Macroeconomics For Sports Fans
The vast majority of Americans are rabid sports fans with many even willing to pay several hundred dollars to attend a single sporting event. They appreciate that in sports victory generally belongs to the team that receives maximum performance from all of its players. Even though they accept that principle in team sports, they largely reject it when it comes to the nation’s economy. Instead, Americans proceed on the basis of “everyone for himself” and generally resent (or even vehemently oppose) their government’s efforts to help their fellow citizens to become more productive.
This is not a wholly irrational position because working-class Americans have no assurance that relying on their government will enable them to receive their fair share of the nation’s wealth. Indeed, they have many reasons to believe that it won’t. First, the government may not take steps to assure that the entire nation is maximizing its productive capacity. More importantly it will not assure that the nation’s economic growth will be fairly allocated among its citizens. Indeed, even in democracies, those who possess great wealth have generally been (and continue to be) able to control the way the government runs the economy and fashions its systems for distributing the nation’s wealth to favor them.
This article explores why a “teamwork” approach could both maximize our nation’s economic growth and vastly improve the financial positions of working class Americans. Before doing so, however, I would like to point out another fact well-known to all sports fans; namely that professional sports teams are strong believers in basing their managerial decisions on statistics. Indeed, most professional sports teams employ statisticians to track the achievements of individual players as well as the won/lost records of other teams in their league. Macroeconomics employs that same approach.
Like all team sports, a winning strategy is heavily dependent on the rules of the game and the configuration of the playing field. In basketball, creating the three-point shot greatly changed the required skills of the players and game strategy. Similarly, in football adding the two-point after-touchdown conversion altered the strategy in that game. Similarly, there have been rule changes in macroeconomics. In particular, transportation costs have been greatly reduced so that a manufacturer’s competitors and suppliers are no longer limited to those located in the same town or state or even the same country. In short, we now live in a global economy in which it’s generally more economical to acquire needed items (both parts and finished goods) from another country that has a lower cost of producing those items.
Because the U.S. has a higher standard of living than most of the world’s 200+ nations, it also has higher labor costs. This means that it is generally cheaper for Americans to import goods requiring a significant amount of manual labor to produce. It also means that for U.S. companies to continue to be able to sell their products in other countries, they must either develop better products than those being produced in other countries or utilize highly mechanized means of production so as to enable each American worker to produce goods more efficiently than workers in low-wage-countries.
Factors Affecting Economic Growth
Now, let’s look at those factors that enable countries to prosper economically. A short list includes:
Population Size
Natural Resources
Individual Initiative/Education
Governmental Philosophy
Population Size
When the United States was founded its economy was tiny compared to those of other nations. At that time, the world’s two largest economies belonged to China and India. While both were relatively undeveloped nations, their economies exceeded those of all other nations. That’s because they each had a super-abundance of individuals able to produce goods and services. Their economic dominance, however, was short-lived because other factors soon came into play. Specifically, European nations became pioneers in the industrial revolution, and their ability to utilize machinery to mass produce goods enabled their economies to leapfrog over those of China and India.
Population growth played an important role in enabling the economy of the U.S. to surpass those of European countries notwithstanding the fact that industrialization was pioneered in Europe. This was largely because Americans tended to have large families to help them tend their farms and because the U.S. not only had an open immigration policy, but also promoted immigration by claiming to be the “land of the free.”
Even though industrialization has now spread to all corners of the earth, population size remains an important factor in determining a nation’s productive capacity. It was China’s dominant population size along with its current emphasis on industrialization and trade expansion that led me in 2020 to predict that it would surpass the economic power of the U.S. by the end of this decade (see, “America’s Descent from Greatness”). Although China has made a couple of major mistakes since I made that prediction, it’s still a pretty safe bet.
Today, the U.S. actually has a population shortage with roughly 8 million jobs going unfilled. This problem is the result of the current smaller size of U.S. families who predominantly live in crowded cities and not on farms. This issue is more fully discussed in “The Perversion of U.S. Immigration Policy.” Perhaps even more troubling is the fact that the U.S. population is now older with the result that the percentage of working Americans has decreased in relationship to the number of non-working Americans. This demographic trend is placing social welfare programs like Medicare and Social Security in jeopardy of becoming insolvent, a problem which can be alleviated by changes in the terms of those programs and increases in tax revenues and immigration quotas.
