Can a Nation So Divided Long Endure?
“The recession has reduced the birth rate below replacement levels: it is now 1.9. Unless we let in a lot of new immigrants, future output will sag. But we don’t exactly welcome immigrants, and, given less buoyant business conditions, immigrants find us less attractive.” Sanford Rose
Dolors & Sense
by Sanford Rose
KISSIMMEE Florida—(Weekly Hubris)—9/24/2012—The basic economic outlook for the country has never been poorer—or better.
This is not just an exercise in Dickensian paradox.
In many respects the economic outlook is miserable.
Short-term growth is practically nonexistent, and medium-term prospects look no better.
The recession has reduced the birth rate below replacement levels: it is now 1.9.
Unless we let in a lot of new immigrants, future output will sag.
But we don’t exactly welcome immigrants, and, given less buoyant business conditions, immigrants find us less attractive.
Our door is no longer golden.
The distribution of income and wealth in the US grows progressively more unequal.
We are far less upwardly mobile.
We are more insular and polarized.
Yet, while, by many measures, we deliquesce economically and socially, by all measures, we effloresce technologically.
Is there a connection between technological advance and economic and social inequality?
And is there a further connection between economic and social inequality and economic decline, leading ultimately to a stalling of the technological spurt that initiated the process?
The answer to the first question is yes. Technological advance creates new skill requirements that many, especially in an aging labor force, cannot satisfy.
The labor force must be upgraded, but that doesn’t happen in an economy in which employers are ruthlessly paring on-the-job training costs.
Employers, who have the technology skills, are in effect loath to disseminate them.
Thus, economic inequality, grounded fundamentally in skills inequality, becomes self-perpetuating.
To the extent that economic inequality fosters social inequality, which, as in any system of positive feedback, aggravates the primary imbalance, the skewness of income and wealth will inevitably increase until met with some natural check.
That could come from social upheaval or, more likely, simply from protracted economic stagnation.
The skill-poor cannot earn enough to buy, nor can they in a debt-constrained economy, supplement their purchases with borrowings.
Demand-deprived, businesses will not invest, including in technology, most of which is product-and sales-linked. The process will have come full circle. Technology, which spawned income inequality, will be undone by it.
In the meantime, there are two US economies: the struggling economy of the unskilled and the flourishing one of the skilled.
It can’t last.
Sanford Rose
Sanford Rose, of New Jersey and Florida, served as Associate Editor of Fortune Magazine from 1968 till 1972; Vice President of Chase Manhattan Bank in 1972; Senior Editor of Fortune between 1972 and 1979; and Associate Editor, Financial Editor and Senior Columnist of American Banker newspaper between 1979 and 1991. From 1991 till 2001, Rose worked as a consultant in the banking industry and a professional ghost writer in the field of finance. He has also taught as an adjunct professor of banking at Columbia University and an adjunct instructor of economics at New York University. He states that he left gainful employment in 2001 to concentrate on gain-less investing. (A lifelong photo-phobe, Rose also claims that the head shot accompanying his Weekly Hubris columns is not his own, but belongs, instead, to a skilled woodworker residing in South Carolina.)
6 Comments
eboleman-herring
Dr. Rose, your columns always, but always, make me feel both worse and better, simultaneously. A Dickensian effect, as we ARE all seemingly surviving the best and worst of times. At least, after reading you, I can always identify the make and model of that train coming towards me, us, in the tunnel. Many thanks.
K. Butterworth
Why no let more Mexicans in. Insist they come with the beginnings of useful skills. I have a Mexican sister in law, and her large family is loaded with brains, they just need to be helped financially and encouraged to develop skills.
srose
Dear K:
By all means. But first we have to solve the problems of those who do not have skills, immigrant and native born. Since companies are scrimping on on-the-job training, government, sad to relate, has to step in with incentives for them to restore it. No government program would pay greater dividends. The evidence suggests that if the government borrows even more money to fund such a program, the incremental job and output increases would generate enough additional taxes to more than cover the interest on those borrowings.
S. Rose
Ted
Another paradoxical outcome of technological advancement is that as the new technologies demand new skill sets in the workers, at the same time they demand fewer workers to create the same output as lower skilled, higher labor-intensive technologies. Not only are the lower skilled underemployed, there are fewer positions for the newly trained, more highly skilled workers.
Without some offsetting force to increase demand for the new, more efficiently manufactured products, and a consumer base with the resources to create that market, new technologies can be a force toward a stagnant economy.
srose
Ted:
3 D printing is in the process of revolutionizing and decentralizing manufacturing. The implications for jobs are unclear, but it is conceivable that a whole new class of autonomous, highly skilled “makers” will emerge. The resulting customization of products could potentially create incalculable new wealth and spawn demand for highly paid workers to service these “makers.” This is but one manifestation of the tension between macro and micro trends: the former seem bad, while the latter promise much. Will the futuristic, technologically imaginative micro environment bail out and transform the cripple-gaited macro environment or will it rather be crushed and aborted by it?
S. Rose
S. Rose
Further on trends in manufacturing employment:
Although the overall impact of 3-D printing and the additive manufacturing it supports will be to reduce jobs, these job losses will not be American ones, at least not initially. Since the new manufacturing will be localized, the USA, the current leader in 3-D technology, will gain jobs, many high-paying ones, while the Chinese obviously will lose them.
S.Rose