June 8th, 2016 // 12:08 am @ Oliver DeMille
Washington’s “Grin and Bear It” Message About an Economy that’s Still Struggling
The Need/Desire Question
In a 1927 issue of Harvard Business Review Paul Mazur of Lehman Brothers wrote the following prescription for the nation: “We must shift America from a needs to a desires culture.” How? “People must be trained to desire, to want new things, even before the old have been entirely consumed. We must shape a new mentality in America. Man’s desires must overshadow his needs.” (Cited in The Happiness Equation by Neil Pasricha, p. 78.)
What a thing to say! And it has happened, just as Mazur recommended. But in the process, something else happened as well. Not only were people convinced to want more and newer things, but government got caught up in the same quest. And people began desiring many more and new things from government as well. This changed our entire culture.
More recently, President Obama has assured the nation that a slow growth economy is the new normal. But is this good news? Or very bad news masked by a smile? Truth: it’s certainly not good news. (See the new report: “The World is Flat: Surviving Slow Growth” in the March/April issue of Foreign Affairs)
But before we address this, let’s take a little quiz. Just for fun.
Messages and Meanings
The following quote is about what nation?
(1) “_____________ will not be able to grow its economy…without…privatizing state-owned companies, [and] loosening regulations…”
Or consider this:
(2) “It may have…an undervalued currency, a debt-to-GDP ratio of 250 percent, and an average annual GDP growth rate over the last decade of less than 1 percent…. [but] Life expectancy is among the highest in the world; crime rates are among the lowest. The…people enjoy excellent health care and education.”
(3) “Middle-class wages stopped rising more than 30 years ago, but…low interest rates…and easy credit obscured the problem, allowing people to bridge the gap between their stagnant incomes and their spending.” How? By going into massive debt.
What is most interesting to me about all three of these quotes is how applicable they are to the United States today. Just re-read item 1 above. It could be a very realistic (and important) “To Do” list for Washington in 2016. Yet it was written about today’s Russia under Putin. (Foreign Affairs, May/June 2016, p. 20)
Still, Washington does need to heed its message:
- privatize state-owned companies that are a drain on taxpayers and gum up the free market
- loosen regulations that are killing small business and sending investment capital to other nations
Item 2 above could also seem to be about the United States, but in fact it describes today’s Japan: “It may have…an undervalued currency, a debt-to-GDP ratio of 250 percent, and an average annual GDP growth rate over the last decade of less than 1 percent…. [but] Life expectancy is among the highest in the world; crime rates are among the lowest. The…people enjoy excellent health care and education.” (Foreign Affairs, March/April 2016, p. 50)
The intended message here is clear: “If the people have good health care, education, and a stable economy, everything is good. A growth economy isn’t necessary.”
Starts and Stops
In fact, in the United States, “Middle-class wages stopped rising more than 30 years ago, but…low interest rates…and easy credit obscured the problem, allowing people to bridge the gap between their stagnant incomes and their spending.” (Ibid., pp. 50-51)
But how have Americans masked falling wages? The answer is illuminating:
- By going into massive mortgage debt (eventually leading to the housing bubble crash and the Great Recession).
- By using credit cards, car loans, student loans and building up major consumer debt. The average U.S. household has over 97 thousand dollars of debt and growing. (The Motley Fool, January 2015)
- By more than doubling the amount of work they do, with both parents typically now in the full-time workforce, instead of just one breadwinner.
- By working longer hours. The average workweek in the United States is now 46.7 hours, not the 1950s model of 40 hours and a crisp 9-5 workday. (USA Today: Modern Woman, Fall/Winter 2015) Over the course of a month, that’s an extra 29 hours—almost an extra workday every week compared to American workers of the 1950s.
- By depending on increasing amounts of government support, including “free” public school education, “free” health care for those who qualify, and a number of even more direct government programs and assistance.
In all this, according to Gallup, less than 20 percent of U.S. workers love their job. Around 80 percent are in jobs they hate, dislike, or feel less than passionate about. Moreover, most Americans don’t believe that their current job will ever get them ahead financially. They’re just barely paying the bills—if that.
Still, the current message from Washington and labor experts is that things are fine, that the economy has improved under president Obama’s leadership, and that we should be grateful. Most people won’t see financial increases anytime soon, “but don’t sweat it.” Like people in Japan, we are assured that we should just be happy for general stability and get used to a stagnant economy.
Fewer jobs, more college-grads who are unemployed or (underemployed) and living with their parents, more three-generation households, falling home values, rising costs of food and necessities—these are the new normal. “And it’s okay,” Washington assures us. “If things get really bad, there are more government programs than ever to help you make ends meet.”
Don’t worry, be happy.
Regulations or Solutions
“Don’t desire so much anymore,” we’re told. “Make do with less. Except when it comes to big government. We’ll give you more of that!”
But how does this message from today’s Washington jive with the reality? Truth: “An economy that grows at one percent doubles its average income approximately every 70 years, whereas an economy that grows at three percent doubles its average income about every 23 years—which, over time, makes a big difference in people’s lives.” (Foreign Affairs, March/April 2016, p. 42)
Factor inflation into these numbers—on the basics like food, housing, education, and transportation—and one percent growth means the average household falls further behind each and every month. At three to four percent growth, in contrast, like the overall average from 1945-2005 in the United States, families can improve their standard of living over time—and even help their kids do better than themselves.
Right now this level of growth is found mostly in Asia, certainly not in North America or Europe. Thus the increasing American realization that our children and grandchildren are likely to be worse off than we are, while their Chinese counterparts will probably experience upgraded lifestyles and standards of living in the decades ahead.
But this isn’t a static reality. It is based on the current policies and agendas of Washington. These can be changed. For starters, just adopt the suggestions Westerners often give to Russia, as outlined above:
- reduce/remove numerous government regulations that are killing small businesses and driving investment capital and high-growth corporations—and jobs—to other nations
- stop federal overspending in so many government agencies by simply cutting their budgets—significantly—to spark increased investment and business growth
Just these two changes would significantly reboot the U.S. economy.
Americans can become a more frugal and a resilient people once again, no doubt. But they would rather be a more innovative and entrepreneurial people—and they have proven that they are incredibly good at it—if government will just cut away the red tape and let free enterprise thrive again.