When Will the U.S. End?

I had a sudden thought the other day in the shower: when will the U.S. end? I mean, every empire or super-power hits the skids at some point, and so, we’re not going to be an exception.

I have been thinking of some disparate data points:

  • Some high school friends commenting about how hard it is to find a good job these days, as they respond to The New Republic article on how some in the tech elite won’t hire anyone over 35 years-old
  • The laments I hear from friends who are physicians, extremely well-educated people, who are working more hours each year and taking home less income
  • The protests happening in San Francisco, as people blockade Google commuter buses, to protest income inequality and gentrification
  • Tremendous vitriol against our politicians and a mysterious hatred of our President

And, most troubling to me: anemic economic growth and rising income inequality. Why? I think these two trends can change everything. Let me explain.

I did a quick Google image search and found some charts on U.S. economic growth and income inequality over time. The data are pretty troubling. The 2×2 chart I put together below summarizes where we are relative to other decades:

2x2

The 1950s were a great decade. The economy after WWII was booming and everyone was benefiting roughly proportionately. The economic tide was rising, and it was lifting all boats.

The 1980s were OK. There was the Reagan economic boom, but troublingly, income was starting to be concentrated. Remember the rise of corporate raiders, investment banking and leveraged buy-out firms?

The 1970s were difficult: we had stagflation in the Carter years, but at least, income inequality didn’t change much. Everybody was suffering, roughly proportionately.

Today is different. We are facing low growth and rising inequality. There aren’t enough good jobs, clearly. But, yet, you read about another hedge fund mogul buying another house, or a 55-person company called WhatsApp selling for $19 billion. Wealth is increasingly concentrated in fewer hands.

Why does this matter? Well, this is when social unrest takes hold and how revolutions start. When people are not able to provide for themselves or families, they get frustrated. When they think the system is rigged to favor the few, they get angry. That’s when people start to take action. They ask for a new system. Sometimes it’s peaceful, and sometimes it’s violent.

Some examples: the French Revolution and the purported saying by Marie Antoinette of “let them eat cake”; Germany in the 1930s when the economy collapsed and a small group of people–Jews–were unfairly and incorrectly blamed; and, Ukraine today, which through months of protests as the economy shrank and citizens protested against the politicians, who had enriched themselves at the nation’s expense.

So, I don’t mean to bum you out, but I really do believe we are at a very serious juncture. Some of us live in the tech world, where jobs are plenty. There’s nothing wrong with that, but I have friends who live in a different reality.

So, can we fix the system, or will the system get overthrown? And, if we can fix things, how do we get there, given how ineffective our elected leaders have been?

Any suggestions?

11 thoughts on “When Will the U.S. End?

  1. Good post — really been enjoying these blogs lately.

    I’m with you on the income inequality point, and it’ll be really interesting to see how that plays out. That’ll definitely be one of the big battles of the next few years / election cycles. It’s tough because money can have so much influence on elections, and the people benefiting from increasing inequality have such an incentive to spend to keep it that way.

    On the growth point though, I see this as more of a cyclical feature than anything else. 2008 was horrible, and it feels like we’re still digging ourself out from that. Q3 2013 GDP grew at 4.1%, and Q4 2013 it was 2.4% which is not good but far from terrible. I guess the question is will the US just move cyclically and hit a period of decent growth (before the next crash/bubble we throw ourselves into)? Maybe not — so many jobs are moving away from here, maybe this is more of a permanent state.

    Maybe it’s just the optimist in me hoping that things are no where near bad enough for a full scale revolution. Hoping that some real dialogue and more and more people starting to realize how important this stuff is will move the needle before it’s too late.

  2. I’m in agreement that there is more anger in the public discourse than I’ve personally experienced in my lifetime. I don’t know if it is a function of the higher visibility of the gap between the haves / have-nots in our real-time media, or whether it is because of the devisiveness being promoted by our political leaders. I personally yearn for political leadership that espouses a unified national vision and plan that increases the size of the pie, rather than arguing about how to split up a shrinking one. Maybe I’m favorably recalling my youth, but I seem to recall political leaders like that than those of today.

    By the way, I would change one axis on the chart from equitable/inequitable to broad/narrow – possibly opinion bias showing through in the label!

  3. Jo

    A couple of reactions:
    -I’m not sure the U.S. economic hegemony is as much at risk as other “empires” due to the fact that so much of our population is based on immigration and our economic vitality is driven by invention.

