The Fall of America Part One: Winds of Economic of Change

Series: The inevitable weakening of American economics, the disintegration of the American political system, and the rise of a global bureaucracy.

In my Pat Hayden Jones universe, the Earth and its colonies are ruled by a bureaucracy. This structure, the Benevolency, arises from the ashes of several wars of horrific destruction: between the Caliphate and the New Russian Empire, the South Asian Nuclear apocalypse of Pakistan and India, and New Hapsburg vs. the Caliphate. These conflicts leave the Chinese Hegemony the superior economic force, especially as it had absorbed the United States and with it, the rest of North America.

Yet none of this could have happened without the world’s superpower, the U.S., having failed as a nation. Only by letting the vast military might of the US. stand by could the Caliphate and Russia have gone hammer and tongs, or India and Pakistan have been allowed to nuke each other into oblivion. How and why could the world’s number one superpower have failed so completely, and so quickly, that by the end of the 21st century it had dissolved from the world’s #1 economy and military superpower to a vassal state rules by the Chinese?

In this installment, I’ll discuss how the U.S. reached a position where economic trends critically weakened the prospects for all workers save those with highly technical skills (and the writing was on the wall for them as well).

In the next installment, I’ll look at politics: how one party in particular played both sides of America’s decline in the 2010’s: firstly, to lure disaffected American workers with a promise to ‘make America great again’ (and, presumably, bring back the Promised Land of ever-increasing standard of living); and secondly, to line the pockets of the wealthy. Along the way, they destroyed the concept of political civility which had unified the U.S. through many crises of the past. That by the way, will be all real-life history, not fiction.

It the last installment, I finally get into speculative fiction and discuss how the political cynicism resulted in the inevitable awakening of the masses to their exploitation by a jaded political party, leading to its disintegration. That political vacuum opened the path for a new, more radical reactionary party similar to the National Socialists in 1930s Germany. Finally, I’ll paint the picture of how a demagogue, an American Hitler, could be legally voted into power, leading to constitutional crises, political paralysis, drastic mistakes in handling our debt and fiscal policies, and eventual fall of the United States as an independent country.

Part One: The rise of globalism and exposure of American Exceptionalism

I started writing PHJ’s story in the early 1990s. At this time, the initial shocks of globalization were being digested by the U.S. These shocks originally arrived in the 1970s and 1980s. In the 1970s, the manufacturing might – and discipline – of Japanese companies saw a tidal wave of Japanese machine tools, radios, stereos, and kitchen gadgets wash across the US. This was the era when we looked on the bottom of almost everything we used and saw “Made in Japan.” American manufacturing companies saw their first great challenge. By the end of the 1970s, you could not buy an American-made television or stereo. Next came the oil shocks of the mid-70s, and Japanese cars arrived in huge numbers, threatening an industry that represented about 3.5% of U.S. economic output. The economical might of Japan at this time was intimidating.

Passenger car exports rose from 100,000 in 1965 to 1,827,000 in 1975… by the 1980s, the Japanese manufacturers were gaining a major foothold in the US and world markets. – Wikipedia.

The U.S. responded in 1981 with import quotas. The Japanese responded by exporting fewer, but far nicer (and more expensive) cars to the U.S. The U.S. auto industry responded by raising prices (but not quality, it still had a painful lesson to learn). This was the era of Lexus and Acura. There is no doubt that the purchasing of so many foreign cars impacted American jobs, especially as the exports to Japan did not rise in turn – the American trade balance would be forever negative after 1975, with expected rises in American public debt (rising from 27% to 41% of GDP from 1970 to 1990 alone). That debt would cost the U.S. Government a punishingly high cost to service during the 1980s recession — an unheeded warning, as we will see in Part 3..

I remember as a young man when, in 1989, the Japanese, awash in American dollars, bought Rockefeller Center – the heart of New York City. In 1990, the Japanese bought Pebble Beach – a jewel of the American West Coast, and perhaps their high water mark; due to their internal bubble economics, the Japanese economy started a multi-decade crash after that. America got a reprieve it did not deserve, and that made the U.S. complacent. Toyota did not take the top auto producer spot from General Motors until 2008.

