Beyond Blue Part One: The Crisis of the American Dream
Published on: January 29, 2012
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  • MarkE

    The future is already here. In 2008 only 8.9% worked in manufacturing. You can stretch it to 14.2% if you include construction and mining. Agricultural jobs accounted for 2.9% of employment. Services of all types account for 77.2% of all jobs, clearly the lion’s share. An interesting category is the self-employed and unpaid family worker around 7.2%. Sources: http://www.bls.gov/emp/ep_table_201.htm
    To see how the future will be constructed look to the characteristics required of service sector workers and self-employed.

  • wes george

    I agree all trends save one are for a bright future. But until you address the real possibility of a collapse in the global monetary system and how it can be avoided, that bright land sits on the far side of a very deep gulf.

    Our dependence upon layer after layer of complex supply lines, from the paddocks to the grocery and from the oil wells and coal mines to the petrol station and the light switch means that a really major economic implosion would probably destroy the already threadbare social fabric in our major cities. Civil disorder was never a real big problem in the Great Depression.

    But today we are skating on the thin ice of the same kind of economic systems which were only designed to support the complexities of the industrial age with much smaller populations.

    Only we’ve extended the complexity and distance we are from being able to live directly off the land without any strengthening of the resilience of those complex systems. We’re at risk of an epic cascade failure where one system’s collapses triggers another and so on until the whole of the economy grinds to a halt.

    If this kind of catastrophic failure were to occur it would be much aggravated by the way our polity has become so ideological polarised thus limiting our ability to work together to ameliorate real problems. Our elites will struggle to the bitter end to find political advantage in our descent into chaos rather than offer real solutions all of which will require political compromise and sacrifice.

  • Neville

    Another Churchill quote is also relevant. Before WWII had even ended, he learned that the British electorate had turned him out of office. After his defeat, his wife Clementine told him, “It may well be a blessing in disguise.” Churchill replied, “At the moment it seems quite effectively disguised.”

  • Corlyss

    I just finished reading McCullough’s Johnstown Flood. The book is fascinating for many reasons. Some of it is a glimpse of social characteristics we’ve lost along the way since WW2. As soon as it was daylight after the Night From Hell, survivors collected themselves – the ones who were not in catatonic shock or frantically looking for loved ones – congregated, and immediately elected a “dictator” to organize them. He appointed forage groups to collect food, clothing, anything that could be used either to sustain the living or aid in the search and rescue and recovery efforts. He organized rescue, corpse recovery, and animal remains disposal groups, and they all got about it. After a couple of sleepless days and nights of work, he collapsed and another stepped in to continue the work. Meanwhile reporters poured into the spot on the map that used to be a town, setting up their own telegraph lines, and began telling the world what happened. $3 mil was eventually collected from all over the world for relief efforts. Charities from all around the region unaffected by the flood came in with clothes, food, money, and volunteers to help.

    Eventually the Army arrived with their superior organization and logistics skills. At some distance from the event, the townspeople agreed that the most important element in their recovery was the railroad, much of their services donated. One of the “what became of them” stories McCullough tells at the end is of a businessman who left Johnstown to become a “very Progressive” politician and mayor of Cleveland. This guy, Tom L. Johnson, observed about the incident in his memoirs that “charities had vitiated local energies.” I’m always saying that this or that service now done by government should be done by charities lest people lose all connection with compassionate works and become like the Europeans, who can’t be bothered with private charity because “saving people is the state’s job.” I hear that many Christian groups now object to charity work on the grounds – get this – that it confounds the separation of church and state doctrine!

    I can’t help but wonder what Johnson would think of today’s circumstance, with the government not only doing so much, but insisting that only the government should do anything*, what with the Katrina victims huddled utterly helpless and immobile in the Superdome waiting for Uncle Sugar to come save them. Quite a contrast. I wonder if we’ll ever get any of that self-help instinct back, if we even have the capacity anymore to organize ourselves in ways similar to the Johnstown folks.

    *I’m thinking here of Jindal’s frantic efforts to organize local self-help with the oil spill, and all the Obama administration did was get in his way, demanding that he get EPA clearance for anything they were willing to do for themselves. That IMO was monstrously perverse, nauseatingly European, and totally ridiculous.

  • WigWag

    Professor Mead may or may not be right that an inflection point has been reached. The case that he makes that it has is weak, but that doesn’t mean that it is wrong. While Europe has its problems, those problems are associated with European integration. Unless Professor Mead can explain why Northern European nations such as Germany the Netherlands and the Scandinavian countries (not to mention Canada) can afford a welfare state far more generous than the American welfare state, his argument that the blue state model is in extremis is severely weakened.

    It also bears mentioning that virtually all of the fiscal problems of both the state and federal government can be attributed to out of control health care costs. But for these costs, the blue state model would be far healthier than it is now. A solution to out of control health care costs exists, if we would only adopt it; a single payer system like the one utilized in Canada and France produces superior results to what the American system yields at much lower cost.

    But for the sake of argument, let’s assume that Professor Mead is right and we are indeed at the cusp of a new form of liberalism.

    I think the good Professor is entirely correct when he argues that the vector of change in capitalism is technological progress. Technological progress is both inexorable and outside of the control of government. Mead is also right when he argues that this is a good thing; new technologies in medical care make all of our lives healthier both rich and poor alike. Technological improvement in consumer goods makes all of our lives easier and less labor intensive; this is also good. Ten years ago, nobody owned a smart phone, today even poor people do.

    It is also pretty clear that the direction that technological innovation is driving capitalism is towards disintermediation. Driving out the middleman reduces costs, increases efficiency and makes a wider array of products available to a wider array of people in a timelier and less costly way.

    As a result of technological change we no longer need an intermediary between airlines or trains and those who want to travel; the travel agent has become extraneous. We no longer need the services of stock brokers; making our own decisions, we can buy stocks, bonds and mutual funds over the internet. We no longer need television networks to choose what TV shows we watch; there is a rapidly expanding number of ways in which we can watch filmed entertainment. Similarly, we no longer need record stores to serve as intermediaries between musical artists and listeners and it is becoming increasingly common for musical artists to sell their wares to listeners without the need for “record companies” to get in the way.

    It’s becoming increasingly anachronistic for publishing companies to mediate the relationship between authors and readers. For those inclined towards pornography, we no longer need X rated magazines; sex workers can sell and advertise their wares directly to potential consumers online.

    It is becoming progressively less necessary for colleges and universities to stand between learned experts (we call them Professors) who want to teach and students who want to learn. How long will it be before some smart academic types figure out that they can market their teaching services to students without the university administrators taking a cut and without the the costs associated with a redundant infrastructure called a campus? How long before we all draft our wills online without a lawyer? How long before we no longer need radiologists to analyze our X-Rays or MRI scans? Already machines are being developed to do the job.

    For the next couple of decades disintermediation will be the prevailing trend in capitalism and it will enrich all of our lives as consumers. Professor Mead once wrote a post about value added intermediation; he’s right, value added intermediation will produce many of the high paying jobs of the 21st century.

    But while technological change is inexorable, so are the realities of capitalism. For all of its virtues, capitalism produces winners and losers and in its new incarnation it is possible if not likely that the percentage of losers will significantly outnumber the percentage of winners; we can already discern early indications of this trend.

    Professor Mead points out that in an earlier form, liberalism adopted strategies which made socialism appear less desirable; at least in the United States. What has not changed is that is that the unequal distribution of wealth and political power that is inherent in a capitalistic system inevitably becomes untenable and threatens to undermine the system itself. It happened in the 1930s; it is happening now and it could happen in a far more explosive form in the future. In part the Marxists are right; capitalism does consist of a series of inherent contradictions that threaten to undermine its viability.

