Readers of this space know that there's little that commentator Glenn Beck says that yours truly agrees with. His correlations range from the implausible, to the stuff of fantasy, to some certifiably loopy insinuations.
However, Beck, who recently returned to traditional/cable t.v., was correct regarding one observation: the United States could be headed for a major period of social unrest -- or worse -- but not for the reasons Beck stated.
Beck blamed the federal government. Or President Barack Obama. Or former House Minority Leader Nancy Pelosi, D-Calif. Or the Democrats. Or liberals. Or unions. Or George Soros. Or Woodrow Wilson. Or the builders of Rockefeller Center. Or all of the aforementioned, plus the public sector, for triggering economic sluggishness, and preventing the free market from doing what it is capable doing.
Well, friends, the reality is: the free market has been doing what it's capable of doing, and it will continue to do what it's capable of doing, and the result, at least for a while, is going to be more structural changes to the U.S. economy, and more dislocation. Dislocation is a fancy policy wonk word for "job losses."
Globalization -- basically, free markets, international trade, and the transfer of jobs to lower labor cost production centers -- is a system that has the bulk of U.S-based multinational corporations (MNCs) massively profitable and successful. U.S. corporations are sitting on $2 trillion in cash, alone! The downside to globalization (so far)? It has also led to four of five problems that, if not addressed, could undermine the U.S. economic system itself.
Below is a summary of each condition, from least to most capable, of triggering a collapse of the U.S. economic system:
5) Poverty and an increase in no-stake citizens. Poverty, a large and generations-long underclass, massive income disparity between the Caucasian and non-white population groups, inadequate job training, and a very-limited social welfare state, have created a social condition in which roughly 40 percent of the electorate currently has no stake in the U.S. economic system -- corporate capitalism.
For these citizens, the work environment is a place that exploits them and abuses them -- treats them as mere production beings, even as it undervalues their labor; and society is a place that marginalizes them. They have been alienated by corporate capitalism. For them, corporate capitalism is not a blessing, it's the problem. As such, they would have no qualms with seeing the downfall of corporate capitalism -- and its supporting institutions -- and its replacement by an economic system that treats them with dignity, that pays them a living wage and whose means of production serve the societal interest, not the interests of the uber-rich and upper-income groups. For many in this group, that economic system is democratic socialism.
Further, if the enormous social problems listed above increase and an educated, organized interest group/coalition marshals these citizens into an effective, potent political force, they could put unprecedented pressure on U.S. institutions, including massive social unrest. A period of social chaos (or worse) could ensue, bringing the U.S. economy to a virtual standstill, including disruption of the energy supply and food delivery.
Does the Occupy Wall Street movement, represent that coalition that both organizes these no-stake citizens, whom I call "The Others," and that places pressure on U.S. institutions? Occupy Wall Street is expected to resume their consciousness raising and related tactics, with demonstrations in New York on Monday, September 17, the one-year anniversary of the start the Occupy protests.
Further, long before any other economists did, in 2011, New York University Economics Professor Nouriel "Dr. Doom" Roubini, who accurately predicted the bursting of the housing bubble and financial crisis five years ago, said that unless public officials invest in a new, smarter social safety net to restore a balance between the free market and public goods, social unrest seen in the Arab World and Greece, and in the United Kingdom, will hit other advanced economies and emerging markets.
4) Aging population. The Baby Boom generation, 1946-1964, the largest demographic group in the United States, is starting to retire, and historically, as adults age, they buy less consumer goods and access health care services more. This will have a double-dose contraction impact on the U.S. economy. Consumer spending, which accounts for about 60 percent of U.S. GDP, will struggle to grow, weighing on GDP growth. At the same time, entitlement spending -- especially for Medicare -- will take up a larger portion of federal spending -- diverting resources that could be used for other public goods and needs: child education, infrastructure rebuilding/development, and research and technology. The net result would be a U.S. economy that both grows too slowly to provide enough jobs and one that doesn't have enough federal revenue to meet social safety net needs.
Further, faced with a "smaller pie," pressures could build to "divvy-up the pie better," including efforts aimed at: 1) achieving federal ownership of natural resources (oil, natural gas, electric); 2) creating a revenue-sharing arrangement between multinational corporations and society; and 3) achieving democratic, public stewardship of the economy -- an economy whose major decisions are determined by the people, democratically, not by corporate boards of directors.
The U.S. health care reform act (ACA), will contain and eventually lower per-retiree Medicare costs -- but only if the ACA is not repealed. House Republicans and current Republican Party presidential nominee are determined to try to repeal health care reform -- something that would be a disaster regarding the goal of containing health care costs, including Medicare. Doing so will result in health care spending rising to truly ridiculous levels. Conversely, if health care reform is retained, this key cost component of the aging populace will be contained.
3) Outsourcing. Globalization has substantially increased outsourcing. If emerging markets, and in particular, China and India, continue to trigger the transfer of jobs out of higher labor-cost production centers such as the United States, the U.S. could see unacceptably high levels of unemployment linger for even longer than current projections of 7.7 percent to 7.0 percent unemployment through at least the end of 2014, according to U.S. Federal Reserve research. Also, if outsourcing continues at its current pace, job growth could remain inadequate.
2) Frugal consumers. With wages and median incomes stagnant in many job segments, Americans have adopted a new stance (for them): dramatically cutting discretionary and needless spending and increasing saving. The trend is so cross-cutting that it's led to a downsizing in the retail and restaurant sectors. To gauge the extent of the frugal consumer trend, visit a local shopping plaza and/or indoor shopping mall. Note the store vacancies.
To be sure, a savings rate at or near 5-7 percent per year is a good thing for a nation in terms of capital formation. The problem is, if it rises above that level and too many people save too much for decades, it will act as a brake on GDP growth. Moreover, so far during the financial crisis era, it looks like the frugal consumer trend is a long-term decision by Americans to consume less.
Another frugal consumer trend downside is that the U.S. economy is predicated on consumers spending a lot: Such a pronounced, long-term frugality trend would, again, weigh on job growth, increasing social support costs, and resultant social/economic problems.
1) Wage stagnation / unemployment. Of all the factors, or threats to the corporate capitalism -- the U.S.'s economic system -- this is the greatest.
Simply, the whole point of the U.S. economic system is: 1) profits and 2) jobs. It's the reason Americans tolerate its harshness -- the reason Americans work so hard, don't have a national law guaranteeing six-weeks of paid vacation like their brothers and sisters in France, the reason Americans don't have an adequate public pension system like Germany, or other social supports for health care and education found in social-welfare-system-adequate Western Europe.
However, if you take either profits or jobs away, the U.S. economic system, corporate capitalism, experiences stress. Take them both away, and a systemic crisis occurs.
No one knows how the American system of corporate capitalism will respond this time to a crisis -- an era of unprecedented wealth, material abundance, opulence, conspicuous consumption and technological advance, amid enormous income inequality, poverty and dislocation -- if the U.S. economy does create enough jobs to ensure that every able-bodied adult has a good job and the ability to achieve his/her potential.
At the sign-post up ahead...
Poverty. An increase in no-stake citizens. An aging population. Outsourcing. Frugal consumers. Wage stagnation. Unemployment. Each, to varying degrees, poses a threat to the U.S. economic system.
The good news is ... one solution can address all of these problems/threats: massive job growth -- which is why public officials and corporate CEOs need to find ways -- both public and private -- to create many more jobs, and soon.
Joseph Lazzaro, U.S. Editor, served as Managing Editor of New York-based financial news web sites WallStreetEurope.com/WallStreetItalia.com, 1999-2004, and as Economics...