America’s Descent From Greatness
“It was the best of times. It was the worst of times” is how Charles Dickens began his Tale of Two Cities in which he contrasted life in Paris in the middle of the French revolution and life in London at the same time. Both cities were going through the industrial revolution; steam engines and machines were replacing factory workers, creating great disparities in wealth. While Dickens found his contrast in two separate countries, his immortal opening line aptly describes the situation that currently exists in our country. When Donald Trump began his 2016 campaign for President saying he would “make America great again,” many Americans wondered what he was referring to. In 2016, America was the strongest nation on the planet with a gross domestic product 50% larger than that of the nation with the second highest GDP. In addition, America had the most powerful military presence on the planet, greater than the next six nations combined. What did he mean by making “America great again.” Wasn’t this nation continuing to grow and wasn’t it still much stronger than any of its peers? See, “The Greatness of America.
In retrospect, Trump’s campaign slogan probably wasn’t even intended to refer to the state of the American economy, but rather it harkened back to a time when white supremacists were openly accepted and when the “Equal Justice Under Law” inscription adorning many of the nation’s court houses was not intended to apply to minorities. Nevertheless, Trump’s message resonated even among those not familiar with right-wing code, because millions of Americans over the preceding thirty-five years had seen their standard of living decline while they were working harder and longer. To those occupying the lower 90% of the income scale, their country was in decline; whereas, for those in the upper ten percent of the income scale, life was improving; and for those at the very top of the income scale, these were indeed “the best of times.” This contradiction can be explained by the metrics chosen to measure national achievement. For example, this year’s Social Progress Index uses a compilation of twelve indicia to measure nations, assessing such subjects as education, health, safety, nutrition, sanitation and personal freedom. That index placed the United States in 28th place, behind virtually every nation in western Europe.
Does this mean that America is already passed its peak and is destined to decline? The sad answer is “yes” by most measures even though our country still possesses a commanding lead over other nations in terms of its productive capacity. But, even by that metric our nation is rapidly losing ground and will soon lose its preeminent status. How soon that will happen will depend upon how our leaders choose to manage our people and resources. To better understand this, you need to understand what made America great, why it is no longer that way for the vast majority of its citizens and the factors that could retard its ultimate descent as the earth’s most productive nation.
America’s Rise to Greatness
America’s current standing in the world was a product of many factors and was achieved over a long period. In 1800, America had a population of 5.3 million and generated a Gross Domestic Product (or GDP) of approximately $14.5 billion, placing it 12th among nations. Throughout the 19th century the nation’s population grew at a rate of approximately 3% a year while its GDP grew at a much faster annual rate. As a result, the nation’s economic standing rose steadily until 1890 when its GDP edged past that of China which had held the first place spot stretching back long before our nation’s founding. Since then, the U.S. has had the world’s largest economy reaching a level of almost three times that of the nation in second place during the last three decades of the 20th century.
Economic growth has a direct correlation with population growth. Stated another way, the larger a nation’s population, the greater the number of its citizens who can perform productive work. This explains why China, with by far the world’s largest population, also had the world’s largest economy for many years. For the same reason, India (which had the world’s second largest population) had the second highest GDP throughout the 19th century up until 1880 when its economy was surpassed by our own. In large measure, population growth was responsible for much of the growth in the U.S. economy during the 19th century.
America’s vast expanses of land that were rich in natural resources served as a major attraction to those seeking a better life. In addition, our nation’s laws promising religious freedom and our culture encouraging personal initiative also made America particularly inviting to those persecuted or suppressed in their own countries. My maternal grandfather was only one of millions of such young adults who came to this country during the 19th century. Upon his arrival here from Germany in 1872, he took a job in a print shop. After a few years, he opened his own printing business. His business grew quickly and, like so many other successful immigrants, my grandfather invited his friends and relatives from Germany to follow him here and work in his business.
Our nation’s economic growth was not merely a function of the growing size of its population, but also the character of those who chose to come here. Donald Trump’s depiction of immigrants being sent here by their native countries is a figment of his own personal prejudices. Immigration to the United States has always been a self-selective process. It takes a lot of courage and determination for immigrants to leave the land of their birth and the community in which they grew up and travel sometimes thousands of miles to a strange country where they don’t know the language and with little more than the clothes on their backs. For many, the trip itself was a major ordeal and a measure of their determination to work hard and contribute to their new nation’s future growth.
