- Posted May 6, 2014 by
Washington DC, District of Columbia
America Can Be Prosperous Again! Part One: Economic Problems
By Will Wilkin for Balanced Trade Associates.
This article is the first in a 3-part series. Part One describes our economic problems, Part Two describes our political problems, and Part Three proposes a 2-phase solution to unite our country and restore prosperity.
Any American with even a little historical memory knows our country has suffered a deep and pervasive loss of prosperity. What tens of millions of Americans experience as bills harder to pay, and jobs harder to keep, is described in antiseptic government statistics as "stagnant and declining real wages" and "declining labor force participation rates." How many times in the last few years have you heard about the "disappearing middle class?"
What is Wrong With Our Economy?
Although corporate profits are at historic highs, thoughtful economists and observers tell us what the government statistics really mean. For example, regarding wages, in August 2013 the Economic Policy Institute published the report A Decade of Flat Wages, documenting in minute statistical detail how "wage and benefit growth of the vast majority, including white-collar and blue-collar workers and those with and without a college degree, has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households."
Worse, regarding employment levels, we are in deep trouble. Graph 1 above, "All Employees: Total Nonfarm," shows 132.76 million US employees in February 2001 and 132.63 million in November 2011. There were less jobs at the end of 2011 than there were ten years earlier. According to the US Census, the US population during that time grew over 28.5 million.
This lost decade is not just a cyclical "recession" such as explains our previous ups and downs, but rather a seismic quake that warns us something is deeply, historically wrong. Of course eventually (after over 10 years) the lost jobs are "replaced," but that is only in number. The new jobs are very different from --and worse than-- the ones we lost.
Nothing Can Replace Manufacturing
Why are wages declining and jobs disappearing? And how are the new jobs not as good as the ones we lost?
The crux of the problem is the collapse of American manufacturing, due to the Free Trade policies of recent decades. No other sector adds so much value to the economy, supporting employment and wages far beyond manufacturing itself. Manufacturing is the anchor of so many other sectors, from design and engineering, to accounting and finance, to input suppliers and raw materials. Manufacturing supports a vast supply chain, not just its own operations. According to the Bureau of Economic Analysis of the US Commerce Department, every $1 spent in manufacturing generates $1.35 in additional economic activity. This is called the "multiplier-effect," and no other sector brings with it so many other multiplier-effect jobs as manufacturing.
Let's take a sober look at how much we've lost. Graph 2 above, "All Employees: Manufacturing," shows that total US employment in manufacturing has fallen from a peak of 19,553,000 in June 1979 to 12,080,000 in February 2014 (latest data available). That is a drop of over 38%!
To appreciate how terrible this loss of 7,473,000 manufacturing jobs has been for our country, consider that the US population increased about 91 million people over that period, and consider also the loss of the multiplier-effect jobs and wages also lost in other sectors. The stores are flooded with imports while our factories and workers are idle. This is what I mean by a historic decline of our country under Free Trade.
So Free Trade policies have not brought the new jobs promised by Free Trade advocates, but rather have killed jobs. Paul Craig Roberts sums it up in his alarming and essential 2013 book The Failure of Laissez Faire Capitalism and Economic Dissolution of the West. Dr. Roberts analyzes the stats to show that, despite population growth and huge growth in international trade, "official US statistics prove that the US has been unable for years to produce any [net increase of] jobs in the tradable category, whether manufacturing or professional services....The US economy has only been able to create jobs in non-tradable domestic services such as waitresses and bartenders, ambulatory health care, and retail trade."
Another way of looking at that is in Graph 3 above, "Percent of Employment in Manufacturing in the United States," which shows a virtually uninterrupted decline in the percent of the American workforce employed in manufacturing, from 26.4% at the beginning of the graph in 1970 to 10.3% at the end of the graph in 2012.
No wonder that Manufacturing and Technology News reported, on September 20, 2011, that during the previous ten years, the US lost 54,621 factories! How many new ones do you see being built?
These aren't just jobs lost, they represent the atrophy and loss of skills and knowledge that were required not just for manufacturing, but also design and engineering, which eventually follow manufacturing offshore. This loss of manufacturing and careers, of tax base and GDP, is the loss of huge amounts of value that would have been added to the American economy to create prosperity for the American people. In other words, this is why the American middle class has become an endangered species.