaining parks and public spaces, building affordable housing — all require massive industrial investment, involving the creation of higher paying and higher skilled jobs than typical of the consumer and service sectors. Private enterprise is about making money. Its concern is not the public realm. Profit and return on investment, shareholder value and capital accumulation are its primary goals. Not infrastructure Not the public realm.
America has been coasting with respect to infrastructure since the 1960’s. American infrastructure and the public realm in all forms are increasingly underfunded and obsolete. Economists and policymakers all acknowledge that. Republicans and Democrats say they are united on the need for infrastructure funding, but little changes.
The defense industry and the military-industrial complex provide the model for an infrastructure-industrial complex that employs the strengths of capitalism to rebuild the Country. An infrastructure-industrial complex will employ American-owned private enterprise in competitively bid contracts to rebuild and maintain American infrastructure in an environmentally conscious, state-of-the-art approach to manufacturing, construction, power generation from renewable sources, a modernized efficient power grid, transportation projects, environment clean-up, and agriculture. That is how we re-industrialize America.
Many see the solution to America’s economic problems as mainly a matter of re-structuring taxation to re-distribute income and provide social benefits to all Americans, particularly those with lower and middle-incomes. Again, that solution can only go so far if it only moves money around and stimulates demand for consumer goods and services. Income redistribution alone will not to build up, modernize and maintain infrastructure and the public realm.
Some economists say that America is now post-industrial, and the economy in the digital or quantum age is based on information, data, services, automation, and artificial intelligence, rendering manufacturing and work as we know it obsolete. Some even say that it will be economic to pay people not to work, and that people should not have to be rich to enjoy the basics of a good life. We ship industrial production abroad where labor costs are low, keep money easy and cheap, reduce taxes and the economy is supposed to flourish. Yes, that will enhance corporate profits and shareholder returns, but only slightly improve the economic well-being of the population at large.
This vision of a post-industrial age, where we no longer make things because other people do, over-simplifies reality. The unpreparedness of our healthcare system to deal with a pandemic belies that notion. Construction, infrastructure, power generation and distribution, managing the environment, public health and safety, agriculture, transportation, defense, and all sorts of equipment will continue to involve heavy and light industry, regardless of automation and artificial intelligence. Even if industry will be less labor-intensive, large numbers of skilled, well-paid workers will find employment if the nation makes a serious commitment to improve and maintain its infrastructure and public realm on a long-term basis.
Just as in the past, in the 1930’s for example, when our Country took action to address major challenges and threats, voices of opposition raise objections of states’ rights, free enterprise, private property, big government, socialism, tax and spend, skyrocketing deficits and public debt, local government, and keeping taxes low. Nevertheless, at critical points in our history, we did act when the general well-being of our people depended on it.
Looking back for precedents in American history, what comes to mind are the Homestead Act, the Transcontinental Railroad, the Sherman Anti-Trust Act, The Sixteenth Amendment to the Constitution establishing the federal income tax, the New Deal, and the Great Society. Each of these entailed a re-balancing of the private and public interests to expand the economy, break up over-concentration of capital, and to re-allocate resources for the benefit of the people at large. Periodically in our history our Country comes into the realization that a re-set is necessary, and we are at such a point now.
We are facing a perfect storm of inadequate infrastructure, loss of our industrial base, climate change and environmental degradation, a dysfunctional healthcare system, and a lopsided economy caused by an over concentration of capital in too few hands. Meanwhile, other social and economic objectives are subordinated, postponed or ignored.
Even before the Corona virus pandemic we have been facing dysfunction in our system. Half of the households in America earn less than $62,000 per year, which does not get you very far anymore in this Country. Rather than rail against the such exploitation and inequality, let’s accept the reality that our system runs on gross inequality. America has a large underclass. The economy depends on a large population of low-paid people to perform a host of tasks required by business and society. The problem is that these low paid people are us.
Rather than force people to work longer hours at low pay, or work multiple jobs to pay for healthcare, childcare, education, and decent housing, we need to subsidize the income of low-paid people if we want the consumer and service sectors of the economy to run on low wages, and still have a healthy society able to partake in the American dream. This is the argument for a universal basic income, free or affordable healthcare and public education.
The cessation or reduction in America’s economic activity due to the Coronavirus raises fundamental questions as to how we value economic activity itself. Is economic activity just about making money? What do we have to show for it? What are we getting for the taxes we pay? Do we live to work or work to live? What’s it all for? Private enterprise has become equated with capital accumulation, and success has become equated with the maximum accumulation of capital. The danger is that the American dream has become a nightmare escape from drudgery while the rest of the suckers work or do what you don’t want to do or get by somehow. Meanwhile America gradually declines into a second tier country. The point is not that money is the source of evil or that materialism is bad or that capitalism is no good. Nor is this merely an argument to raise taxes from corporations and the super wealthy to redistribute capital so as to subsidize the income of lower and middle-income Americans.
What kind of America do we want to live in? Rebuilding America is not going to be a quick fix in the next quarter. It is a long-range commitment over the next quarter century. Government contracts for private enterprise to build out our infrastructure in all forms will require increased taxes on corporations and the wealthy. Large-scale, long-term infrastructure contracts will enable private enterprise to hire people, build or retrofit factories, and re-industrialize our country. We will see state-of-the-art airports, transportation systems, hospitals and clinics, school buildings, non-fossil fuel power generation, a 21st century power grid, dependable sewer and gas lines, water treatment plants, healthier forests, flood control projects, waste treatment and recycling plants, affordable housing for low-income people, and environmentally conscious agriculture.
The New Economy does entail a redistribution of capital, but that is not all. The creation of an infrastructure industrial complex aims at making a decent life possible in America regardless of how much you earn. The American Dream needs renewal. We need to create a new economy valued not just by how much we accumulate but by how we allocate what we accumulate and the kind of world we want to live in.
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