Natural Resources.
An abundance of natural resources is also an important factor in determining the economic potential of nations. This can most clearly be seen in the Middle East where oil-rich countries are among the world’s richest nations. Specifically, Saudi Arabia has the world’s 19th largest economy; United Arab Emirates ranks 29th; Iran ranks 34th, Iraq ranks 51st; and Qatar ranks 55th. By Contrast, other Middle East countries without oil tend to be much poorer. For example, Lebanon rank’s 100th; Cyprus ranks 105th; Somalia ranks 142nd; and Djibuti ranks 164th. In the U.S., an abundance of natural resources has accounted for much of its rise as an economic power. Specifically, the U.S. is rich in oil, natural gas, coal, iron ore, copper, lead, bauxite, uranium, timber and an abundance of arable land and fresh water .
Individual Initiative/Education.
Individual initiative and a focus on universal education have perhaps been the most important factors in determining the strength of the U.S. economy. Americans have always been a nation of rugged individualists who are willing to work hard to create a better life for themselves and their families. This is particularly true of those currently seeking to immigrate to the U.S. They have to overcome great obstacles just to arrive at our borders which is strongly indicative of their determination to work hard to achieve a higher standard of living.
In addition, our nation has encouraged its citizen to obtain an education that will enable them to achieve a higher standard of living as well as enrich their lives. During the 19th century the populations of most nations were uneducated and their economies were largely underdeveloped. Even those European countries that embraced the Industrial Revolution failed to grow their economies as fast as the U.S. because they had class-based societies. Although their aristocrats were educated, those nations saw no need for the remainder of their citizens to become educated. Indeed, many of them feared that educating their citizens would lead them to revolt. In addition, upward mobility in most industrialized counties during the 19th century was discouraged, if not altogether prohibited. Those born into the lower classes were simply not allowed to hold positions of power in either government, industry and commerce. It was these factors that both enhanced the lure of life in the U.S. and enabled its citizens to become more productive.
The importance of individual initiative and education can perhaps best be seen in the phenomenal economic growth achieved by the State of Israel. When it was formed in 1948 Israel had a population of approximately 800,000, a GDP of roughly $24 billion and a per capita GDP of $2,818. Today, this tiny nation has a population of a little over 9 million and a GDP of $564 billion. Its per capita GDP is now over $58,000 which places it 13th among all nations. What makes Israel’s economic growth so startling is that it has no natural resources and little arable land and fresh water.
Admittedly, a significant part of Israel’s remarkable growth is attributable to immigration. In the 75 years since its formation the State of Israel has taken in 3.2 million immigrants which accounts for roughly a third of its 2300% increase in GDP. The balance of its growth has been through the exploitation of its most important resource, its brain power. Education has always played an important role in the Jewish culture; and among those immigrating to Israel were a significant number highly educated individuals including professionals and scientists. Among their early achievements included ways to overcome their country’s shortage of water. Today, Israel leads the world in managing water resources.
Over the past 50 years, Israel has directed its brainpower to the development of nuclear technology, weapons of war, medical and security systems and other high tech devices. To develop these capabilities, it has established a venture capital fund which has provided financing to roughly 16,000 entities. In 2023 Israel exports totaled over $67 billion (over $23 billion of which consisted of high tech equipment). To feed the development of its high tech industries, Israel has a number of world-class universities including Hebrew University, Technion Institute of Technology, the Weizmann Institute. Ben Gurion University, Tel Aviv University and The University of Haifa. This has resulted in Israelis having won 13 Nobel prizes and generating almost 5,000 new patents each year.
Governmental Philosophy.
A critical factor in a nation’s economic growth is how its government conducts its affairs and manages its economy. Today, governments tend to be divided into two principal classes (authoritarian and democratic) with various deviations from each of these two governmental formats. Each has their advantages and disadvantages. See, “The Role of Government.” Authoritarian governments have the ability to act quickly and decisively which is important in a world that is changing at an accelerating pace. Democracies have the advantage of making decisions on the basis of a multitude of considerations which means that they are generally slow to act, but are not as prone to making significant mistakes. These advantages and disadvantages lead to a panoply of hybrid forms of government (see, “Ranking of Countries by Quality of Democracy”).