    For many decades, labor unions helped tame capitalism so that it could thrive in a form that produced benefits for all classes of people. With the demise of labor unions, it has increasingly become the government that serves the critical role of taming capitalism.

    While many people who consider themselves “conservative” yearn for the day when we return to the prosperous world we had before big government reared its ugly head; they are yearning for a time that never was. Their nostalgia is little more than an anachronism that provides no roadmap for the future.

    In fact, if Professor Mead is right that an inflection point has indeed been reached, it is highly likely that government will expand its role as a regulator and modulator of capitalism; without government playing that role all that faces us is social turmoil and anarchy.

    While government needs to get more efficient and get out of the businesses that it is bad at (like picking winners and losers in the economy)its role as a regulator of capitalism is likely to expand not contract and its role of redistributing income from societies winners to societies losers is likely to grow.

    Liberalism, free enterprise and a vibrant state sector are attached at the hip; none can thrive without the other. In the long run, only government intervention can rough out capitalism’s jagged edges and provide the social harmony which capitalism depends on as it amorally pursues its penchant for creative destruction.

    As decentralization and disintermediation come to dominate the 21st century economy, it is highly unlikely that big government is going anywhere.

  • Jim.

    The crises the world is facing are the global working out of two problems:

    1) “Capitalist” politicians in the West are desperately trying to stay in office by spending too much on supporting an unsustainable standard of living of insufficiently productive citizens, and

    2) “Communist” politicians in the East are desperately trying to stay in office by exploiting (underpaying) their workers in an attempt to maintain political power as they modernize / industrialize.

    Our intelligentsia hasn’t been much help because the babble they entertain themselves with mislabels everything so badly. It doesn’t help that the “underdog” “developing” countries have gone from resisting colonial encroachment to perfecting Mercantilist policies of their own.

    The simple fact is, now that we have global supply chains, there is a mechanism through which Classical Economics can finally assert itself and give huge advantages to countries with cheap labor rates. First MFN; then Wal-Mart; now, the situation we find ourselves in.

    A probable conclusion from this is that the world economy will not reach a new stable point until the wages (and living standards) of formerly 3rd world workers start to equalize with their competition in the West. (Some factor for efficiency and quality of infrastructure should be thrown in, but the first-order estimate remains a good one.)

    Another simple, inexorable conclusion from this working-out is that an American (or Greek, say) *who does not work* cannot expect to have a higher standard of living than someone in China who does work.

    The politician that can best take advantage of these trends is the politician that will dominate the next generation.

  • Toni

    Prof. Mead, your bias is showing.

    What you call “Fordism” wouldn’t have been possible without Rockefellerism. That’s right, dastardly old John D., a devout Baptist who thought he was doing the right thing by lowering gasoline prices. Same guy who founded the University of Chicago, Rockefeller U, Atlanta’s Black Spelman College, and much else. He’s estimated to have given away $500 million in his lifetime, which was 1839-1937. Translated into today’s dollars, his philanthropy may make Bill Gates’s look like a pittance.

    Son John Jr. started Rockefeller Center before the Depression and courageously continued building it as a show of support for NYC and capitalism. That meant 75,000 Depression jobs. He donated the land on which the UN’s HQ now sits. He and wife Abby were also responsible for Riverside Church, MoMA, and The Cloisters, among much else.

    How many libraries did Andrew Carnegie build? I didn’t know until I saw a museum exhibit that the founder of Kresge’s, now K-Mart, seeded art museums across the country. How much else did the old “robber barons” do that neither you nor I know about? More than you’re willing to give businessmen credit for.

    Railroad history is also much more complicated than either of us know. I know this much: Beaucoup “speculators” lost their shirts building the US system. The West was settled partly on land the US granted to railroads for that purpose. Because of their strategic importance, the railroads have been regulated by the feds for about a century.

    You’ve also no idea how much ongoing corporate philanthropy meant, and means, for American communities. Did you know that Wal-Mart helps with disaster aid wherever people need it to? Come visit the nation’s fourth-largest city, and I’ll show you Rice U, M.D. Anderson Cancer Center, Jones Hall (named for the guy who ran FDR’s Reconstruction Finance Corporation), and other institutions begun with private funds.

    Please, please get a staffer who can help you with capitalism’s role in the last century.

  • Toni

    PS ExxonMobil and Apple now vie for the position of America’s largest company. ExxonMobil is the descendant of John D. Rockefeller’s Standard Oil of New Jersey and Standard of New York.

    Every one of the “brown jobs” you now hail is the result of technology developed by corporations.

  • Jacksonian Libertarian

    Excellent, I feel inspired to a long comment.
    One of the Trends I see is the fact that as mankind’s culture has evolved, he has moved from muscle power to the greater and greater use of energy in all its forms. Energy has grown so important that Energy Prices are the measure of Productivity, and Energy supply created inflation can hide deflation in the money supply.
    This relates to another Trend with the Energy being used to power increasingly more productive machines. Robots and Drones are now replacing muscle labor jobs, and many service jobs are being replaced by computer programs which do your taxes, track inventory, perform book-keeping, etc… Increasingly people are needed to supervise the machines, repair the machines, and design new more capable programs and machines.
    I double dog dare you to find a teenager that can’t drive a car, use a smart phone, use a remote controlled toy, or operate a game console like a maestro playing “flight of the bumble bee” on a grand piano.
    I don’t see our present changes however being as socially traumatic as the move from the farm to the city and suburbs. And I blame the Government Monopoly entirely for our present economic problems, and think the ongoing technological advance is not responsible for any social problems being created by the demise of the Blue Model.
    “There’s a reason it’s called Capitalism; it’s because Capital is what fuels it.” Jacksonian Libertarian
    In 1929 the new Herbert Hoover administration began Deficit Spending of 25% of GDP over the next 4 years. By October 1929 they had drained the economy of so much capital there wasn’t enough to fuel normal growth, and deflation set in with the crash of the Stock Market. In 2008 the first of the budget’s by the new Democrat controlled Congress came into effect with Deficit Spending never before seen of $480 Billion. By October of 2008 they had drained the economy of so much capital there wasn’t enough to fuel normal growth, and deflation set in with the banking failure and subsequent bailouts. The Democrats have continued to drain the economy of capital every year since with increasing rapacity. They have now drained $4.5 Trillion or about 30% of GDP in 4 years, with Trillion dollar deficits projected forever into the future.
    It wasn’t until after WWII when the accumulated Debt from the Great Depression 1.0 and WWII was quickly paid off. Which flooded the economy’s fuel tank with capital, and the economy once again began to strongly grow. It won’t be until the accumulated Debt from Great Depression 2.0 starts getting quickly paid off, that our future economy will begin to grow strongly again.
    I sure hope we are going to make the political choice to begin paying the Debt off, rather than suffer many more years of Great Depression 2.0. The reality however is that the Establishment Big Government Republicans are only slightly better than the Insanely Spending Democrats. Despite the TEA Party drive for Fiscally Sane Limited Government, it looks like the choice for President will be between Romney the Tax and Spend Republican and creator of the Socialist Romneycare, or Obama the Tax and Spend even more Democrat and creator of the Socialist Obamacare.
    “Example is the school of mankind, and they will learn at no other.” Edmund Burke
    It seems American Culture has yet to learn its lesson, and learning it the hard way is going to bite.

  • Anthony

    “We need to reconceive the idea of a good society (post blue?) in the early twenty-first century and to find a creative path toward it. Most important, we need to be ready to pay the price of civilization through multiple acts of good citizenship: bearing our fair share of taxes, educating ourselves deeply about society’s needs(transforming social arrangements), acting as vigilant stewards for future generations, and remembering that compassion is the glue that holds society together.”