    -I feel like the anger around wealth and income distribution isn’t just because of those trends but because the system seem increasingly rigged to keep it that way. The Occupy movement wasn’t just about the 1%, it was about the bankers we bailed out with taxpayer money reaping huge bonuses shortly after the bailout. The other way the system seems rigged is through election spending. Huge, monied interests can perpetuate their interest by spending unlimited amounts in elections like never before. The real promise the U.S. has always offered is opportunity, not perpetuation.

    -There are other more subtle, but equally powerful economic forces against the lower and middle class. A middle or upper-middle class family is supposed to simultaneously raise their family, pay their mortgage, save for retirement (no more pensions, now there are 401k’s) and save for college (hundreds of thousands of dollars per child). It’s basically an impossible task.

    -I think the real test may come when the boomers retire and the millennials push back on the taxes required to pay for boomer retirement and health care given their extremely high levels of (student) debt.

    As for fixes, I don’t have many. I have long felt that a 3rd political party representing the moderates would go a long way toward helping Washington function. I think that real skills training and non-college based education are the keys to individual economic gains.

    1. Seems as though the two parties do everything they can to keep things a duopoly. I agree that injecting “more competition” via another political party would be ideal, although I don’t know what has to happen to implement. When Congress exempts itself from the health care reform act, and until recently, insider trading laws, I cannot help but think of “Animal Farm.” We have a ruling elite facing record low turnover in elections due to gerrymandering and have an incentive to stay in power vs. making tough decisions. So, we have misaligned interests.

  4. Jo, I’m going to tackle this from a contrarian perspective.

    To start, your post assumes that people across the US are truly bothered by inequality today. I’m going to challenge that.

    First, *are* people truly pissed off by perceptions of inequality today? Let me ask — why are you writing about this? Is it because *you*, a well-read consumer of news and popular media, have been seeing articles and reports on this topic? What generates those reports? Could it be because the current administration has made the focus on inequality one of its big talking points for 2014, and the media in turn has responded? Given setbacks with healthcare, foreign policy, lackluster economic growth and persistent unemployment, what can the current administration do to fire up its base and prevent slaughter in the mid-term elections? What topics remain that are popular among the likely voters? Ahhh…. income inequality.

    So let me ask – what *real* evidence is there that, aside from media-entrenched outposts like the coastal cities, the general populace is tempted to rise up in revolt over perceived inequality? Confirmation bias, confirmation bias, confirmation bias. I suspect you and I read many of the same media sources, and we’ve seen a great many pieces talking about income inequality in the last 6-9 months. Why is that? Could it be due to the media all jumping aboard this talking point?

    Second, *are* people truly falling behind today? Many folks, and I think you do as well, Jo, focus just on the RELATIVE inequality (or *perceived* inequality), without paying nearly enough attention to the absolute gains that the working and middle classes have made in the past half century. Indeed, as ever, there has never been a better time to be alive, nor a better place to be alive, than the US today. We live in a fantasyland of health and general welfare. Someone in the bottom quartile in the US today is living a better life, in absolute terms, than royalty from a century ago. See, e.g., http://cafehayek.com/2014/01/pondering-modern-personal-financial-wealth.html

    Third, *is* inequality increasing or decreasing? Sure, if one looks at select GINI numbers, particularly as spun by politicians, an argument can be made that inequality is increasing. But take a broader view. See, e.g., http://www.rationaloptimist.com/blog/do-people-mind-more-about-inequality-than-poverty.aspx

    Inequality worldwide is decreasing, and poverty levels are dropping. Look at the huge success stories of China and South Korea and India and other Asian countries, compared to where they were even just three decades ago. And in other pockets where economic freedom has been turned loose — people are doing better worldwide, and we should be cheering. Of course, there are plenty of places where misery has increased (Venezuela, Syria, west Africa). But thanks to the power of free market capitalism (helped in no small part by the ability of folks to put capital to work, ahem), the inequality over the globe, in the long run, is the lowest it’s ever been.

    That’s my optimistic rant for the day! 🙂

    vty,

    –Dennis

    Chief Financial Officer
    Kyrus Mobile LLC
    One Acton Place
    Acton, MA 01720
    dliu@kyrusmobile.com

    1. Dennis, thanks for such a thoughtful comment and the plethora of links. I will read the articles once I get a moment to breathe. I hear you on the topic of absolute vs relative wealth. What I’d have you consider, however, is the chart here: http://economix.blogs.nytimes.com/2012/10/22/the-uncomfortable-truth-about-american-wages/?_php=true&_type=blogs&_r=0.