America didn’t grow its economy beyond those of China and India simply by increasing the size of its population. The main factor was industrialization. This can be seen from the fact that beginning in 1830 the nation’s GDP grew at a much faster rate than its population. In fact, in most decades its GDP growth was twice its population growth and in the five decades between 1950 and 1990 our nation’s GDP growth was over three times the rate of its population growth. America quickly began to adopt and improve upon industrial techniques first developed in Europe. In particular, it was quick to exploit advances in steam power, electrical technology and telecommunications.
Most of the technological advances exploited in America were available to the countries of western Europe. Their growth, however, was slower than that achieved by the U.S. because European society was far more structured, discouraging entrepreneurial activity and limiting upward mobility. Also, European countries were saddled with an existing infrastructure, which actually tended to inhibit their economic growth. Their streets were too narrow to accommodate large trucks and their buildings were old and not designed to accommodate new productive machinery. Nor were they wired for electricity. Not only would they have to be renovated or completely destroyed and rebuilt, but such changes presented psychological as well as physical barriers to innovation.
Strangely enough, the Great Depression had a positive impact on America’s assent to superpower status. America’s growth throughout the nineteenth century had been a rough and tumble affair, with business tycoons (often referred to as “robber barons”) establishing great personal wealth often to the detriment of their fellow citizens. These individuals employed anti-competitive practices to eliminate their competitors, over-charged their customers and stifled their workers’ attempts to organize. Although Theodore Roosevelt had attempted to curb some of their abuses, it took the Great Depression and a determined Franklin Roosevelt to bring them to their knees.
Roosevelt overcame the opposition of the U.S. Supreme Court to establish the principle that the federal government possessed the power to regulate business activity and went on to establish a host of regulatory agencies to assure that private businesses acted in the public interest. Roosevelt also provided assistance to labor unions which enabled workers to share in the profits generated by the nation’s growing productive capacity and had Congress enact the Fair Labor Standards Act which established a federal minimum wage. Perhaps most importantly, in an effort to create employment during the Great Depression, Roosevelt initiated a host of large governmental projects, expanding the nation’s infrastructure which facilitated future economic growth.
Notwithstanding Roosevelt’s many achievements, it took World War II to actually lift our nation out of the Great Depression. Like World War I, the second world war was devastating to the economies of the European countries, killing a generation of young workers and destroying their factories. Although America was significantly involved in World War II, not only was its productive capacity not destroyed, it grew to meet the needs of the war and emerged with little or no competition from abroad.
In addition, World War II had an enormous unifying effect. It fostered a culture of working together to achieve common goals and for a full generation, a feeling of unity pervaded all aspects of American life, with Democrats and Republicans working together to pass important pieces of legislation. In order to sustain the nation’s efforts during the war, Congress had greatly increased the nation’s income tax rates which stayed in effect for several years after the war and was used for the development of nuclear technology and other governmental projects like the construction of the nation’s interstate highway system. Another important post-war project was the effort to put a man on the moon. This project brought the nation far more than a few buckets of moon rocks; it established a host of new technologies, many of which formed the basis of our current telecommunication’s systems. In a very real sense, the major projects undertaken by our federal government immediately following World War II seeded the nation’s growth over the next 40 years, making the immediate post-war period the second fastest period of economic growth in our nation’s history and the fastest in relationship to the rate of the nation’s population growth.
Another by-product of World War II was the introduction of women into the workforce. Women, who had traditionally looked after their homes and children, became factory workers, replacing the men who had gone off to fight the wars in Europe and the Pacific. Following the war, many of these women continued to be a part of the nation’s workforce, greatly expanding the nation’s supply of productive workers.
What Changed?
As I have previously observed, the role of government should be to facilitate and organize the collective actions of its citizenry in order to maximize their productivity and well-being. There is no ideal form of government, as all forms of government have advantages and disadvantages. The perceived principal advantage of a democracy is that the direction of the nation will be determined taking into consideration the needs and perspectives of all of its citizens. In this way, everyone can be assured of participating in the nation’s growth and major errors of judgment can be avoided. Democracy’s principal disadvantage is that it can be difficult getting millions of people with diverse views and needs to agree on a unified course of action. Conversely, authoritarian governments have the advantage that decisions will be made quickly and decisively. Their disadvantage, as Donald Trump has shown us in his handling of the coronavirus pandemic, is that the decisions of an authoritarian leader can prove to be unwise and have catastrophic results.
Even though our nation’s founders had tried mightily to create a governmental structure that would facilitate decisive action while providing checks on the powers of the President, they probably did not envision that the structure they created would be subject to the type of abuse that we have seen over the last four decades. As detailed in my last article ”Partisan Politics,” over the past forty years there has been a concerted effort by the Republican Party to alter the role of government and to frustrate and abuse its systems of checks and balances. Rather than seek to maximize the nation’s economic growth, it has chosen to manage it in a way that would redirect the fruits of the national economy into the hands of its wealthiest citizens (see, “The Myth of Republican Economic Managerial Superiority”). This has been done to facilitate the creation of a symbiotic relationship designed to perpetuate the Party’s control of the government. These efforts have had, and continue to have, a detrimental effect on the continued growth of the nation’s economy.