    Beyond Blue essay assumes operative market economy (global and technological) with economic, societal, and political implications going forward. WRM, I think our country yet needs to have honest discussion as to Government’s vital role in mixed economy going foward considering implications of essay and ideas posited by William A. Galston and James Q. Wilson. That is, sustainability becomes one of our first principles undergirding path beyond blue (as sustainability implies “generations”).

    Our challenges are not novel WRM in that U.S. has remade (recast) itself before; nevertheless, societally the U.S. must identify who she is in order to successfully harness twin drivers of momentous changes impacting 21st century.

  • Scott

    As production becomes ever more efficient due to machines replacing people, what, exactly are people for? Blue collar jobs have already largely disappeared; what do all of the white collar workers do once smarter machines replace them? Eventually production is going to happen without human intervention at all. What are people supposed to do with themselves then? Serious question.

  • Yahzooman

    Brilliant!

    “It is raining soup, and we are stuck holding a fork.”

    As that other eminent philosopher said: “When you come to a fork in the road, take it.”

    Americans will take a few wrong turns, but I agree with the professor. America will, again, discover the future first.

    Why?

    Because Americans have limited government, property rights, freedom to succeed, freedom to fail but take another risk, freedom to enjoy the fruits of their labors and equal opportunity (as opposed to equal outcomes).

    Great essay.

  • Andy Freeman

    > Unless Professor Mead can explain why Northern European nations such as Germany the Netherlands and the Scandinavian countries (not to mention Canada) can afford a welfare state far more generous than the American welfare state, his argument that the blue state model is in extremis is severely weakened.

    Since the taxes per person are basically the same in those countries (Canada’s are actually lower than the US), it’s probably that US blue state politicians are more incompetent.

    http://gregmankiw.blogspot.com/2010/03/taxes-per-person.html

    Note that the other countries have lower GDPs and get far more of their tax revenue from the middle class.

    http://gregmankiw.blogspot.com/2011/03/what-nation-has-most-progressive-tax.html

  • John Stephens

    WigWag:

    It is not possible for any government to pay for it’s people’s health care, and any attempt to do will end in either failure or destruction. Why? Because unlike any other human need, the desire for health and life is infinite. You can eat only so much food, occupy so much ground, and consume so much entertainment in a day. Try as you might, you can only burn so much energy. But there is always some new test or treatment, some new technique to buy just a few more days, or months of life. The only limit to consumption of healthcare is the willingness and ability of someone, somewhere to pay for it.

    An individual’s ability to spend money for healthcare is limited by his or her personal wealth. A government, with it’s ability to tax, borrow or ultimately create currency, has no such limits. But the end result of unlimited government spending is hyperinflation and economic ruin. In the end, any government which takes upon itself the burden of healthcare for it’s people must either abandon that burden (and those who cave come to depend on it, both patients and providers), or perish. Better not to take it up in the first place.

  • Toni, what you need to ask is, in return for all those benefits to society that you list, how much were the Rockefellers and their ilk allowed to collude with the government to further their enterprises, at the expense of others who could compete with them in the marketplace, but not compete with them for the ears of our political leadership?

    The benevolent oligarchy you praise is much like Mr. Obama’s idea of “working together” … the allegedly Best and Brightest at the top give the orders, and the rest of us are expected to carry them out.

    However, the suppression of personal initiative, and the distributed intelligence that springs from it, that is the result of such top-down control can hold our society back from even greater progress.

    Consider if, say, IBM had the power and influence of Standard Oil or the railroads, and they could have steered legislation and regulation to put big burdens on “garage shop” tech operations like a certain one in Cupertino, CA run by a couple of guys named Steve … or more recently, how the Internet could be changed through the efforts of the well-established-and-connected RIAA and MPAA to “curb piracy” through supporting the over-reach of SOPA and PIPA.

    Even though we have sometimes deviated from it, America’s respect for personal initiative and distributed intelligence … a society with millions of engaged problem-solvers, instead of a few “brains” at the top … is why, as Dr. Mead describes, we are “a dynamic and innovative people who somehow got to the future before anybody else.”

    What allowed these qualities to flourish here, however, was our respect for, and implementation of, the following:

    We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

    No matter what the motives or perceived potential benefits are, moving away from respect for, and protection of, these self-evident truths for EACH and EVERY individual is a step in the wrong direction, if we want human society to advance.

    Those self-evident truths are often forgotten or minimized by those who lead us … some of whom believe they have a better way FOR us than those hoary old words.

    But we minimize and/or ignore them at our peril.

  • Claude Hopper

    “I feel inspired to a long comment.” Only commenters 3, 8 and possibly l are concise enough to read; the rest are too long. I, for one, don’t have time for the long wordy comments. If those long winded paragraphs could be reduced to one concise sentence, I might consent to be a reader. As it is, I don’t consent.

  • Scott

    It seems to me that millions of people in the US have had so much all their lives that they can’t justify their wealth (relative to the whole world) in their own minds. This is particularly true of young people and this is breaking the system down more than ridiculous socialist propaganda. The next system has to have a vision like more like that of Thoreau and less like Elvis Presley.

  • Kris

    So tell me Mr. Bryan, how do you enjoy being crucified upon a cross of paper?

    By the way, was Arthur Hugh Clough evoking Moses?

  • Tom Holsinger

    Wig Wag, this one was entertaining:

    “What has not changed is that is that the unequal distribution of wealth and political power that is inherent in a capitalistic system inevitably becomes untenable and threatens to undermine the system itself.”

  • Russ

    Technical aside: the new print feature works fantastically, Prof. Mead. If it’s not new and I just noticed it, well, it’s still really good. Haven’t digested the contents yet, but will.

  • Mike Mahoney

    Very, very close in my estimation. So close that It might escape further notice. Ponder this. The one factor that ties the industrial revolution and emigration from farms is working for someone else. The loss of those paericular values that come from self employment are exacerbated by corporate sturctures and unions. Please read those as exacerbated, not unique or limited to. Freedom of action, responsibility for action, reflection of action by community approval or opprobrium: these are blunted in the individual by working for someone else. I am not refering to true independent contracting. Neither am I refering to closely held corporations or non- corporate forms of business.

  • I’ll be interested to read Mr. Mead’s follow-ons to this piece, but I’m not very sanguine.

    The tail-end of the industrial revolution forced workers off of the farm and into factory jobs where their labor was actually more valuable than the farm labor. The dislocation was wrenching, but recoverable. Today we’re experiencing two inexorable shifts for which there appears to be no remedy:

    1) American unskilled and semi-skilled labor is overpriced with respect to the global market, and will continue to be so until American wages come down a lot and foreign wages come up somewhat.

    2) Even after the global labor market clears (10 years? 20?) and demand would otherwise start to increase, automation will hollow out demand for workers, mostly at the low end, but in certain pockets of professional jobs as well.

    The conventional wisdom is that skyrocketing productivity is mitigated because lower cost goods and services trigger demand for new, innovative stuff, which increases output and pushes the economy back toward full employment, even for low-end workers. But the conventional wisdom only holds if the following two conditions remain true:

    a) There can be no ceiling on demand for more output. In other words, the individual must always want more stuff if he can afford it. If this is false, then productivity growth will permanently exceed output growth, which causes the economy to continuously shed jobs.

    b) The labor market must be sufficiently educated that there is no floor on the degree of talent needed to participate. Otherwise, you’re left with a permanent underclass of individuals who are structurally unemployable.

    These two propositions have been true ever since we escaped the Malthusian trap at the beginning of the Renaissance. But I can’t see how **either** of them can remain true in the face of manufacturing and services becoming progressively more automated.