But American leaders believed we could compete, and benefit, from freer trade. Economists had always argued that. The consumer would always benefit, as the most efficient producer provides the best goods at the lowest prices. Tariffs and protectionism only increase prices for consumers. Free trade is a foundation of modern economic thought. And in truth, free trade benefits the world as a whole:

On the poverty front, there is overwhelming evidence that trade openness is a more trustworthy friend of the poor than protectionism. – Cato institute.

There is however, one aspect to this equation that economists did not address, but which nagged me when I was in college studying economics in the early 1990s: if we could leverage cheaper labor from overseas, wouldn’t that lower U.S. wages? Wasn’t there a ‘great leveling’ in our future? I believed we had a catastrophic drop in standard of living heading our way. No one I read was warning of this.

In the 1993, by signing NAFTA into law, we accelerated the opening of trade with the rest of the world and dutifully, American companies shifted production overseas, mainly to Brazil and Mexico, while the tide of imports from Japan turned into the tide of imports from Korea and China. Meanwhile, the rise of robotics reduced the need for hands-on employment in the U.S. factories that remained. The effect on manufacturing jobs in the U.S., once the most accessible path to the middle class, was dramatic (data from the Bureau of Labor Statistics):

Job Losses in Manufacturing by Industry, 1978-2007

jobLossesAnd for the first time, in the 21st century, we’re reading that this generation, the millennials may be the first that experiences a standard of living lower than that of their parents’.

…data compares the median salaries of 25 – 34 year-olds in 1981 and 2006, which means Gen Y was already under-earning their parents years before the Great Recession leveled their opportunities. Ouch.Forbes

Ouch, indeed. Is anyone really surprised? All you had to do was look at the relative wages of people in India and China in the 20th century before world trade exploded, and compare them to Americans doing similar work, be it factory, technical or medical. The differentials were huge in the 20th century, and it had to be expected that any increases in globalization would affect wages across the globe as companies moved labor-intensive work from high to low-cost nations. In fact, we can see wages definitely rose – 2400% in China (last 30 years) and 72000% in India (last 50 years):

Wages in India … reaching an all time high of 272.19 INR/Day in 2014 and a record low of 3.87 INR/Day in 1965

By the 21st century, the manufacturing base of multiple industries had been gutted in the U.S.:

  • Textiles
  • Furniture
  • Consumer electronics
  • Steelmaking

while auto jobs, a core of the U.S. manufacturing base, had been drastically weakened. All you need to do is review the fate of Detroit to see that. You may wonder, how did we get here?

The U.S had inherited a commanding economic position by virtue of four major factors:

  1. Abundant natural resources
  2. An industrious, educated population
  3. The dominant position economically at the end of WW2
  4. Structure impediments to trade: communication, transport, language

So, let’s look at those advantages now.

Natural resources: true, we still have many, and we’ve even dramatically boosted our energy resources, but these advantages are not so dominant in a world of free trade. China, since liberalizing its economy, is free to import iron from Australia and can make steel far cheaper than the U.S. can. And they can burn all the coal they want for power. Clean water, well, that is a problem.

Industrious, educated population: The U.S. is no longer the dynamic, burly, competitive population it once was. Our education lags, having been savaged by tax revolts like Prop 13 in California and the Bush tax cuts. We have counties with large fractions of the working population on disability, and we’re not going to out-compete hungry young nations like China with our working population in that state. Meanwhile, drug epidemics destroy the social fabric in the Midwest.

Dominant Position: Given the rise of American manufacturing at the turn of the 19th century, a time when we shocked Germany by shipping more steel train wheels than they could (see The Arms of Krupp by William Manchester for the German view), and the fact we were the only major industrial power not bombed in WW2, the U.S. inherited a dominating economic differential over the rest of the world. Meanwhile, colonialism and communism stunted economic growth in many countries such as India, Africa and South America.

