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May 25, 2005 The U.S. economic news has not been bad lately, although it is somewhat uneven, and a little bit scary. The stock market and also the unemployment estimates have been bouncing up and down, but they have pretty much leveled off. Salaries and wages are rising a bit for workers with jobs. However, there are a lot of long-term unemployed people. Productivity continues to increase in the U.S., and some economists say this will protect us from those twin Chinese dragons named "Outsourcing" and "Imports." I believe our creative-productivity arises partly from our pervasive philosophy of freedom, extending to entrepreneurs as well as venture capitalists. Will this continue to save us from recession or maybe stagflation? I fear that this very productivity is going to be our undoing, maybe within the next year or so. It might produce so much in the way of new goods and services, that we can't continue to increase our consumption, to soak it all up. And fewer workers will be needed, to produce that same amount of stuff. The whole capitalist system depends on increasing consumption. If we don't buy more and more, then people will be thrown out of work, and that can start a vicious circle leading to another 1929-style depression. It's not enough for us to buy the same amount each year. There has to be continuous growth in the stock market, to support the increasing numbers of retired people who depend on cashing in the "growth" part of their investments, just to keep the wolf from the door. "Savings" won't suffice --- interest rates are too low for enough income to flow out of savings, for most retirees. We are living so long, on the average, that it's dangerous for retirees to take a lot out of the principal. Beginning this year, the baby boomers have started to retire, and this is rapidly becoming an economic tsunami, so it's an important factor already. If those retirees stop buying things, it will become a tremendous downward force. Pensions plans are being threatened, including big health insurance plans, which ultimately depend on investment growth, just like many individual people do. (Again, interest rates are too low for these plans to survive on interest alone --- they need investment growth.) Retirees from AT&T/Lucent/Verizon and also from GM and Ford look like they are in deep trouble, not to mention the airline retirees. The Feds are supposed to back this up, but let's hope it doesn't come to that. (Will China continue to buy our bonds to support our underfunded retirees? Probably not.) Well, I haven't heard any big crash noises coming from Wall Street. The world's economy has survived (and even thrived) through the high-productivity inventions of agriculture around (11,000 BC), cities (4,000 BC), metals and writing (each around 3,500 BC), iron (1,200 BC), Watt's steam engine (1750), Whitney's interchangeable parts (1798), Edison's electricity revolution (1880), Ford's mechanized production line (1908), and the Bell Labs electronics revolution (1948). Great spurts of exponential growth occurred at each step. What's happening now, though, is the beginnings of resistance to buying the myriad of new stuff. The customer is nearly saturated with products. Sales are still at decent levels, but the "growth" of sales has slowed. Personal computer sales are flat. Consumers are buying the new TV screens that are so huge and expensive, but not in increasing numbers. The same goes for 5.1 channel audio systems, the new SACDs, and all kinds of music and movies. Of course there are many excuses, like piracy and confusing choices. However, it's important to realize that "growth has shrunk" (to coin a phrase). Even the stock market itself is flat, over the last several months. Should this bother young people? Well they want to retire eventually, and the whole business should really worry them. Unemployment is above 10% in Germany, France, and Italy. Here in the U.S., it is only about half of that amount, but we still have to sell things to the Europeans. And we can't ignore the fact that China has enormous numbers of unemployed and underemployed people (some economists say it's as many people as the U.S. has employed!). We can't buy enough stuff to put them all to work. And they can't afford to buy an awful lot from us, even if they want it. When it all settles down, we have to hope that Americans are not going to be scratching around in the dirt, just trying to dig up any kind of low productivity job, to make up for lost salary or pension income. Like planting rice. What could our Government do about all this? I don't have any wonderful ideas. Maybe a gigantic federal public works program, like Roosevelt's WPA, would at least keep Americans usefully employed. Lots of money would have to be printed, tending to cause inflation. We can't accurately predict all the circumstances, so perhaps a new set of fiscal principles would be needed. Let's just hope it doesn't happen, but if it does, our economists will be able to handle it. We are very adaptable, so perhaps we'll adjust to a completely new economic system, if we really do need it in the future. ------------ About the author: Dan Shanefield is a retired engineering prof, who worked at Bell Labs and then at Rutgers University. He wrote the book "Industrial Electronics for Engineers, Chemists, and Technicians". Visit his website or email Dan Shanefield: shanefield@ieee.org Tell a friend about this site! ------------ |
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