For the most part, those countries whose governments are classified as “Working Democracies” generally enjoy high per capita GDP. Conversely, most of those countries whose governments are classified as “Autocracies” generally have low per capita GDP. However, there are two notable exceptions to this latter observation. Both Qatar and the United Arab Emirates which are characterized as “Hard Autocracies” appear to be outliers. Qatar’s per capita GDP is $90,793 placing it in 4th place, and UAE’s per capita GDP is $55,905 placing it in 19th place. These two nations, however, share two important characteristics. First, they are both blessed with large petroleum reserves; and secondly, and perhaps more importantly, each have relatively small populations, 2.6 million and 9.4 million, respectively. Indeed, it’s the UAE’s significantly larger population that principally accounts for its lower per capita GDP than that of Qatar.
Of more relevance to the U.S. (which has a per capita GDP of $85,373) are the data of those countries classified as “Hard Autocracies” or “Moderate Autocracies” with populations of over 100 million. They tend to have very low per capita GDPs (China - $12,720, Russia - $14,213, Egypt - $3,132, Bangladesh - $2,659 and Ethiopia - $1,613). It thus appears that autocratic leaders tend to be bad managers of their nation’s economies. They also have a tendency to steer their nation’s wealth into their own hands as well as those of individuals that help them to stay in power. As more fully discussed below, channeling the nation’s wealth into the hands of the very rich is the very problem which this country has been recently experiencing, but thankfully to a lesser degree (see, “Understanding Our Economic Paradox”).
The vast majority of working class Americans are currently of the view that our federal government has not been protecting their interests. That conclusion is wholly justified as it has been estimated that over the past 40 years a total of $50 trillion has been shifted from the bottom 90% of Americans to the top 1% of Americans. They also believe that our federal government has become so dysfunctional that it’s incapable of rectifying this situation. They are therefore starting to believe that an autocratic government couldn’t do any worse and might just help them do better. The data, however, do not support that conclusion. In baseball parlance it would be like giving up a first round draft pick for a starting pitcher with an earned run average of 7.3.
Improving the U.S. Economy
This brings us to the question of why our federal government has failed working class Americans and what changes are needed to be made. The answer lies in the fact that the nation’s two principal political parties are operating under distinctly different economic managerial philosophies. Republicans see government as being far less efficient than private industry and, therefore, contend that the federal government should only play a minimal role in running the nation’s economy. They also have doubts whether government officials elected by a minimally-informed electorate are competent to run our nation’s economy. This leads them to try to minimize the revenues our government can collect as well as our government’s efforts to regulate private enterprises. Admittedly, private enterprises tend to be more efficient than government-owned enterprises; and that’s why our nation’s road, bridges, airports, elementary and secondary schools and veterans’ hospitals are among the very few endeavors actually run by our federal and state governments.
Democrats, on the other hand, believe that leaving the nation’s economy solely in the hands of private industry poses two serious dangers. First, private enterprises only seek to invest in those ventures that are likely to produce an immediate profit. Unfortunately, many highly beneficial investments only return a profit after many years if not decades. This includes the construction of highways and bridges and the creation of new technologies. Equally important, private industries are only willing to serve those individuals who can afford to pay for the goods and services which they are offering. That leaves the needs of many Americans (especially the 13.5% that live in poverty) being left unserved. Far more explanatory of these differences is that the Republican laissez faire philosophy resulted in the U.S.’s Gilded Age and the Great Depression. Their resurrection of those same economic policies (reducing business taxes and regulations) over the past 40 years may now be leading to equally devastating results.
An integral part of the Republican Party’s current economic policy is to channel the nation’s wealth into the hands of corporations and wealthy individuals on the alleged justification that they are the nation’s “job creators” and will use that wealth to benefit all Americans. This approach is generally referred to as “supply-side” economics. It is the economic equivalent of “If you build it, they will come.” The problem is that businesses only expand their operations when they have reason to believe that there will be consumer demand for the goods and services that will result from their investments. The fallacy of supply-side economics is fully explored in “The Myth of Republican Economic Managerial Superiority.” It’s not that Republican politicians are stupid or irrational. Rather, it’s just that their goal is not to expand the nation’s economy, but rather to simply transfer the nation’s wealth to their benefactors, much in the same way that dictators (like Putin) funnel their nation’s wealth into the hands of the oligarch’s that support them.
