The U.S. economy is sick right now because there is over $5 trillion of dead money.
Five trillion dollars is a big amount. It dwarfs the size of the 2009 U.S. economic stimulus package and the Federal Reserve's two rounds of quantitative easing. It's about one-third the size of the U.S. GDP.
The dead money I'm talking about is the $2 trillion U.S. corporations are hoarding and the $3 trillion the Chinese are hoarding in their foreign exchange reserves.
Not all of that money came from U.S. consumers and not all of it needs to be redistributed. But a large chunk of it did and should be.
Companies have accumulated their cash hoard partly through technological advances, which allowed them to replace humans with machines that do a better job at a fraction of the cost.
The Chinese have accumulated theirs through cheap labor (they're not spending a lot of it because a big chunk of the profits goes to the government instead of to workers).
Many economists will be quick to point out that technological advances and access to cheap foreign labor produce a net gain for a society.
What they say is true.
However, the benefit of technological advances and cheap foreign labor is disproportionally flowing to the owners of businesses. The masses, meanwhile, are left with a smaller slice of the pie even as the pie itself gets bigger.
This is why wealth disparity in America is the largest it's been since the 1920s. It also explains the $5 trillion in dead money because the few people who control that money have no need to spend them.
Finally, it explains why U.S. consumers aren't spending money (because they aren't getting paid enough) and why the U.S. economy is sick as a result.
The truth is that the brand of capitalism the U.S. is practicing has been rendered unfit by globalization and technological advances.
Imagine the following scenario.
A society one day invents machines could freely take care of all the material needs of all citizens. What would make sense is for that society to eventually freely give those benefits to its citizens.
What would not make sense is giving all the profits to whoever legally owns the machines, leave everyone else unemployed because there is no work for them to do, and leave them to starve because they have no money to pay for anything.
Yet that's exactly what would happen if that society practiced a pure form of capitalism.
At the end of the day, economic systems - capitalism or anything else - are meant to do two things: take care of people and incentive them to work.
While no one argues that capitalism is the best system for incentivizing hard work, the realities of technological advances and globalization have rendered pure capitalism unfit to take care of common citizens in developed countries.
(Photo from Reuters)
The U.S. unemployment rate is currently above 9 percent. If one counts the discouraged workers and the underemployed, that percentage would be much higher.
Why are all these people not gainfully employed? For the vast majority of them, it's not because they're lazy and capitalism failed to properly incentivize them. Instead, it's because their jobs have been permanently taken by machines and foreigners.
They can't find new jobs either because of the weak economy (caused by weak consumption) and because technology has decreased the global need for human labor.
It's time for the U.S. economic system to adjust to technological advances and cheap foreign labor. It's time for common U.S. citizens to enjoy more of their benefits. It's time to redistribute a big chunk of that $5 trillion.
Please email Hao Li at email@example.com.