Structural Impediments: Despite our economic differential, we should have seen that eventually other countries would catch up. Many countries began to shake off the colonialism and communism which had held them back. It’s as if no one saw that coming, which is odd. The rise of industrialization worldwide should have been obvious to American business, labor and political leaders, right? But for two things: a belief in American Exceptionalism, and structural barriers. I remember the cost of overseas phone calls in the 1970s – it was multiple dollars per minute. Running a global company before the Internet was an expensive and clumsy effort. Every country had its own currency, accounting was done on paper, travel and communications were expensive, and shipping was slow.

Since then we’ve seen:

  1. Container ships revolutionizing shipping;
  2. Computerization revolutionizing accounting, invoicing, logistics, payroll, everything to do with running a company;
  3. Currency and debt swaps, enabling companies to hedge currency fluctuations and leverage debt structures in different locales;
  4. The internet: huge drops in communication costs and huge increase in communication channels such as chat, online services, secure transport and storage of information.

The first three factors above reduced the cost of running operations overseas, and as global trade grew, so did shipping, and with that growth, a drop in cost. Hence, the economics to move jobs overseas became compelling. Meanwhile, the Internet had an even more pervasive effect: it started eating away at US white-collar work. First came software development, then IT outsourcing, and now even medical consulting has moved overseas. While at one point a politician could argue that free trade was a net good because workers could be ‘retrained,’ the higher-value jobs for which the former assembly-line workers could be trained (a joke) were already being siphoned away. Meanwhile, China and India have been leveraging globalization as fast as possible, graduating more engineers yearly than the U.S. since the early 2000s. What are American students studying? As of 2007:

The fastest-growing college majors in America as of 2007, says the U.S. Education Department, were parks, recreation, leisure, and fitness studies, as well as security and protective servicesFortune

As of 2014, the top 10 choices of U.S. college grads have been:

  1. Business Administration
  2. Psychology
  3. Nursing
  4. General Biology
  5. Teacher education
  6. Criminal justice
  7. Accounting
  8. Liberal arts
  9. English
  10. History

Of these, we see one STEM major. I’m not saying these graduates don’t go on to find good jobs (I did, I was an Economics major, but I self-taught in computer programming), and many will go on to post-grad education in other fields. But given the sagging manufacturing base, an ‘epic’ rise of a service economy which demands high skills, a lack of enthusiasm for the science and tech skills that Americans need to compete globally for the highest-paid positions leads many towards an increasingly polarized wage economy:

Consistent  with  the  conventional  view  of  skill-biased  technological  change, employment growth is differentially rapid in occupations in the upper two skill quartiles. More surprising … are the employment shifts seen  below the median skill level. While occupations in the second skill quartile fell as a share of employment, those in the lowest skill quartile expanded sharply. In net, employment changes in the United States during this period were strongly U-shaped  in skill level, with relative employment declines in the middle of the distribution and  relative  gains  at  the  tails.  Notably,  this  pattern  of  employment  polarization  is  not  unique to the United States. —

In other words, for those who don’t aspire to higher education in STEM fields, the writing is on the wall for wages and standard of living. Workers are being forced to take lower-skilled service jobs in increasing numbers. The ongoing weakness of the American economic recovery, while still better than Europe’s, has already dented the contentment of American workers:

The deep recession wiped out primarily high-wage and middle-wage jobs. Yet the strongest employment growth during the sluggish recovery has been in low-wage work, at places like strip malls and fast-food restaurants. —

The result? Discontent, of course, and discontent in a democracy can be disastrous, as it leads to bad choices and the rise of demagogues. Ron Briley sets it out quite well in his post “Democracy and its discontents” in the LA Progressive.

In the next installment, I’ll discuss how the Republican Party has played two sides of the American decline, how they are in opposition to each other, and will soon reap its reward. We’ll see parallels of the U.S. and 1930’s Germany, and even review the whiffs of mob violence, not unlike ancient Rome, from demagogue Trump.

N.B., I was a Reagan Republican for many years, and went Independent in the early 2000s. I think we need the Republican party, and am disappointed with where it has gone this century.

About H.W. MacNaughton

Technologist and communicator. Into technology, jazz, Formula One, sci-fi and any good writing about real stuff.
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