The Economy is Doing Fine—It’s Just Different

The elections of 2012 will be decided by a debate about how to fix an economy that no longer exists

The state of the economy – and more specifically, “jobs” – is becoming the pivotal issue in 2012 elections. The Republicans (although offering no new ideas) are fixated on the lack of job growth and the stubbornly high (8.2 %) unemployment rate. Democrats, meantime, are hiding behind the bushes claiming they inherited an economy that was teetering on the edge of calamity and should be given credit (i.e., re-elected) for pulling it back from a world-shattering precipice.

While both the Republicans and Democrats are putting on a show of offering some magical formula that will jumpstart the economy, they are all empty promises. They are proposed fixes are for an economic engine that no longer exists.

Obama and Romney are like two old auto mechanics, each arguing that they are best qualified to fix today’s economic engine because they once did a valve job on a 1957 Chevy Bel Air. Economic challenges of the 21st century cannot be fixed with 20th century solutions. Somebody has got to tell these politicians that you can’t fix a 2012 Cadillac XTS using the same knowledge and tools that were used to fix a ’57 Chevy.

Today, cars have supercharged V8 engines, 6-speed transmissions, all-wheel drives, computerized electronics, GPS, Bluetooth connectivity, 2-stage exhaust systems, just for starters. And to make matters worse for mechanics Obama and Romney, the parts for these new vehicles come from all over the world, not the political parts shop down the block.

In short, focusing on old political solutions to solve the “jobs” problem and get the economy really rolling again simply exacerbates the continuing stagnation of our economy. Let’s face it: We’re living in a new world.

All Talk, No Substance

What makes the problem even more frustrating is that Obama and Romney both know the debate is more about posturing than substance, Otherwise, they wouldn’t be afraid to talk truthfully about the real problem. (It’s either that, or they actually have no clue how to fix the economy.) The debate between Obama and Romney is so pedantic, in fact, it’s like WW I generals arguing over ways to make the cavalry more effective, as armies became mechanized. It makes no difference how good the cavalry may be, if it has become a different kind of war. And that is the case with the 2012 economy.

There are a lot of issues at work causing the current stubborn economic lethargy, but there is one fundamental issue that overrides all others. Between the end of the War of 1812 and toward the end of the 20th century, the American economy was pretty much an “intramural” affair. If Americans bought something, chances are it was made in America. If something was made in America and not purchased by Americans, it would be scooped up by people in other countries who longed to buy something made in America. It may seem foreign to us now, but the idea of buying something “Made in Japan” (except for cheap trinkets) or “Made in Germany” (except for Cuckoo clocks) or even China, did not come into the lexicon of American economic activity until the final quarter of the last century. There was a time when Americans considered such foreign goods as “junk.” As a result, America was in control of its economy and there was little concern for the activities of other countries.

For years this intramural economic structure worked well for Americans and our economy. We were happy to both make and buy American goods. And it follows, that if a company wanted to expand production, it did so by building the factory in America. If steel was needed to build the factory, it was purchased in Pittsburgh. If workers were needed in the factory, American workers were hired to do the work. If there was an investment to be made, it would be made in an American company. The point is that for almost 200 years the internal insular economic activity in America benefited almost all Americans. The need for workers to make the things “Made in America,” created a vibrant middle class that, as it moved up the economic scale, created the need for more and more products to be made in America. It was a profitable circle that resulted in the development of the most powerful – and democratic – economy in the history of the world.

America Faces Economic Headwinds

When the economy did occasionally sputter or recede, it was caused by some problem within the system itself. As a result, the government or business could take actions that would correct the problem. While they may have disagreed on the specifics of what needed to be done to get the economy back on track, both the Republicans and Democrats developed a quiver of standard actions, i.e. reduced taxes, government stimulation or easy credit, etc. that always tended to work. Unfortunately, that is not the case today.

What was once an economic world with America in the driver’s seat has become an international, interconnected economic universe; a brave new world as different as a Cadillac XTS is from a ’57 Chevy.

In simple terms, the health of the American economy is no longer determined by intramural activities within our own boarders, but rather how well we deal with, interact and compete with the intermural activities of a new global economy. No longer do American companies compete with other American companies for customers, but against companies spread across the globe. No longer do American workers only have to compete against other American workers, but against workers in countries that many had never even heard of before. This has been one of the primary reasons for the precipitous decline in opportunity for the middle-class in America. If companies can find workers in other countries who can produce products Americans will buy, cheaper than American workers can, there is no need to hire workers in America.

The most significant repercussion in this sea of economic change is how the American economy can be impacted by events in the worldwide economy, events completely beyond American control. Just yesterday, economic gurus the world over were quivering in their Guccis worried that the Greeks would vote to pull the plug on the Euro since, if they did, economic disruption would wash ashore not only here in the U.S., but every country on the globe.

If that happened, you would certainly find that the traditional “fixes” used by Republicans and Democrats to improve the American economy would be, for the most part, ineffective; they would have a much chance of winning as a cavalry charge against a battalion of tanks.

A Glimmer of Success

But not all the news is bad, at least not for corporations. Give the corporations credit for being perceptive and nimble enough to respond effectively to the changes in the economic world. Viewed from the perspective of corporate performance, the economy is doing great. Corporations are reporting increased sales, improved productivity, reduced costs and record profits, and they are amassing more cash than they know what to do with. It has been reported that Microsoft, for example, has more cash on hand than the federal government. Apple is said to have $100 Billion in cash reserves. This is what President Obama meant when he said, “The private sector is healthy and doing just fine.”


What Obama did not address, of course, was the price paid by most others in the economy that allowed the corporations to do so well. For example, The Wall Street Journal points out that Apple’s international tax rate, where it earns most of its money, is less than 3 percent. If Apple repatriated its humongous earnings, its tax rate would soar to between 13 and 25 percent and help stabilize the American economy.

In fact, it has now reached the point where American corporations are employing more people and making more profits in countries other than America. This is not an evil conspiracy on the part of corporations, but simply a response to changing economic opportunity. Contrary to what the Republicans like to claim, corporations are not in business to create jobs for American workers, but to create profits for American shareholders. At this, they are doing quite well.

It also may be that when we can look back on these economic times from the perspective of history we will discover that the overall American economy is performing quite well, considering the changed economics in the world. While an unemployment rate of 8.2 percent is high compared to what it was in the “old economy,” and has become a political football, it may be that this rate is quite good in the current economy. After all, when you see other countries with unemployment rates reaching up to 20 percent or more, the American economy looks pretty good in comparison.

This does not mean we should be satisfied, but it does mean that it does no good to harp about it or propose old actions that worked in the old economy, but are simply a wasted effort in today’s environment. It also means there are great opportunities in the new international, interconnected economy. But if the America is to continue its economic dominance in the world and grow even more powerful, it will be done by adopting new ways and new ideas.

The problem is that our politicians are debating about solving yesterday’s problems when they should be offering their ideas for taking advantage to tomorrow’s opportunities – if they only had any.

And the Moral of the Story . . .

As bare as we may think the cupboard is for the old American economy, we should be more concerned by how bereft of new ideas our national political leaders are when it comes to offering a vision as to what the new American economy should be and how best to respond to the fundamental change in the world economic system.

Offering tired old solutions for fixing an “old economy” that no longer exists may be good politics, but it is not good leadership.

 

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One response to “The Economy is Doing Fine—It’s Just Different

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