At the heart of this strategy has been a concerted effort to eliminate, or at least minimize, many of the services which the government provides to maintain the health and well-being of the nation’s citizens. This has been principally achieved by sowing distrust in the actions of government and seeking to curtail the flow of revenues to the government. As a part of this campaign, the public has been warned that “government is not the answer to the nation’s problems, government is the problem” and the Democratic Party has been labeled the party of “tax and spend.” The resulting distrust in government has been used as a basis for limiting the government’s revenues and its role in regulating commercial activity that affects the well-being of the nation’s citizens. Republican efforts to limit the role of government have had two significant deleterious effects: they have left a significant portion of the nation’s citizens unable to work at their maximum efficiency and they have impeded the government’s ability to provide the infrastructure and technological achievements necessary for businesses to maximize their growth. They have also allowed businesses to operate in ways that are not in the public interests, just as they did during the days of the robber barons.
Among the favorite targets of Republican politicians has been public education. America has the world’s highest standard of living which also means that it has very high labor costs. Therefore, in order to compete in the world market, American workers have to employ sophisticated industrial techniques which will make their efforts at least as cost effective as those of lower-paid workers in other countries. This has been true for the past 200 years; and it was America’s embrace of public education which made that possible. Now that we are in a global economy, the need for high-skilled labor has become even more critical. Because the nation’s public schools tend to be unionized and the members of the teachers’ unions tend to support Democratic politicians, the Republican Party has essentially gone to war against the nation’s public education systems, forcing reductions in school budgets and, insofar as possible, redirecting education funds to private and parochial schools. As a result, teacher pay has not kept pace with increases in living costs and the quality of public education has declined, leaving U.S. school children at a disadvantage against those of other countries. This has had an adverse impact on the growth of the American economy which is only going to get worse until the nation assigns a higher priority to educating its children.
As a part of its efforts to sow division among the nation’s citizens, the Republican Party has adopted a “tough on crime” posture in which laws have been enacted making it illegal to possess certain mind-altering substances and imposing substantial mandatory prison sentences. In many cases, the substances deemed to be illegal were those commonly utilized within the black and Hispanic communities (such as crack cocaine), but not those commonly utilized by white citizens (like OxyContin). In addition, police forces have targeted black and Hispanic citizens with greater frequency than whites. While other countries tend to treat drug addiction as a health issue, in this country we have treated it as a criminal issue. As a result, we have more people incarcerated on a per capita basis than any other developed nation. This practice has reduced the number of citizens available to perform productive work and thereby reduced the nation’s economic growth.
Another problem that has impaired U.S. economic growth since the latter part of the 20th century is complacency. This brings me to the story of the two generals. No, I am not speaking of Generals Eisenhower and MacArthur, but rather General Motors and General Electric. Both companies, like many others, emerged from World War II as industrial powerhouses, with their products dominating both the U.S. and world markets. This remained the case up until the 1980s when both companies began facing increasing competition from foreign companies that had recovered from the damage they sustained during the war. The management of General Motors, basking in its earlier glory, continued on a business-as-usual basis throughout the 1980s, losing a large portion of its market share to Japanese and German automakers.
General Electric, on the other hand, promoted an industrial engineer named Jack Welch to be its new CEO. Welch was a student of Joseph Schumpeter’s theory of “creative destruction” which asserts that businesses, like living creatures, mutate and thereby render existing products and manufacturing techniques obsolete. Welch, therefore, ordered his division heads to become their own fiercest competitors, offering their customers enhanced products and employing new manufacturing processes before their competitors did. The result was that General Electric continued to dominate the fields in which it competed throughout the 20th Century while General Motors steadily declined for the next thirty years until the U.S. government had to save it from bankruptcy in 2009.
General Motors was not the only U.S. industrial giant of the post-war era to suffer from complacency. Others like AT&T, Kodak, Westinghouse, Chrysler, Sears Roebuck and virtually all of the nation’s steel producers failed to maintain their competitive positions. Today, a large number of U.S manufacturing companies have lost virtually their entire industrial advantage over those in other countries, leaving their laid-off workers to plead for their lost jobs to be restored.
