The American Economic Paradox – A Short History
By Stephen Cafaro
The year was 1945 and the United States and her Allies have prevailed in the greatest war in the history of mankind. World War II was culminated in Europe in May and was followed shortly by Japan’s surrender in August. The numbers of the dead remain elusive, but historians frequently claim a range of 60 to 80 million casualties. The incessant bombing, mass destruction and the dawn of the nuclear age had left much of the world in ruins. The USA paid dearly with the loss of over 418,000 lives, but the American homeland was virtually untouched, blessed and protected geographically by two great oceans.
To the victors go the spoils, and the USA was uniquely qualified with its honed industrial infrastructure and hoards of returning workers to benefit from the rebuilding of a devastated planet. America entered into a new era of prosperity as factory production lines shifted from bullets, bombs and tanks to building materials, automobiles and consumer goods. The ensuing decades would unleash a torrent of prosperity for a Nation that had been beaten down in a Great Depression and had become heavily indebted by the financial cost of war. It was a golden economic age as profits increased, wages rose, health benefits were re-invented, pension plans proliferated and opportunity was abundant. Everyone, including corporations, entrepreneurs, workers and investors shared in the affluence, acknowledging their joint dependence on each other for their good fortune. America had stumbled upon the elusive formula for wide spread economic and social harmony.
Things change, and as the world was rebuilt, the shared opportunities and rampant prosperity began to diminish for Americans. In the decades after WWII, the USA had become the industrial production center of the World. The primary benefits from this pre-eminent role included: increased wages; a heightened standard of living; a dramatic increase in individual consumption; a recognition of the dollar as the reserve currency of the world; and the development of an incomparable military. Since those thriving years, the economy has radically morphed. A decline in our productive capacity has led to a reliance on consumption, abetted by a dependence on the dollar, which was accompanied by an imperialistic use of our armed forces. A review of this gradual, but dramatic change from the world’s primary producer is instructive.
Production, in the USA, began, to shrink by the early 1970’s. Factors such as increased competition, “free trade” agreements, aging infrastructure and our capitalistic leanings all played a role in the degradation of America’s production capacity. It seems we neglected our own industrial complexes even as we were building modern and more efficient structures for our foreign competitors. As this was occurring, there was a movement to “free trade” arrangements which placed the USA at a considerable competitive disadvantage. Somehow, Americans were expected to compete against foreign countries that run unsafe factories, employ children, pay meager wages, have no benefits and lack environmental concerns. These “free trade” criteria violated the standards that generations of American laborers developed through hard work and sacrifice. Finally, our capitalistic, “free market” mentality encouraged the development of low cost, substandard foreign factories so that profitability might be increased for corporations and investors. For America, the golden age of shared prosperity has vanished along with tens of millions of jobs, thousands of factories and entire industries!
Illogically, consumption in the USA continued to grow even as production was faltering. The same managed trade practices that destroyed manufacture were also instrumental in increasing purchases of goods. Prices on imported goods and services declined and forced American companies to lower their prices or be forced out of business. For most Americans, lower prices hid the negative long term consequences of lost jobs and declining wages. For a period, a new economic model based upon consumption took hold. Indeed, if one had not lost a job to foreign competition, the lower cost of goods and services translates to a higher standard of living. However, the enduring process of exporting jobs when combined with eroding wages continued to pull more Americans into the quagmire thereby guaranteeing the failure of the consumption based economy. Unfortunately, our Government officials and corporate leaders have embraced this flawed economic policy making it difficult to correct the current unemployment and underemployment problems. Consumerism not supported by production is doomed to failure. Americans must begin producing for their own needs if we are to survive as a free, self-sufficient and sovereign Country.
Consumption without production would have died an early death if it were not for the American dollar. The mechanism for paying for foreign products has been the dollar. The dollar is recognized as the reserve currency of the world, and as such, other countries have grown accustomed to accepting the dollar. However, the dollar has come under attack as the USA has abused this exclusive license. From 1976 to 2011, the USA has an unbroken string of Trade Deficits (losses) totaling in excess of 8 trillion dollars. If one were to think of international trade as an enormous market where America competes with all the nations of the world, then one can conclude our Country is the worst business entity of all time. And just like the errant individual who uses his credit card irresponsibly, so too the USA has squandered its exclusive right to universally print dollars and has incurred an unsustainable debt.
And while the USA declines, foreigners have used the excess profits from trade to purchase industrial commodities and additional productive capacity around the world. In addition, they have purchased over 50% of US Treasury bonds used to fund the National Debt of the USA. In summary, our Country is now reliant on foreigners to provide many of our goods, and in an ironic twist, we depend on them to pay our bills. This is not a promising situation for a Nation that prides itself on self-sufficiency, independence and freedom. Consumerism is failing because Americans are tapped out, and the dollar is failing because our Country is tapped out.
So what is left of the unparalleled prosperity America inherited as a result of the WWII victory? It seems the military is the survivor. Today, it is said the USA has over 730 military bases in over 130 countries. We have an arsenal of nuclear weapons capable of destroying the planet many times over. Our advanced weapons systems can destroy an unseen adversary in an underground bunker hundreds of miles away. The President can wage war and bring devastation upon a country for reasons sometimes logical, but frequently whimsical. Recently, the USA assaulted Libya with a humanitarian bombing, a somewhat fatal oxymoron for the unfortunate. Before that, our leaders, using the best intelligence available, invaded Iraq claiming they had weapons of mass destruction. Since WWII, America has been involved with 17 wars and is currently engaged in 3 military actions. As a Country, we seem too eager to engage in conflict. Perhaps, our legacy is similar to Sparta whose armed camp economy revolved around the need to continually prepare for or engage in war. I hope we can overcome this tendency as history dictates that unrestrained militarism is prone to dictatorship, and the ultimate destruction of freedom.
Personally, I prefer America be involved in the production of things that make our Country and the world a better place to live. Most people enjoy gainful employment and disdain the idea of conflict. The task of rebuilding America’s economy will be one of the most significant challenges we face. Our political and corporate leaders must restore the trade and productive balances that made America a leader in the world of commerce. If successful, our Country will enter into a renewed era of prosperity. In doing so, we will cut our dependence on government welfare and we will eliminate our reliance on foreigners. We have the passionate people and necessary resources to accomplish these things, but do we have the resolve? Will our Government and business leaders take up the challenge or will they continue with the ill conceived practices that have degraded America? I take comfort in the spirit of independence and self-sufficiency that is the hallmark of America, and I chose to believe that if our leaders fail in this endeavor, then the people of the USA will, by whatever means necessary, answer the call.