The Real Threat to America’s Future and How to Deal with it

American capitalism is facing a serious ethical, philosophical and economic crisis that our so-called leaders are refusing to deal with. The crisis is actually an easy one to understand, but a hard one to grasp; our economy is no longer providing sufficient jobs for the nation’s population.

US manufacturing output actually reached near record highs; without creating significant numbers of new jobs, in 2015. These figures taken from a March 28, 2016, MarketWatch column by Rex Nutting outline the crisis very well.

Numbers that show our economy is producing plenty of stuff but no jobs:

• America’s production of durable goods actually hit a record high in 2015; and all US manufacturing output came close to breaking a record set in 2007.

 

• The Federal Reserve’s Industrial Production and Capacity Report indicates that American manufacturing accounted for 36% of the economy; with a value of $6.2 trillion, but only 8.7% of Americans worked in the sector.

 

• Even though US production of durable goods in 2015 was twice what it was in 1995; and three times the level of 1980, America actually lost around five million manufacturing jobs between 2000 and 2015.

 

• The manufacturing sector provided Americans with 17.3 million jobs in 2000 and 12.3 million jobs in 2015.

Presidential Candidates Fail to Deal with the Crisis

The numbers clearly demonstrate that America is experiencing a manufacturing boom, but the working class is not participating. Technology; such as robots, is allowing manufacturers to ramp up production and profits without adding to the labor force.

What’s truly disturbing is that the Presidential candidates are ignoring this issue. Three of the major candidates; Hillary Clinton, US Senator Ted Cruz (R-Texas) and Governor John Kasich (R-Ohio) are simply refusing to talk about any economic issues. Two more are sort of talking about the problem, and getting it wrong.

Probable Republican nominee Donald Trump offers a simplistic and emotionally-satisfying explanation by blaming free trade. His narrative is popular; even though economic data disproves it, because he offers bogeymen to blame the situation on -in the form of Mexico and China. Trump also offers an easy to grasp and gratifying solution the shape of high tariffs.

US Senator Bernie Sanders (D-Vermont) makes similar statements about, trade but offers no specific solutions. Instead, Sanders’ campaign is focused upon a systematic reorganization and expansion of the nation’s welfare and tax systems.

What’s interesting is that Sanders sort of gets it right here. He offers the correct remedy, but the wrong diagnosis for the malady. Strangely enough; candidates like Hillary and Cruz are getting the wealth-generating economics (trade and free markets) right, but fail address the problem of inequality. Bernie is getting the economics wrong, but the solution to inequality right. Trump is getting both the economics and the solution wrong.

The Real Solution or What Bernie Gets Right

Sanders is the only presidential candidate who grasps, or at least admits to understanding; that the real solution to this dilemma is a systematic overhaul of the nation’s tax and welfare structures.

If we want to avoid massive income inequality and class warfare, we will need to create mechanisms for sharing or redistributing the wealth generated by manufacturing, technology and investment as widely as possible. That will mean higher taxes, new taxes and greatly expanded government benefits.

Sanders’ agenda which includes government financed college tuition paid for a by “a Robin Hood Tax” on financial transactions, single payer healthcare and higher taxes on corporations and the rich would be a good beginning. Yet it may not go far enough to address the situation.

Some of Sanders’ other proposals such as raising the minimum wage to $15 an hour, ending or renegotiating trade deals with low-wage nations and increasing union membership; could actually make the situation worse. All of these proposals would raise labor costs; providing employers with a stronger incentive to automate tasks and eliminate workers all together.

The McKinsey consulting firm estimated that 45% of the tasks currently done by workers could be automated. That means there’s a lot more room for automation and job loss in the economy, making some of Sanders’ suggestions dangerous.

Is Basic Income the Solution?

We may need to create some sort of guaranteed basic income scheme in which average people are paid a percentage of the wealth generated by the new income. Two good models that already exist for that in America are Social Security and the Alaska Permanent Fund; which distributes proceeds from the state’s oil fields to all residents in the form of a yearly payment.

Such a radical solution is probably inevitable, particularly if we want to avoid permanent class warfare. We are also more than half there to such a system even if no politician has yet suggested it yet. Consider these figures:

• 5 million Americans; around 13% of the nation’s population, depend on retirement income from Social Security. Note: this figure includes 39.5 million retirees and three million dependents.

 

• 11 million Americans depend upon Social Security disability payments. Note: his figure includes nine million disabled and two million dependents.

 

• An estimated 45.7 million people or one America in five depends on food stamps to pay for groceries. These numbers are going down but only because restrictions are throwing people off the food stamp rolls.

 

• Around 49.9 million Americans are receiving Medicaid.

 

These numbers clearly show how dysfunctional our economy has become. America is producing a record level of wealth, but a large percentage of population no longer has access to that wealth or even a decent job.

Instead many Americans already depend on government handouts to survive. We are already halfway to a basic income scheme, whether we want to admit it or not.

We need to deal with this situation; or face third-world style income inequality, and permanent class warfare. Presidential candidates and other leaders need to address this if we want an America worth living in.