    First, humans have a finite capacity for consumption. They will eventually have so many gadgets and services that their brains are unable to deal with the complexity. Eventually, you wind up with a very small number of gadgets that can pretty much fulfill every desire of an organic mind. At that point, output has to start to plateau.

    Even more importantly, I can’t see any way that our machines don’t begin to exceed the maximum potential of some, most, or all of our workers. We live in a world where half of everybody has below-average intelligence. There is some maximum effective level of training beyond which the individual will not progress. If that level is below what a smart machine can do, that individual is unemployable.

    These circumstances potentially cause the formation of a new kind of Malthusian limit. There only appear to be a few ways out of the trap. We can artificially limit the machines, but economies aren’t very forgiving of the use of sub-optimal production methods. There’s always somebody who will make the gadget cheaper with automation. Without limiting the machines, the people will get naturally limited. As we know, that limitation usually happens in, how shall I say, a **disorderly** manner.

    There are a couple of other possibilities that might be stable. If soaring productivity makes goods and services cheap enough, a generous welfare state can be implemented for a fairly small fraction of total output. But this only works as a temporary measure, because the population of the unemployable will merely get larger and larger until the welfare state eats all the output. Then we’re back to that disorderly thing.

    The only other way out I can see is to perpetually enhance the individual’s ability to both produce and consume. Such an enhancement is science fiction today, but maybe it’s not by the time we run into real trouble.

    Either way, the transition from the industrial to the post-industrial economy is going to make the transition from the agrarian to the industry economy look like downward blip in the business cycle. I sure hope I’m wrong.

  • Toni

    [email protected], I wrote for Forbes for 20 years, including the first story questioning “Hidden Risks” in Enron’s accounting in 1993, years before it went kaput ca. 2001. Jeff Skilling promptly went up to his alma mater, Harvard Business School, for a “case study” basically explaining why I was all wrong.

    I could have taken the company down ca. 1999, when I discovered mega-debt it had hidden from the world. But I wasn’t willing to work as hard in 1999 as I had in 1993, only to have my work ignored as it had been.

    Now Skilling’s in prison, and as Enron went down the tubes, the ’93 story was cited in congressional testimony and elsewhere as an early warning that had been ignored.

    Oddly, I awoke today thinking of Enron and what it had done FOR Houston. I think Ken Lay was the first to point out to city fathers that how a city looks is important to attracting new hires; some old bridges over the major freeway heading to downtown got a literally beautiful new look. I know Enron was responsible for the fabulous new downtown baseball stadium where the World Series was later held. It too looks very spiffy from the freeways.

    Shakespeare wrote, “The evil that men do lives after them; the good is oft interred with their bones.” You know all the brown jobs from fracking natural gas wells, and that gas prices are now cratering because of all that new gas on the market? Well, Ken Lay had a role in that, too. Natural gas had been federally regulated from drill bit to burner tip. An economist by training, Lay pushed deregulation so that a freer market could lower gas prices.

    That is, I’m no shill for big business. Prof. Mead is inclined to bash it for, I believe, lack of understanding. Hence my post.

  • Stefan Stackhouse

    In a world where jobs come and go and lifetime employment is as much of a historical memory as “40 acres and a mule”, perhaps what will work best for most people is to rent rather than to buy. So many people right now are locked into the limited or no opportunities of their local area because they can’t sell and move.

    Also, given a globalized and volatile economy, it doesn’t make much sense to place so many of one’s “eggs” in the uncertain basket of home equity. Diversification and flexibility is the way to go. The capital that people have previously been investing in home equity may be more profitably deployed in other, better instruments that do not tie one down to a particular location.

    Lessons are being learned and will eventually be applied.

  • Trent Telenko

    Unless Professor Mead can explain why Northern European nations such as Germany the Netherlands and the Scandinavian countries (not to mention Canada) can afford a welfare state far more generous than the American welfare state, his argument that the blue state model is in extremis is severely weakened.

    WRM does not have too.

    If All America was ethnically homogenious as Minnesota, we could have German/Scandinavian style socialism.

    Americans are not Germans and Scandinavians.

    We are too diverse for their social/cultural/government services model to work here.

    The Jacksonians, for one, don’t fit the German/Scandinavian cultural/government services template on most levels.

    They are far more interested in getting more than their share of a corrupt government service system, for their own ends, than in reforming the system to provide equitable services for all.

    They are not the only ones in America like that.

  • queenofromania

    “When the going gets tough, the tough change their dreams.” Moi

    The article reminds me of a Thomas Paine quote, “My country is the world.My religion is to do good.” I think we need to change our dream from American to global.

  • wwd

    Technology has not changed as much as anyone thinks. There is only one true alchemy – take a resource, add labor and produce something with more value than the input costs. Everything else is leverages off of that plinth of true wealth creation. Therein lies the rub.

  • David D.

    We are headed the way of Europe if we don’t bring the jobs home and penalize companies for offshoring.

    What’s different is that millions of workers willing to work for a fraction of our labor costs have entered the market.

    Our corporations have no significant legal restriction or tax penalty for sourcing in the cheapest country, regardless of how they treat their workers.

    A first step is to level the playing field, by taxing corporations for the wage differential based on where they offshore labor or source their goods.

    For example, Apple employs 700,000 workers overseas. At say $20 per hour labor rate difference, this works out to be around $28 billion annually in additional taxes. Appple is on track to make about $50 billion, so this is affordable for them.

    Our measure of success going forward is our goods trade deficit, which right now is $650 billion. This is about 10-15 million jobs over there instead of over here.

    The costs are staggering, as this amount must be borrowed, we transfer wealth overseas where it cycles through their economy instead of ours, their workers learn skills instead of ours, and we have huge social safety net costs for unemployment and disability.

    Policy makers have to level the playing field or we go the way of Europe.

  • @ WRM – “Americans didn’t have to organize themselves to cope with poverty and the erosion of living standards; they had to organize themselves to capture and enjoy the vastly increased prosperity and freedom which new technology made possible.”

    That sounds about right. The mechanization of agriculture forced millions people off their family farms into the big cities, where they were forced to compete with millions more of pauperized immigrants arriving from Europe as hands in the new industrial economy. Eventually political pressures forced a reduction in the flow of immigration, after which child labor was outlawed and the eight hour day was made official. This set the stage for the prosperity of the 1950’s.

    Let me suggest that the revolution in home appliances which took place in the 1950’s was every bit as destabilizing as the mechanization of agriculture. Once the refrigerator, electric range, automatic clothes washer and dryer, and the automatic dishwasher became standard in the home, full-time housewives became obsolete.

    This had a lot of unintended consequences: on female employment, male wage rates, the demand for automobiles (and freeways), the price of suburban real estate, fertility rates, the way we raise our children and take care of our old, the independence of women, the stability of marriage, the status of men, the place of breakfast and dinner in the family ritual.

    On paper we were richer than before. But we should keep in mind that with a full-time Moms roughly half of all family economic activity was in the informal sector, which does not show up in GDP. And a lot of what looked like a higher standard of living was really just the overhead expense of a two-earner family: the necessity of a second car, new clothes for work, paying for professional childcare, eldercare, and housecleaning services, eating out in fast-food restaurants instead of cooking at home. We were only richer on paper.

    Leaving aside the issues of trade, immigration, and out-of-control healthcare spending (which I find very hard to do) how might average Americans “capture and enjoy the vastly increased prosperity and freedom” which the revolution in new home appliances makes possible?

    Here’s a way I came up with back when it happened, 45 years ago:

    http://sites.google.com/site/lukelea2/introduction

    I’m so far gone I still think it’s the only possible way.

  • Toni

    [email protected], right on.

    Would you please help me learn how to post here in italics? I have Word, Apple’s iWork, and Entourage. Nothing I’ve ever tried pastes here with italics intact.

