It was around the time of America’s centennial that Dr. Brewster Higley first described “home on the range” as a place “… where seldom is heard a discouraging word.” It’s a pretty safe guess that he wouldn’t feel at home in our current economy.
We are surrounded by discouraging words these
days and no one with any real credibility seems to know when they will end. Worse, a growing number believe that the economy has had the fight knocked out of it — and when it does pick itself up it will look more like Europe than the America it used to be.
If you like slow growth, permanently high unemployment and a bureaucracy that buries problems for all eternity, Euro-America will be like a dream come true. For those of us who believe that America has the ability and the duty to be the moral and economic leader of this world, though, Euro-America sounds like giving up.
What happened to the U.S. economy? One factor is that we put an increasingly unhealthy proportion of our resources into areas and activities that have little or no potential to boost economic growth.
A disproportionate number of our most innovative and educated people end up working in non-productive sectors. Far too much of our current economic output, for example, as measured by Gross Domestic Product is the result of resources devoted to amusing ourselves in one way or another. Devising new ways for people to occupy their time has become a major industry.
Large numbers of our well-educated and creative young people devote their talent to the development of video games and social media products for example, because that is where the money is today.
Yes, it is true that video games are not a total waste of time, that some of their technology spills over into useful simulations and control mechanisms in aeronautics and medicine. And social media can sometimes be put to good use, too.
For the most part, though, they are products and services designed to be entertaining, to occupy people’s time. But as more than 14 million people unemployed in this country will tell you, spare time is highly overrated. They would rather be working, thank you. And that is not likely to happen unless we do something about economic growth in our economy.
We also put an unhealthy share of our resources into the financial services sector. By providing efficient capital markets, the financial sector contributes to economic growth, but there are limits to its potential for that. An economy can absorb only so much capital no matter how efficiently delivered and low-cost it is.
The super-sized and structurally concentrated financial sector is positioned to exploit its customers as well as to exert an undue level of influence on government — both of which tend to foster inefficiency and dampen economic growth.
Another factor in our current situation is that we have failed to solve the problems facing two major potential sources of our economic growth: education and health. In both cases increasing government involvement has not produced anything resembling solutions and both critical areas remain far too expensive — and, in that sense, inefficient — to support robust economic growth.
Lastly, we have outsourced major sources of economic growth, most notably manufacturing and agriculture. These are areas in which bringing to bear our expensively acquired knowledge and capital efficiency can increase productivity and generate rapid economic growth … but not when the manufacturing plants and agricultural operations are in some other country. For many of our best and brightest young people manufacturing doesn’t even show up on their career radar. It’s something that other people, somewhere, do.
It isn’t all gloom. There are some encouraging words to be found in our economy, many of them in manufacturing — just where we need it. A firm in Woodinville, for example, found that a combination of hard work, innovation, customer care and capital investment allowed them to compete successfully with Chinese firms whose labor costs had given them a 40-percent pricing advantage.
We know what to do to get our economic growth back. First, we need to start encouraging manufacturing instead of treating it as if it were the enemy. Second, we need to break the cost cycle that has both academia and health care in a death-grip. Third, we need to reduce the costs of government-sponsored infrastructure projects. And, lastly, we need to re-evaluate our trade policies, and the economic models, that have brought us an imported cornucopia of inexpensive consumer goods that in the long run we cannot afford.
Fixing the problems won’t be easy, but it will get rid of those discouraging words. Then maybe we can start working on those skies that are cloudy all day.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.
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