A collateral source of disagreement between Republicans and Democrats centers around social welfare programs. Republicans have long railed against these programs claiming that they are “socialism” and may even lead to communism (see, “Fear of Socialism”). They also argue that welfare programs diminish a nation’s work ethic and entrepreneurial spirit. Ironically, the best proof of that assertion is that illegal immigrants decried by Republicans who do not participate in our welfare programs tend to work much harder than native born Americans. In large measure, however, the decreased work incentive argument is simply propaganda designed to appeal to the hates and fears of most working class Americans. The simple reality is that Republican politicians oppose social welfare programs not because they are detrimental to our nation’s economy, but rather because they require governmental expenditures which have to be financed with taxes which they have promised their major donors they will minimize.
Democrats understand that working-class Americans are being forced to live from paycheck to paycheck and have to overcome a host of obstacles and distractions just to put in a good day’s work. Those who don’t have healthcare insurance may have to work while sick or otherwise infirmed and spend hours in a hospital emergency room just to receive superficial healthcare. In many working class families both parents are required to work just to provide for a subsistence living for themselves and their children. They need childcare for their pre-school children and after-school programs that will keep their school-age children out of trouble during the “mischief hours” between the time schools let out and the time they arrive home from work. Hunger and nutrition are also concerns of many working-class families. It’s hard for a parent to work efficiently while worrying about their ill-nourished or ill-supervised children. Thus, Democrats view social welfare programs as a way of maximizing the productivity of working class Americans and have little fear that such programs will undermine the work incentives of the vast majority of Americans who are seeking to create a better life for themselves and their families.
As more fully articulated in “Fear of Socialism” each of the Nordic countries (Sweden, Denmark, Finland, Norway and Iceland) have adopted a wide variety of social welfare programs (including national healthcare systems) with great success. All of these countries have high standards of living with all six having per capita GDP’s in the world’s top 13 countries. In fact, Norway ranks 2nd with an average income of $94,540 as compared with the U.S. which ranks 4th with an average income of $76,770.
It is also important to note that the Nordic countries have achieved these commendable results while lacking the U.S.’s natural resources. Moreover, their citizens on average do not have to work as hard as Americans to achieve overall economic results comparable to those of U.S. residents. The Nordic countries also enjoy lower rates of poverty, longer life expectancies and far less income inequality. Thus, there is significant reason to believe an expansion of the social welfare programs in this country could prove beneficial. At the very least they would reverse our growing rate of income inequality and reduce our rate of poverty.
At the outset of this article I suggested that working class Americans have good reason to believe that simply relying on our government to make sure that they will be fairly treated poses real problems. One of the ways that the wealthy have skewed our nation’s economic system is by implementing automatic systems for collecting taxes from working class Americans while leaving the collection of the mandated taxes on wealthy individuals largely self-regulated. This alone has resulted in an estimated $150 billion annual loss of federal income taxes. As we have seen over the past ten years, efforts by Democratic administrations to address this problem have been both opposed and diminished by Republican administrations and legislators.
The good news is that once social welfare programs are enacted Republican administrations and legislators have been very reticent to diminish, much less, repeal them. This offers the hope that once adopted additional social welfare programs will remain in effect and will provide working class Americans with a lasting chance of receiving their fair share of America’s prosperity. To achieve these results, however, American voters have to stop allowing themselves to be distracted by cultural issues (like outlawing abortions and banning books about LGBTQ Americans) . You certainly wouldn’t judge a sports team by the attractiveness of its uniforms. Instead, working class Americans should pay more attention to the economic issues which have a real and direct impact on the quality of their lives. These are the issues which in sports parlance put points on the scoreboard. Stated another way, when working class Americans go to vote they have to jettison their “every-man-for-himself” approach to economic issues and employ a team perspective in addressing them.