    I know lots about business and economics. With technology, I operate on a need-to-know basis. I’d appreciate tips.

  • a nissen

    WRM, the justification you borrow without explanation is also getting rather long in the tooth:
    ” It is because the forces ripping up the social model are deeply implanted in the nature of the economic system — and that system is a reflection of the propensities in human nature which we cannot and perhaps should not overcome.”

    The Man’s Creed that Red Green borrowed from Thomas Jefferson does a far cleaner job of explaining what has made the United States of America great and is likely to keep it going: “I’m a [propertied] man but I can change, if I have to, I guess.”

    As for the “free market”— it exists SOLELY because of this obsession with property upon which our government is founded and takes care to secure and conserve for all varieties of people, far beyond the original vision of “propertied men.”

  • don

    “Unless Professor Mead can explain why Northern European nations such as Germany the Netherlands and the Scandinavian countries (not to mention Canada) can afford a welfare state far more generous than the American welfare state, his argument that the blue state model is in extremis is severely weakened.”

    It’s not all together clear that they can afford a more generous welfare state in the future, but so far they were able to because of post world war rebuilding that provided a more productive manufacturing base and because they could free ride:#1 On the American military for defense of the sea lanes and the general peace. #2 They didn’t have to maintain a reserve currency (they don’t have the military to enforce it) which has costs and benefits #3 They don’t have a European fiscal union to maintain a credible reserve currency AND a unified European army to enforce the terms of trade (American subsidized NATO was for the internal defense of Europe, not greater Eurasia). #4 It appears that those conditions of Pax Americana allowing for generous European welfare states is changing, due in no small part to blue state hostility to paying the growing costs of empire at the expense of domestic entitlements during an economic crisis caused by financial and solvency issues in those blue states.

  • Jim

    @23 Toni, the funny thing about Enron is that many Houstonians saw that the emperor had no clothes early on, but Skilling, Fastow, and company did a fantastic job of fooling Wall Street (and believing their own hype to a certain extent). We could probably have a long and fascinating (to certain geeky types) conversation about that topic. But you are correct in that Ken Lay did see the future; I’m just not sure how much he really moved beyond the world of theory to see what was going on in front of his nose (which of course was his responsibility too). And the critical insight — that owning both sides of the long-dated forward curve in gas filled an unmet need in the marketplace, [heck], it created a marketplace — was one of the key building blocks to what we are now experiencing as the shale gas revolution. George Mitchell played a role there too, along with many others, but you are correct in that with all its faults, Enron changed the world.

  • Jacksonian Libertarian

    I see a lot of comments here expressing a fear for where the jobs are going to come from when machines replace all the labor and service jobs. This is a very Luddite style of thinking, as the machines serve mankind and relieve us of the work that doesn’t require a sapient self programming carbon based life form. Just as people left farming, then blue collar labor, they will now leave service jobs, for jobs that only people can do. They will be challenging jobs that only sapients can do, the creative jobs that only sapients can do, the jobs that avoid mind numbing repetition and advance us toward fulfilling our great potential. With so many minds working to advance mankind, we will continue our technological acceleration and the changes will continue to come faster and faster. Mankind will adapt, it’s what we do. Technophobes and Luddites will learn to adapt, or perish and thereby improve the species.
    What is our potential? Immortality? Godhood?
    “Any sufficiently advance technology is indistinguishable from Magic” Arthur C. Clarke

  • HC

    ‘I think we need to change our dream from American to global.’

    That is precisely what drives much of the rage rising now. There is a perception that the people running the United States see it as simply one part of a global whole, which is a viewpoint that is anathema to the general public.

    Just as the ‘farm dream’ did not entirely vanish, neither will the ‘crabgrass frontier’, the blue model will continue as part of whatever follows just as the red model will be part of whatever follows. The red model will not can cannot replace the blue, they are joined at the hip.

    One major difference between this time and the late 19th century, of course, is that a good case can be made that information technology has _not_ made the pie bigger, in the same way that electric motors, internal combustion engines, industrial farming, etc, actually increased the net resources of society.

    If productivity improves while production stays constant, the result is not prosperity but a toxic combination of unemployment and a concentration of resources in fewer and fewer hands. It remains unclear whether I.T. is doing the latter or not.

  • Toni, my problem is not with big business.

    My problem is with the opportunities government at any level extends to business … or unions … or other entities, for collusion. That is what put the “robber” in “robber baron”, IMO.

    That collusion all too often ends up shortchanging our society, by both limiting our options as consumers and thwarting the creative processes driven by personal initiative.

    One of the problems with the blue model is that the more we expand the size and reach of government — even if the motivations for these increases is “for the greater good” — the more opportunities we create for such collusion to gum up the works.

    I’ll take a glut of natural gas, over a limit on the personal initiative that has been placed, not by market forces, but by political fiat that benefits the well-connected few while locking out those who, without that fiat, could do a better job getting that resource to market … and/or limits on that initiative in the name of a few Best and Brightest jamming their socio-economic morality down our throats, especially when that morality is based in a blind faith in junk science and a childlike disdain for anyone who succeeds without their “help”.

  • c smith

    “Without limiting the machines, the people will get naturally limited.”

    What if the machines begin to do the “people limiting” themselves?

  • Kris

    David@28: So you want to harm the global competitiveness of American firms, and impose higher costs on American consumers. Some patriot you are!

    Toni@30: “Would you please help me learn how to post here in italics?”

    If you want to emphasize text, you could enclose the text within [em] and [/em] (replacing the square brackets with angular ones). If you want to quote a paragraph or more, you could use [blockquote] similarly. (And if you really really insist on italics for their own sake, despite this going against the spirit of HTML and being deprecated, you can look at the source code for this page, which will incidentally expose my hypocrisy.)

  • CobbleHill

    I didn’t read all the comments here, but I did read a lot.

    A couple of points. First, I am not sure how valuable it is to distinguish between service jobs and manufacturing jobs. I think I remember Peter Drucker saying that that the high point in the number of people, who worked in a factory in the United States was something like 1910, and it was about 10 percent. Factories are fascinating. They have these great shows on TV now on how they make cookies or split walnuts, or whatever. But a big reason that they are fascinating is that no one is working in them. They are machines.

    Everything people do and have always done involves a person using their body, their mind, and some kind of a utensil, whether it’s a pen, spatula, hoe, backhoe, keyboard, pair of scissors or whatever. So I don’t see these distinctions between service jobs and manufacturing jobs as being that meaningful.

    Also, please do not cite Scandinavians and health care. My wife is Danish. Their health care system is a disaster. Recently, one of the tabloids, I can’t remember if it’s the one(s) with naked women or not, reprinted a letter to someone, who was over 90. I can’t remember exactly what the health authorities were telling him he was not getting until it was too late, maybe cataract surgery, maybe something different, but whatever, it was going to take years. I should note that this a standard go-to item for these papers. The broadsheets apparently belief it’s beneath them.

    Another point. I think it’s really important to distinguish between capitalism and finance. The FT is running this ridiculous series about the “Crisis of Capitalism.” It’s not a crisis in capitalism. It’s a crisis in finance. The reason, I would say, is that finance is a market failure. It suffers from problems associated with asymmetric information and the principle-agent problem. Ironically, Hernando de Soto had a great piece today homing in on the fact that modern finance has stopped figuring out how to do the basics. Think MF Global. Or the mortgage mess.

    A final problem, per the company I work for, I am convinced that a big issue in modern America is that it’s really, really difficult to redevelop formerly industrial areas in the United States, because of Superfund jurisprudence that basically scares away capital. There is a whole lot of theory and empirical evidence that cities do not want to disappear. A big reason that this is happening in the Northeast, I would argue, is that key real estate sites in older cities, often located on waterways, are very difficult to redevelop. It’s crazy. No one got sick at Love Canal.