How Can America Slow Its Descent
The reality is that China’s GDP will soon (most likely within the next ten years) surpass that of the United States. This assumes that both countries continue to grow their economies at the same rate they have grown over the past ten years. Even so, for both countries, the rate of economic growth is likely to decline. That’s because China’s growth rate has been exceedingly high (over 10% during the past 10 years) and it is unlikely that even its current rate of growth (approximately 6.5%) can be sustained over the next ten years. In contrast, the U.S. economy, has only been growing at an annual rate of roughly 2.5% and continued fiscal mismanagement is likely to make it decline further. That decline is clearly evident this year when our economy is likely to shrink, rather than grow. In addition, there are a number of structural factors that favor China’s economic growth and will impede future economic growth in the U.S.
China’s biggest structural advantage is that it has a population that is approximately four times that of the U.S. which means that for every productive worker in the U.S., there are likely to be four in China. This population differential has only been worsened by the current antipathy of our government toward immigration. While in the past we have been able to overcome that differential by being more industrialized, allowing each of our workers to produce more than their Chinese counterparts, that advantage is now quickly eroding. China also has a much lower cost of labor which enables it to better compete in world markets.
Another structural advantage enjoyed by China is the economic status of its own population. For many years the Chinese people have been net savers, largely because there were few goods and services available for them to purchase. In contrast, the vast majority of Americans are currently carrying a significant amount of debt which means that their ability to even sustain their current level of consumption is at risk. This is very important as the U.S. economy is largely (about 67%) built on domestic consumption. While a very high percentage (roughly 63%) of China’s economy is also based upon domestic consumption, most of that consumption has been by the Chinese government and not by its population. In a sense, China is now where the U.S. was immediately after World War II with a high degree of “pent-up demand” which is likely to propel its economic growth over the next two or three decades. Chinese President Xi Jinping, recognizing this fact, has called for an increase in individual consumption.
There are also some important differences in the economies of the two countries. Whereas the Chinese economy is largely based on the sale of goods it manufactures, the U.S. economy is largely based on the sale of services, the vast majority of which (like professional and food services) must be consumed domestically. Because manufactured goods can be and are sold all over the world, China’s economy is better structured for potential growth.
While we like to think that our democratic system of government provides our country with a great advantage, that has not proven to be the case in recent years. There are important and vital roles that governments must play in the growth of their economies. In recent years, China has actually excelled in this regard. It has developed long-range plans for future economic growth and put in place the elements necessary to develop the industries of the future. As a part of this effort, China has worked with other nations to build port facilities so as to facilitate the sale and delivery of Chinese goods in those nations. China has also directed its economy toward areas of future growth and provided infrastructures and governmental services that facilitate growth.
In contrast, the U.S. government has essentially abdicated the job of directing the nation’s economy and has simply left the direction of future economic growth to individual corporations which in most cases compete, rather than cooperate, with each other. This places China in a much better position to develop new industries. This can be seen in China’s current domination of the solar panel industry and its current efforts to dominate the next generation of telecommunications equipment. This is extremely important as the growth of our nation’s economy is likely to come through innovation rather than efforts to produce existing products more economically than other nations with lower labor costs.
China’s efforts to grow its economy have also included enhancing its education system, just as the United States did in the 19th century and the first half of the 20th century. This is also in stark contrast to what has been happening in the United States. While our colleges and universities are still the best in the world, even this advantage has been somewhat offset by China’s having many of its students attend our institutions of higher learning.
Even though it is unlikely that the United States will continue for long to possess the world’s largest economy, there are a number of steps which can, and should, be taken to enable the U.S. economy to grow at a faster rate. Many of these changes will not only improve the nation’s economic performance, but will also raise its score on the Social Progress Index and relieve the plight of those of its citizens who are currently struggling.
Perhaps the most important change that is required is to resume government investments in those things that may be beyond the capacity of private industry. Ever since the Republicans began preaching the gospel of small government, the federal government has essentially gone out of the business of building highways and bridges, not to mention abandoning efforts to construct high-speed railways. Similarly, the federal government is needed to upgrade the nation’s electrical grid. Fossil fuels are likely to cease to be the main sources of electrical energy and will be replaced by renewable energy from wind turbines and solar panels. These sources of energy differ from current power plants in two important respects: (1) they can’t provide constant energy which means they must be augmented by electrical storage capacity in order to assure the constant availability of electrical power; and (2) they are decentralized sources of energy. These factors require that the nation’s entire electrical system be rebuilt. While much of this can be done by private enterprise, government planning and assistance are needed to make it a reality. Similarly, the nation has to upgrade its communications infrastructure. While internet technology was started in this country, we now find our communications systems lagging behind those of other developed countries. This too will require government planning and assistance.
