Economic vitality is based on creating the new—not patching up the old.
This past week President Obama, appearing before a joint session of Congress, offered what may have been his most passionate and effective speech since his election. So logical and effective was Obama’s presentation that even the most recalcitrant Republicans found it difficult to categorically reject his proposals. Unfortunately, Obama’s passion and style disguised the fact that the substance of the speech missed the point and fell short of solving the economic and employment issues facing the country.
As the New York Times headlined, “Obama Offers Time-Honored Plan,” its readers might have groused that what’s needed is a time-changing plan. And they didn’t get it.
Even President Obama admitted in his speech that key elements of his jobs proposal were not revolutionary and had previously been supported by both Republicans and Democrats. This tactic might have been a pragmatic way to demonstrate political reconciliation and progress, but the wished-for actions would only put salve on the economic wounds of the country when what is needed is a cure.
Taken all together, the proposals presented by Obama are akin to a credit card company offering a family struggling under the burden of a maxed-out credit card to waive payments for three months. This may put a little more money in the family budget and offer short-term relief, but it does not solve the fundamental problem. It may be nice to suspend tax withholding for a period of time and to provide government funds to hire laid off teachers and workers to fix dilapidated schools, but what will happen when the funds run out? It may seem like a good idea to offer companies an incentive to hire new workers, but what possible good arises from encouraging employers to hire new workers when they don’t need new workers?
Call it what you will, but what we have here is a mini-stimulus plan to follow the maxi-stimulus plan of a couple of years ago. The stimulus plan of 2009 (about three times the size of the current proposal) did stimulate the economy; at least for a while. But, when the free money was gone, the economy quickly slid back into the doldrums. And now, inexplicably, the response is to repeat a proven policy failure.
What President Obama and Congressional leaders are unwilling to publicly confront is that the current languid economy and high unemployment are the symptoms of a disease that began to ravage our economic system decades ago. Treating these symptoms with stopgap measures will not cure structural and external problems now weighing down the economy. Their approach could be called the “Red Bull” strategy. When feeling down and out, just drink a can of Red Bull. It does not make us smarter, stronger or faster, but it does make us feel that way; at least for a while. Of course, if we don’t make any other changes, once the artificial stimulus of the Red Bull wears off, the only option is to pop open another can.
The “time-honored” ways of energizing a faltering economy will no longer work because during the past 50 years, America has evolved from a “manufacturing society” to a “service society.” We have moved from makers to fixers; from innovators to imitators and from exporters to importers. Since 1960 the percentage of GDP attributed to manufacturing has declined by 50 percent. Thousands of factories in America have been closed; only to be opened in a foreign land. The American economic system was founded and stimulated by adopting the philosophy of finding a better way to make things. For over a century the three English words that spread throughout the world and could be understood by everyone was “Made in America.” That is no longer the case. Today “Made in America” has become an endangered pharse. It is this fundamental mentality that has changed and we are now paying the price for being fixated on fixing the old when we should be focused on making the new.
The American economic miracle of the past 200 years abounds with examples to prove that finding a better way to make things is the ultimate stimulus for an economy. The invention of the cotton gin in 1793 tripled the production of cotton within 20 years and created thousands of jobs. (Unfortunately, this increased the use of slave labor.) On a more positive note, Henry Ford’s discovery of a better way to make automobiles (the assembly line) created millions of jobs and stimulated the entire economy.
The fact remains, be it the telephone, telegraph, television or washing machines, when America was inventing and making things, the economy was percolating just fine. There were times when the economy stalled or paused and needed government involvement to protect displaced workers or provide incentive for new investment, i.e. railroads, steel and aerospace, but this was all based on an economy committed to making things.
That is no longer the case.
Look at the economy from this perspective: Which companies historically became bigger and more successful? The companies that made the cars or the companies that fixed the cars? The problems of our economy today are the result of a fundamental shift in philosophy from a nation of makers to a nation of fixers and government stimulation aimed at an economy that no longer exists is simply a time-delaying waste of effort. It’s making things, not fixing things, that stimulates an economy.
So where does both the responsibility and the solution to the problem lie?
The well-intended ne’er-do-wells on the political right, represented by the nascent “Tea Partiers,” believe that government created this problem. And the naive idea that getting rid of government will solve all our problems is an illustration of their deficient cranial capacity. Government has always been more a collaborator than an antagonist for business. The truth is that the economy is in such a sorry state because of the failure on the part of both business and government to recognize and react to the core issues of change; both internally and externally.
Government cannot create a robust economy, but government has always worked in concert with business to create an environment for growth. Government stimulus plans can work, but the key is to stimulate new ventures that create new things, not just to paper over the failures of the current system. In the past, government worked best as a partner with business when it provided incentives and rewards for innovation and entrepreneurial creativity. And that is where government should now invest its new stimulus dollars.
It could start in the area of energy. There is no more important component to a future vibrant economy than development and management of energy. Who would care about MPGs and pollutants if energy were inexhaustible and clean? How many millions of jobs and billions of profits could result if America became a creator rather than an importer of energy? As with the development of railroads, steel and most other manufacturing, this is not something that business can do on its own. Business needs the support and resources that only government can offer. Would private businesses put a man on the moon or built the interstate highway system if the government had not supported and funded the efforts? A true commitment and partnership between business and government to develop new forms of energy and other new things to make, would be the most long lasting and beneficial stimulus one could imagine.
And the Moral of the Story …
Americans are frustrated with the current economic conditions and the finger of blame is pointed at government; either for not doing enough to solve the problem or for getting in the way of business that can solve the problem. This exasperation is driven by false expectations. A society’s whose economic system was founded on a partnership between business and government, driven by the dream of innovation and making things is living a nightmare if it thinks the same benefits will be available to those who consume, rather than create.
People seem to think that if business is left alone, it can solve the problem. Unfortunately, the current economic problems were caused by the failure of both government and business.
We have two options: We can either understand and then accept the lower expectations of a fix-it, rather than a make-it society or we can demand that government do what it has done best, which has been to create a partnership with business that subsidizes, supports and incents business to find new ways to make new things.
If we don’t, we can’t make it.