      Real wages for men are declining. Household income has been increasing as women entered the workforce, but some feel that has hit a saturation point in that we are near the max labor participation rate already. So, wages after inflation per household are declining.

  5. Disclaimer: I claim no particular experience nor training on this topic; just an intellectual curiosity about it. I read the blog (and chart) in your link. A few thoughts, off the top of my head:

    1. Curious to see that the time period in question is 1970-2010. The authors selected a period that starts right before the horrible stagnation of the 70s, including the morass of energy shock + stock market crash, leading to the high inflation period of the late Carter, early Reagan era (before Volcker and Reagan managed to kill it). And while the period does include the boom periods under Reagan and later, the tech boom and peace dividend under Clinton, the authors chose to end their citation in 2010 – in the immediate, crushing aftermath of “The Great Recession”. I couldn’t find their source for the raw data, so was unable to see what the chart would look like had the period been instead, say, 1962 to 2007.

    2. A far more important criticism of this piece is that it over-simplifies the issue at hand. Query: how much work is the median worker doing in 2010, versus 1970? There has been a massive increase in leisure time (along with productivity). For the men in question, a leading study has found that leisure time has increased by 6-9 hours per week since 1965 (to 2007) (http://qje.oxfordjournals.org/content/122/3/969.abstract). So if the median adult male wage has held steady, per the authors of the NYT piece, then the *net benefit* to the median adult male has increased *hugely*, since a decrease in hours worked of 6-9 hours per week means that the *hourly* wage has skyrocketed. I will add that this is further support of a point I made above in regards to optimism; life is great and only getting better, since people are having to work fewer hours.

    3. The authors lob in a point about college education. Leaving aside the fascinating point made relatively recently by Charles Murray and others over whether having more kids going to college is actually a desirable goal, one is obliged to point out that the reason MALE college attendance has slowed is due to this – college attendance by FEMALES has skyrocketed. Remember, there is a cap on the total # of college students in a given year, more or less. Yes, schools can increase their class sizes, but that takes time to ramp. Even looking just at the data that the authors have provided, one can see that whatever efforts schools may have made over the last four decades to increase their ability to accept students, it has been swamped with more female applicants.

    4. I’m scratching my head a bit at the contention that we are near the max labor participation rate already. Surely you’ve seen the debate over what the “True” unemployment rate is – about how the U-6 unemployment rate numbers are *horrific*, simply because the labor force participation rate has crashed since The Great Recession. So I think that the contention is actually *flipped*. Because the recovery under the Obama administration from the Great Recession has been so utterly anemic, the “official” unemployment rate, as bad as it appears, is actually misleading, because so many people have given up on trying to find work in this economy – which shows up in the U-6 rate. Simply put, folks have been so discouraged over the last 3-4 years that they’ve simply given up looking for a job.

    Additionally, this is further reinforcement of a point I made above; Americans are so “wealthy” today – in that the basic necessities of life (shelter, food, clothing, and even internet access, entertainment, transportation) are so very much less costly today, AND with so much government aid available, it simply takes less income to survive – or even to enjoy a modest-yet-happy lifestyle. (80% of poor households have air conditioning; 73% have a car or truck and 31% have two or more; 66% have cable or satellite TV; 50% have one or more computers; 42% own their homes. The average poor American has more living space than the typical non-poor person in Sweden, France or the U.K. 96% of poor parents stated that their children were never hungry during the year because they couldn’t afford food.)

    Anyway, those are just my quick thoughts…

    Vty,

    –Dennis

    Chief Financial Officer
    Kyrus Mobile LLC
    One Acton Place
    Acton, MA 01720
    dliu@kyrusmobile.com

  6. Jo, one last post (in addition to my longwinded reply above).

    Consider checking out this op-ed piece by Prof Don Boudreaux, wherein he argues that (a) there has been no stagnation in workers wages over the last four decades, and (b) there has not been a “de-coupling” between a decrease in workers wages with a corresponding increase in worker productivity.

    http://online.wsj.com/news/articles/SB10001424052702304026804579411300931262562?mod=ITP_opinion_0&mg=reno64-wsj

    The commonly cited statistics make two critical errors; they use an incorrect adjustment for inflation (CPI vs GDP deflator), and they fail to account for the rapid increase in value of fringe benefits, such as health insurance.

    HTH,

    –Dennis

    Chief Financial Officer
    Kyrus Mobile LLC
    One Acton Place
    Acton, MA 01720
    dliu@kyrusmobile.com

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