Closely akin to infrastructure investments, the federal government must invest and encourage the investment in new technologies. We are currently investing substantial sums into the development of a vaccine to combat the coronavirus which is fine, but it’s not an investment in future technologies like was done in the 1960s in the space program which is still paying dividends today. The government has to continue to invest in researching new technologies, like artificial intelligence, upon which the industries of the future will be based.
Even more importantly, the government needs to invest in its people so they can maximize their productivity. This will include establishing systems to assure that everyone has a home, adequate nutrition, basic education and available healthcare. The sad fact is that every citizen who is not able to live a productive life not only does not add to the nation’s economy, but detracts from it through crime and other destructive behavior. One of our national goals should be to maximize the productivity of our citizens. One of the nation’s major missteps has been the emphasis on “law and order.” The United States has too many of its citizen incarcerated in prisons where they do nothing to expand the nation’s productive capacity but divert much of its resources simply to maintain their incarceration. By revising the nation’s criminal justice system to substitute, where feasible, rehabilitation for incarceration, the nation will be able to produce more.
A significant part of investing in people is upgrading the nation’s primary and secondary school systems. In the nineteenth and twentieth centuries a high school education was deemed sufficient to qualify an individual for a good-paying factory job. Most of those jobs have now been lost to globalization and automation, and higher skills are required to succeed in America today. This has put a premium on higher education. While the number of colleges in America has greatly increased in recent years, little has been done to make the cost of a college education affordable for the vast majority of young Americans. The nation must find a way to make higher education more widely available and this will probably require greater use of remote learning which the coronavirus is helping us to explore.
A traditional source of labor in this country has been its willingness to welcome immigrants from all over the world. As discussed above, immigrants tend to be highly motivated and many have gone on to start new businesses and even new industries. In recent years, however, immigration into this country has been limited largely for political reasons. The federal government needs to do a thorough re-examination of the nation’s immigration policy not only to make more productive the 11 million immigrants who are currently illegally in this country, but also to bring immigration in line with the needs of the country.
Unfortunately, one of the largest and most consistent investments made by our government each year is in our nation’s defense establishment. We already has more than enough firepower to destroy the entire earth; and our military spending is not only more than that of any other nation, but more than that of the next six nations combined. What makes this investment so wasteful is that the military equipment we are purchasing is neither suitable nor necessary to defend against the non-state forces that are currently our principal enemies. Our military budgets could be cut to a quarter of their current size and we would remain equally as safe, maybe even more so because we would not be as tempted to take military actions abroad that tend to create new enemies.
An important aspects of our nation’s strength has been its relationships with other nations. Unfortunately, our current President has been doing his best to undermine many of those relationships in favor of what he calls an “America First” policy. In reality, it is an “America Alone” policy forcing our nation to confront world-wide issues without the help of other nations. His disavowals of the Iran nuclear agreement and the Trans Pacific Partnership have placed our nation in a more precarious position both militarily and economically. Therefore, one of the steps that needs to be taken to maintain our nation’s position in the world is to rebuild its international relationships.
One of the reasons why China has been able to grow its economy so rapidly during the past 30 years can be traced to its employment of unfair trade practices. The Obama administration formed the Trans Pacific Partnership in an effort to curb such practices as requiring foreign companies to share their technologies and trade secrets and partner with Chinese companies as a requisite for doing business in China. This partnership would have had the power to foreclose many of the world’s markets to Chinese products as a counter-measure to the restrictions that China placed on doing business within its borders. President Trump scrapped this strategy for curbing Chinese trade abuses in favor of a trade war which has cost American consumers dearly and accomplished nothing.
Most of these measures will not be possible without reforming the way our national government is being run. This will require the Republicans to abandon their brand of destructive politics (see, Partisan Politics) and resume working with the Democratic Party to rebuild trust in government and heal the divisions in our society that they have been working to exploit. A sound defeat at the polls in November might prompt such a change, but I am inclined to doubt it. Any such defeat will likely be treated simply as a rejection of Trump and not as a rejection of the partisan politics that has enabled Republicans to win the White House three times in the last 20 years with less than half of the popular vote.
This is very troubling because losing economic preeminence has ramifications far beyond Americans no longer being able to chant “We’re No. I” at international gatherings. One of the great advantages which the United States currently enjoys is that its currency is coveted all around the world, enabling our country to borrow large amounts at relatively low interest rates. This facilitates deficit spending when our economy sinks into a recession or when we need to keep it afloat to weather a serious economic crisis, such as the one we are now fighting. Losing that ability will not only hamper our nation’s economic flexibility, but it will also significantly raise the cost of servicing our $22 trillion indebtedness, forcing the imposition of large tax increases and significant cuts in government services.