    Oh, and last point. Morality has also clearly declined. This has nothing to do with the social model. You see it most clearly in terms of the family. But you also seee it the case of business ethics. Per Piketty and Saez, it’s clearly a cause for the rise in inequality as corporate boards rip off shareholders.

    So that’s my several cents.

  • Louis Wheeler

    Scott asked in comment 11:
    “As production becomes ever more efficient due to machines replacing people, what, exactly are people for? “

    Your questions are answered by basic economics. People are a resource as well as a market. “Says law “ says that any good or service (labor hours are a service) will create it own demand as it finds its market clearing price. Productivity is the process of finding ever less labor intensive means to serve the same human needs and desires. Since human desires are unlimited, then labor hours freed up by machines can fulfill higher human needs. Productivity is the main means by which standards of living rise in the absence of monetary expansion.

    “Blue collar jobs have already largely disappeared; what do all of the white collar workers do once smarter machines replace them? “

    The Blue / White collar issue is an obsolete industrial age abstraction. They did not appear on the family farm or in the skilled worker’s hut. As technology improved, the grunt level jobs gradually disappeared. This did not mean that labor disappeared, just the hardest and dirtiest sort. As long as people need goods and services, they will need people with the skills and talents to provide them. A small business owner will occasionally be forced to do some unpleasant tasks, even if he has machines to make the jobs easier. Technology allows us to become generalists rather than specialists.

    “Eventually production is going to happen without human intervention at all. “

    Thank goodness, that nano machines and factories are coming. But you are missing the point. Apple computer is one of the largest companies in the world, yet it employs a twentieth of General Motors in the 1950, because it has much higher productivity. Although many of its parts are built overseas as is the assembly of its computers and electronic devices, the bulk of the cost of those devices goes to employees in the US. Only about $10 is spent in China to assemble an iPhone. Someone needs to design and prototype each Apple device. Sales, marketing, advertising and legal services are here in the US. Those jobs may not be in the US forever, since these skills are being developed in other countries.

    “What are people supposed to do with themselves then? Serious question.”

    People must compete. The US is at a disadvantage because the Dollar is the world’s reserve currency. This causes a trade deficit as we export dollars to buy cheap foreign goods. But this practice will be ending soon. The Dollar will plummet in value making foreign goods and services too expensive, so jobs will come flooding home. They are likely to return to locations which have the least Trade Union interference and government regulations. Hence, the Blue States will lose out.

  • WigWag

    In this post and in his essay for the American Interest, Professor Mead makes two remarks that are misleading; he claims that Americans won’t accept policy solutions that are counterintuitive (and thus seem to contradict common sense) and he points out that only around 17 percent, if recent polls are to be believed, support President Obama’s health care bill. Both claims are demonstrably disingenuous.

    Presumably the counterintuitive policies that Mead believes the average American can’t abide include things like the government running deficits to stimulate the economy rather than cutting expenditures during economic downturns and enabling poor people who can’t afford homes to buy them anyway through subsidized mortgages.

    Far be it from me to question Professor Mead’s exquisite sensitivity to the inner most feelings of the average man but the objective facts contradict the Professor’s assertions.

    President Obama won an overwhelming electoral vote victory and a substantial popular vote victory by promising to stimulate the economy by dramatically increasing federal spending. His opponent, John McCain opposed the Obama approach yet Obama was victorious; whatever their inner most concerns about counterintuitive policies, Americans voted for the man who proposed them.

    It also pays to remember that President Obama’s stimulus program was the second stimulus program to be enacted; the first was proposed by a Republican President, George W. Bush after it was suggested to him by a Republican Secretary of the Treasury, Hank Paulson. If the public is as opposed to counterintuitive polices as Professor Mead suggests, how does he explain the fact that in our democratic system, the public keeps voting for politicians of both political parties who keep proposing these counterintuitive measures?

    The man who appears on the verge of winning the Republican nomination, Mitt Romney, made tens of millions of dollars working in a leveraged buy-out firm, he’s raised millions for his campaign from hedge fund managers and wall street tycoons and the New York Times reported over the weekend that he is extraordinarily close to Goldman Sachs.

    It strains credulity to suggest that Romney, if confronted with the same set of circumstances as Bush and Obama were, wouldn’t enact precisely the same policies that they did, as counterintuitive as those policies may be. Yet Republicans, who one might expect would be most hostile to counterintuitive policies, are about to reward Romney with their nomination.

    As for giving mortgage loans to Americans who can’t afford them; if that counterintuitive idea was so offensive, why are Republicans in overwhelming numbers anointing Newt Gingrich as the main alternative to Romney? He lobbied for Fannie and Freddie and made a million dollars doing it. If even Republicans aren’t aghast enough at the counterintuitive policy prescriptions of Romney and Gingrich to make them pay at the ballot box, why should we believe that Professor Mead is correct when he says Americans don’t like counterintuitive policies?

    Professor Mead’s argument that polls demonstrate that Obama’s health care plan is unpopular is equally misleading. Prior to the election, polls demonstrated that Americans were overwhelmingly dissatisfied with the American health care system; it’s one of the reasons Obama was elected in the first place. During the run-up to the Congressional vote on the Obama plan, most polls showed that a plurality of Americans actually supported a single payer system.

    But the only polls that really matter are elections. If Obama’s health care plan is so overwhelmingly unpopular, how does Professor Mead explain that Republicans are about to reward the man who invented Obama Care, Mitt Romney, with their nomination? After all, the Obama health care plan won’t be implemented fully until 2014; the nearly identical plan that Romney authored for Massachusetts has been in effect for three years already. Doesn’t Romney’s almost certain nomination, despite the fact that he is the father of Obama Care, demonstrate that the President’s health care plan is far less unpopular than Professor Mead makes it out to be?

    Of course, Mitt Romney isn’t the only Republican candidate who supported dramatic reform of medical insurance. Newt Gingrich lobbied for the enactment of the biggest expansion of entitlement benefits in the past 50 years; Medicare Part D. Speaking to his Republican congressional colleagues about Medicare Part D Gingrich said, “If you can’t pass that bill you don’t deserve to govern.”

    All of this suggests that Professor Mead seriously misreads the American public; counterintuitive policies don’t offend them as much as Mead thinks they do and the Obama-Romney approach to health care reform is far less unpopular than he pretends. Democrats and Republicans have both spoken; Americans seem to like politicians who propose counterintuitive policies and support a mandate to buy health insurance. After all, these are the politicians they keep voting for.

  • HueyLives

    Dr. Mead & others make far too much of the economic/political impact of HOW people earn their living. That has been of secondary influence, at best. The big problem 100+ years ago was the same one we face today: the concentration of too much wealth and power. And the reformers then did NOT fail; they succeeded. When their tide receded in the 1920s, the same problem quickly returned and soon put the country in the ditch. It took a resurgence of progressive reform (and WWII) to pull us out and bring on a generation of prosperity.
    The death of agrarianism, urbanization, globalization have merely been sidebars to the central issue. (Technological advancement has ALWAYS been with us; in fact it has SLOWED in recent decades.) The closing of the frontier (c. 1890) WAS significant in that the torrent of opportunity that fueled American exceptionalism was greatly tapered. But the progressive reforms of the first two decades of the 20th century were able to synthesize the same effect to a remarkable degree.

    Over the last 35 years, however, the Gilded Age of the robber barons has gradually returned. They once again run the government through corruption for their own benefit. And many of the same economic maladies we suffered from then have returned as a result.

