What Has Happened to the American Economy?

The decline of U.S. Manufacturing – A reason to look at our Free Trade Policy

By Skip Belt Oct. 15, 2011

The American Economy has suffered erosion from competition that has both shifted the means of creating wealth and in the division of wealth within the U.S. Why do we find our national economy in a decline or steep slow down relative to other economies? The major reason is the loss of manufacturing. This is not a political or ideological filtered observation and conclusion. I believe it to be the truth. I hope we can solve this problem with pragmatic public policies, and I reject the political notion that we can do nothing or that we should do nothing.

Employment the US has shifted dramatically to the service sector. We know that we have 50,000 fewer manufacturing companies than we had even 10 years ago, and that the reduction in manufacturing started decades before that and is accelerating. The manufacturing companies and jobs moved to China and India, Mexico and other countries because of lower labor costs. We import those goods now and have a huge trade deficit. Countries like China invest the dollars they harvest from us into US T bills, U.S. real estate, and other US companies, especially manufacturing companies that have technology, patents, and market for goods that can be produced in China; and so the momentum and direction of decline continues.

One of the effects of Free Trade is to promote Capital flow to the countries that have adequate labor at lower cost. The theory of  Free Trade is that each country will benefit through specialization of doing what it does best. The pitch to the American People is that we will greatly increase our export sales of products that we do best, and on the other side we will be able to import goods from other countries at a lower price. The problem with this theory in actual practice is revealed in the great trade imbalance that our country faces particularly with China.

Exports are a significant but not a large part of the US economy. Imports of consumer goods and oil are a huge part of our economy and is growing. This imbalance has resulted in the decline of local manufacturing and even assembly of imported components. This results in fewer US manufacturers trying to compete in the US consumer market. This results in fewer jobs and decline in wealth and more stress on the country and in lower demand for goods.

The effect on the U.S. of this trend is ominous. Loss of manufacturing decreases wealth creation, and it decreases blue collar jobs. We do not offset this loss of jobs through the service industries, and financial industries. The trend in these industries is to utilize technologies of efficiency to actually do more with fewer people; in other words, to have lower and lower employment.

The middle and lower class are the most vulnerable to this trend. They tend to have less education, lack mobility, and are more likely be formerly employed in manufacturing or construction or their job exists (ed) indirectly due to the activities in those sectors. They do not have the education or skills that can be easily transferred to many of the companies in the service sectors of the economy such as the Banks, and Brokerage Houses, Insurance and Medical which have generally prospered relative to the manufacturing sector. Despite that growth they cannot absorb the unemployment and underemployment the nation faces, and we cannot create new wealth if we do not manufacture and build.

The ultimate condition that we should be seeking is full employment. That should be a national goal. The other goal should be raising the value of labor through education. And finally there should be reasonable limitations on the vast disparities of income and wealth in this country and its negative impact on the rest of us. I speak of the activities of the very wealthy that risk us all to financial collapse of banks and other financial institutions, exploitation through monopolies, and destruction of our environment in the pursuit of greater personal wealth. We can solve none of these problems if our economy deteriorates more. We must address the huge trade imbalance with China and its manipulation of its currency to favor Chinese exports.

It is a tall order to even discuss these problems much less find solutions in our current political climate which has become so ridged and divisive due to unlimited special interest money influencing our government. But, if we are to better the economic prospects of our country, we must swim against this current of political thinking that demands that government to do nothing. We must elevate the discussion about how we got on this economic slide and elect leaders that will take a pragmatic approach to improving our economy for all Americans and not just for the wealthy and well connected. Perhaps the first step is to explain to the American people why that the lowest consumer price or bid price for a product is not always best for America. We need to recognize that our best economic interests are served when we buy products MADE IN THE USA. But it will take public action more than just slogans if we are to reverse the decline in US manufacturing and reemployment. We need to revisit the public policy debates on Free Trade, Energy Policy, Regulation on Wall Street, Taxes, and Political Finance Reform and challenge the Hard Right Libertarian  notion that Laissez-faire capitalism without any public interest regulation will solve our problems in a natural way without any government intervention. That is a fairy tale.

We need to begin this discussion in the streets, in academia, within public forums and yes, within the Democratic Party to change the political landscape and to rescue our economy. I hope this public discussion will motivate Congress to act on the Jobs Bill and other major issues currently blocked by the Tea Party and the Republican leadership, but, I fear this will be deferred to the detriment of our country until public opinion and the elections of 2012 give the Obama Administration and a Democratic Congress a mandate for Change for the better and the politics of NO is rejected. Until then, the 99% of us will see our national wealth decline and our debt grow as it is inexorably transferred to China,  and will see the existing national wealth redistributed to the rich in this country.

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3 Responses to “What Has Happened to the American Economy?”

  1. I am a Republican and was born very poor. I’m white and I never learned about the political process until I was in my 40’s. I’ve worked hard in low level jobs and didn’t go to college. I didn’t know there were things like grants and loans to do so, so I didn’t. Because of my tenacity and my refusal to let any body of people tell me I couldn’t do something because I wasn’t educated, was woman or was poor did I ever stop growing and reading about how to run a small business. The government has allowed me to learn about this and so have many other groups. I agree with 99% of your article. The only thing I disagree with is that the government should step into my back pocket and regulate me because of my hard work and success. You are right that the divide is growing, the big fat man or woman in the corner offices are looking down on the rest of us. There are however, many Democrates who do the same to you and me.Greed is not limited to just one party or one person. Great article.

  2. Skip Belt says:

    Your self reliance and perseverance should be admired and respected by all. I certainly do. However, there are many successful people that did not achieve it by hard work as you did, or they lose their sense of humility and forget that they did not achieve success by their efforts alone. They believe that they are superior to less fortunate people. This attitude justifies their sense of privilege and allows them to leverage and press their advantage to shear the sheep even more closely with impunity.

    Greed is one of the deadly sins as is the lust for power. It is a universal condition to people in all walks of life. If unchecked it can destroy our society and the benefits that free enterprise can provide. We can hold it in check by moral principles and the light of truth that exposes it. Government has a role to play to prevent or at least mitigate its abuses. This is not to say that that government is always right in its approach, but it should base its role on what is best for the vast majority of our people.

    The pied pipers advocating deregulating Wall Street and the banks and debilitating environmental regulations are not doing so out of adherence to honorable principles of freedom and liberty. It is a ruse driven by greed and desire to gain control over the levers of government. Unfortunately many in the crowd following them are tone deaf and cannot realize they are being manipulated.

    The Occupy Wall Street demonstrators may not be articulate in their policies, but they are not tone deaf. They know that greed is a big reason for the unfortunate trends in our country, and something needs to be done to regain our balance and to restore the American dream.

  3. Excellent reply and I agree. Greed is a terrible mindset and I’ve known plenty of people who have lost their perspective of reality when they have tasted the six figures. They lose their respect for others and call it prosperity. I want to be able to continue my life as a working woman and enjoy my success. I don’t want the government forcing me to give it up or chose one party or over the other. I just wish we would all go back to the original text, the Bible and live accordingly. I can live with that. I can’t live with the debt. I don’t want to be a slave to the lender and that is how I feel today. I’ve been debt free all my life and have enjoyed it. Unfortunately the government, for decades, has dug a deep hole for us and blamed the other party for it. We all have a part in turning the other way and pretending it’s not happening. The only hope today, as I see it, is we all coming to the end of ourselves and selfish ambitions and start with the facts and the truth. However, for that to happen would be a miracle.

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