    This does not have to be — then, today or tomorrow. Germany does much better economically, thank you, with a much more equitable system than we now have. Despite the recent global economic downturn, they would be in enviable shape had they not made the mistake of entangling themselves in a half-baked economic union with their continental neighbors — one more instance where globalization has proven to be more of a curse than a blessing.

  • David D, the flip side of your “leveling” is the effective subsidization of inefficient industries in the name of “buying American” … not to mention opening up more opportunities for government/business collusion … for which we all pay a price.

    The stretching of our purchasing power from using more cost-effective overseas sources is as good as a raise with respect to our living standards … that is, if EACH of us has the resolve to find what we can do more cost-effectively than others, and pursue that as part of our pursuit of happiness.

    The problem is not overseas labor — for whom our business is often the vehicle that moves them from agrarian poverty into a higher standard of living (that assists in preserving world peace, as well). They are where we were at a century ago, so comparing their wage structure to ours may not be the most valid comparison.

    The problem is, as I have stated on other threads here, that so many of us are looking to government/unions/established employers to secure our future FOR us, we have stopped “thinking like businessmen” ourselves and are not looking for the places where we can be the cost-effective producers and innovators, and/or doing the maintenance work of career management and/or prudent investment to stay in those locations (when not moving to better ones).

    Too many of us think that it is our right to work the same job, the same way, for a lifetime, while starting out at a high salary and getting frequent raises for the same work … while it is someone else’s job to assure that outcome. Same goes for those who think that they can turn their passion for, say, philosophy or Underwater Basketweaving into an effective means of support simply because they have obtained a degree in the subject.

    We have met the enemy … and he is us.

  • Toni

    [email protected] — Yes, we could probably have a geeky conversation. Ironically, the co. that became Dynegy, and a competitor in the power generation market, helped me with the ’93 story. Enron was the first non-financial company that the SEC let adopt mark-to-market accounting. Competitors thought mark-to-market was inappropriate, but once E got away with it, they all had to follow suit.

    I’d written a big story about how E had pretty much invented the post-deregulation gas business but pointed out risks — including the way people in power generation are compensated up front. My editor slashed it to only mark-to-market. He had trouble understanding even that.

    Four or five years later, Jeff Skilling was still trying to get me to take the story back. I think he was emotionally invested in his own brilliance.

    If you care — I think Rich Kinder kept E’s collective brilliance within legal bounds. Kinder left when Lay re-upped.

  • Toni

    Sorry, Ritchie. I think we’re on the same page. Once government starts meddling, it creates winners and losers (e.g., EPA vs. coal), and provides incentives for businesses to get government to meddle more, in their favor. GE + wind energy = bunk.

    I’m conservative, but a little-d democrat. Create one set of rules and apply them to everyone. No more carve-outs and set-asides.

  • Polly

    David D., I have no doubt that our policy makers will soon begin to punish the likes of Apple for “sending jobs overseas,” though it may take some serious ingenuity to do it without disastrous unintended consequences.

    Their only other choice would be to lower our corporate taxes to the range of other countries’ taxes and reduce regulation so that it doesn’t take an equal number of lawyers and workers to get a company started. But Americans somehow believe that it’s the Evil Corporations that are paying those taxes, when in reality only PEOPLE pay taxes. The corporations that can will raise their prices so that customers will pay the taxes. Others will pay their workers less or decline to expand their business and hire more workers. Or they can just quit passing on profits to owners/shareholders… which will lead to fewer owners/shareholders and thus fewer businesses.

    When a politician can get cheers from the voters by raising a corporation’s taxes, why in the world would he/she offer to lower them?!

  • [email protected]:

    “They will be challenging jobs that only sapients can do, the creative jobs that only sapients can do, the jobs that avoid mind numbing repetition and advance us toward fulfilling our great potential.”

    What do you do about the people who can’t do that kind of work?

    There is something qualitatively different going on here. We are beginning to enter the first time in human history where there is unlikely to be an economic role for individuals of average or below-average intelligence, or average to below-average creativity. All of the options to mitigate this come with huge social costs. It’s not luddism to consider what those costs are likely to be.

  • Those supporting the welfare states of northern Europe are, as always, funny in their ignorance.

    I think most of us reading Mead are educated enough to understand that the first role of any government is the defense (protection) of territory & citizenry. And I think most of us are bright enough to understand that money is fungible.

    Therefore, with not a single European nation with the blue welfare model able to field, feed, transport or arm a military with the capability to defend either borders or citizens – because they spend all their money on welfare – it is completely evident that the American taxpayer is paying for the social welfare states of the West.

    And it is just ignorant hilarity that people think the European blue model – on its own – works.

    You guys are funny. Ignorant, but funny.

  • Mark J

    Enjoyed the piece, as usual, but I must say, it smacks of, I don’t know, ivory tower-ism. The last ten years have taught me that the experts really don’t know much. I really don’t suspect any academics have ever changed society for the better, unless they advocated backing off and letting things be. Milton Friedman did that. Karl Marx, not so much.

    What I do suspect solves our problems is the liberty we still have left to let the marketplace of ideas fight it out. I don’t think Prof. Mead or anyone else knows how we’re going to turn this bend, but turn it we will … as long as the eggheads don’t mess with things too much. Saving the future: it’s in the American DNA.

  • Jim.

    @WigWag:

    If disintermediation is good and helpful, why in the world are you proposing that the government grasp more powers of intermediation?

    There’s an old Russian joke: Sasha was jealous of Ivan, who had a goat. Sasha prayed all day, every day, for equality and justice. Finally, and angel of the Lord appeared to Sasha and said, “I have been sent to grant you your heart’s desire!”

    Sasha said, “Fantastic! You’re going to kill Ivan’s goat?”

    That’s what government intermediation looks like; the Russians knew it better than anyone else. How soon we’ve forgotten what a disaster Communism was.

    The fact is that Eurosocialist medicine is not “better” than American. This is obvious when you measure the number of people who come to America for medical attention, the number of Nobel prizes Americans win in medicine, and the fact that if you leave out American health problems that are more associated with lifestyle than quality of medicine, Americans live longer lives than anyone else in the world.

    One question, here:

    How can some of the people here worry about a world where there aren’t enough un- and semiskilled jobs to go around because demand for Stuff can’t possibly be high enough, and others worry about a world where medicine is too expensive, i.e., too many people are employed in the Medical field — demand for whose services (even at the un- or semiskilled caregiving level) can be infinite?

    Demand for workers is too high vs. demand for workers is too low… seems like a resolvable conundrum to me. And not by imposing limits on what work can be done…

  • I’m conservative, but a little-d democrat. Create one set of rules and apply them to everyone. No more carve-outs and set-asides.

    Agreed, Toni … and that same set of rules needs to extend to every member of what we have labeled the “working class”, as well, instead of maintaining a system where we are encouraged to NOT “think like businessmen” ourselves, but instead depend upon the Powers That Be to secure our future.

    And let’s also keep the number of rules to the minimum necessary to secure our unalienable rights from encroachment … by each other and/or by government.

  • Toni

    Hi, Ritchie. I did say “everyone,” and that means of every skin color, too.

    Affirmative action has long outlived its usefulness. I have a Mexican-American friend who was the first native-born Hispanic woman to earn a PhD in math, and did so while working full-time at Exxon. In an extremely boneheaded moment, I commented that for Exxon, she was a two-fer: minority and female. DUH! No, she *earned* her position, through extreme competence, and often despite coworkers’ suspicions that a Latina couldn’t be a great geophysicist.

    Affirmative action engenders such suspicions. Many prestigious colleges admit minorities with lower scores than whites on the premise that the student body will benefit from racial diversity. Those who graduate may face challenges similar to my friend’s. Those who don’t may conclude that they’re really subpar and/or society is as racist as their profs say. Notably, the colleges don’t advertise how many minorities fail to graduate.

    So…I think one set of rules and apply them to everyone is best for everyone. I’m 100% with you on limited government.

  • Louis Wheeler

    Mead and I have a slightly different viewpoint although we agree on many things. Where we may differ on is the cause of the problem, while we agree that Liberalism 4.1 is breaking down. I believe we are experiencing the last repercussions of the Progressive or Reform movement.

    The Social Gospel, or the Reform Movement of the 1880s, sought to create a heaven on earth through governmental edicts. This led to a Big Business, Big Labor, Big Government model for the Economy and Society which took on facets of Fascist and NAZI controls. The Obama administration will destroy Liberalism 4.1 in its plan of pushing us toward a Social Democracy.

    Both Political Parties are Progressively Fascist, but they have different goals. Nether party really favors smaller government. Since the 1970s, Big Business and Labor have been in decline due to world competition. Only Big Government remains. Excesses in State and Federal government are unsupportable, so they must collapse.

    Liberalism 5.0 must mean the repudiation of the Social Gospel ideal of heaven on earth through Governmental edicts. This is not necessarily a return to Liberalism 3.0 Laissez-Faire policies. New methods will be found to replace governmental coercion. How this will turn out is a mystery.

    Liberalism, like democracy, could inevitably lead to despotism.

  • EvilBuzzard

    http://www.amerika.org/globalism/liberalism-globalism/

    We already have Liberalism 6.0. It’s called Globalism. You’ve been sold out.

  • Toni

    Prof. Mead, I think your analysis also fails to cope with the vast cultural changes of the 20th c.

    Along with the great civil rights revolution of the 1960s came what was called “sexual liberation.” Used to be that an extramarital affair was scandalous, and divorce relatively rare. Now an affair is “just one of those things,” and now that NY has succumbed, all 50 states have no-fault divorce laws. I believe it’s still true that half of marriages end in divorce, and that the “half” is skewed by people who have multiple marriages.

    Meanwhile, Black culture, particularly music, has promoted the idea that sex is more important than marriage, and that racism, past or present, justifies a criminal career for men. I think a lot of Black youths have chips on their shoulders that prevents them from taking even good jobs that they consider menial — the “respect” issue. Hence their high incarceration rates, and probably their high current unemployment.

    (When I moved into my residential high-rise in 1993, all the porters were Hispanic, and all the valet parkers were Black. Now all our porters are still Hispanic. But I think our only black employees are our Black chief engineer, a couple of immigrant blacks who are concierges, and a single Black valet parker who’s a little gray. Evidently, other Black youths prefer not to start at the bottom.)

    The worst effect of sexual liberation has been on children. Now some 70% of Black babies are born out of wedlock, as are 40% of Hispanic and 30% of white children. This, I think, is why Black women fare better in employment, including self-. They’re stuck with kids they have to raise.

    Charles Murray’s new book, Coming Apart, addresses the effect of 1960s cultural changes on the white community. (He no doubt did this because The Bell Curve got him accused of racism.) I expect the effects on poor Blacks and Hispanics are the same, only more so. And I expect the book proposes remedies, as did The Bell Curve.

    That is, “the family farm” has disintegrated into a plethora of family units. Perhaps education changes will help these family units cope economically. Perhaps a return to religion would help them more.

    And you know, maybe I’m all wet in thinking cultural changes are important for your project of rethinking the 21st c. But maybe not.

  • Toni

    To those who think ObamaCare and RomneyCare are great ideas, think again.

    Back when HillaryCare was a possibility, a WSJ story reported a factoid that sounds like a joke but isn’t. 85% of Canadians liked their national health care system, and the 15% that didn’t were sick. Lucky for them, the sick need only to cross their southern border to get prompt, effective treatment.

    In 1992, I was all for nationalized medicine. Then I arrived in London for work and immediately realized I was having an MS attack. I went to a private physician for medication. Because of a side effect, I wound up in a National Health Service emergency room. When I needed to use a restroom, the first one I came to was locked. The second was too foul to use. By the time I found a clean one and returned to the ER, I’d lost my place in line. Afterward, I asked where I could phone for a taxi, and the minicab driver who arrived drove this American halfway around London before delivering me to where I was staying.

    Okay, the minicab robber wasn’t the fault of the NHS. But this was 20 years ago. Imagine how much worse the system is now.

    I rest my case.

  • David Billington

    “As we figure this out, and reorganize ourselves to exploit the unprecedented opportunities before us, America is most likely headed for another era of rapidly rising standards of living.”

    In the very long-term of the next century or two, this may happen. However, some comments:

    The family farm was originally almost self-sufficient. Only by shifting to long-distance cash crops (or setting up to produce them) did family farmers after 1865 need railroads and thus subject themselves to the larger market forces that eventually shrank their numbers.

    Farming with three percent of the population today depends on inputs of fossil fuel energy and irrigation water. Less labor has raised productivity but also raised the intensity of energy and water use. To be sustainable, agriculture will have to be reduce these inputs eventually.

    Ultimately, as others above have noted, your case for dismantling the welfare state rests on whether the private economy can employ enough of the population to provide for those it cannot employ, and on whether the skills required to be employed are not beyond the ability of the average person to develop.

    In the meantime, I would take more seriously the tension in our way of life between utility value and intrinsic value.

  • HC

    ‘As for giving mortgage loans to Americans who can’t afford them; if that counterintuitive idea was so offensive, why are Republicans in overwhelming numbers anointing Newt Gingrich as the main alternative to Romney’?

    Simple. The real divide in the country is not between GOP and Democrat, or red vs. blue, it’s much more _cultural_ than economic (though economics and culture are intricately interconnected).

    It’s not that there’s a huge eagerness for Newt among those who don’t want Romney, it’s that Newt is _saying_ things Romney won’t, and no other establishment candidate will, and he looks like the the current only alternative to Romney.

    Within the GOP, the ‘establishment’ and ‘conservative’ factions are nearly at open war, but even that is misleading. The public, as a whole, _hates_ several things are have become almost sacred to the cross-party governing class.

    ‘Free trade’ for ex, would be voted halfway to oblivion tomorrow if the public could do it, rightly or wrongly. Ditto open borders immigration. The things the public really, viscerally _hates_ are precisely the things that both parties want.

    Also, it’s easy for forget, after all this time, a simple truth. The old FDR/Democratic coalition was not broken by technological change, nor by a public hunger for economic liberty, nor by racial hostilities. It was broken by ‘Abortion, Acid, and Amnesty’. Under the surface, that is still a key dividing line.

  • Jim

    @Toni 44: I don’t have a particular issue with mark-to-market accounting — indeed, I think it gives a better picture of a company’s true value than accrual accounting, provided that there truly is a liquid market for the positions (e.g., mark-to-market, not mark-to-model). However, the problem is that a mark-to-market company already has its future earnings growth embedded in its current period earnings, so in order for it to show earnings “growth” year-to-year it has to actually create earnings acceleration, hence the constant need to create new markets in which new mark-to-market earnings can be booked (e.g., bandwidth, ethylene, water, etc.). This is mathematically impossible at a certain point — I believe I calculated once that to justify its valuation based on current “earnings” and “earnings growth” E had to be the size of the entire US economy by mid-century — and it had to come crashing down, but Wall Street did not understand it (and I believe Skilling did not want to hear it).

    You are 100% correct with the compensation up front being a core flaw in the business model. It created all kinds of perverse incentives to backload earnings in contracts so that they had a positive valuation but negative cash flow in early years (and underbid competitors). Ironically, lack of current cash flow to fund growth was what did in Dynegy (as well as being a big part of the E story).

  • Make Believe Media


    In the last twenty years, well-intentioned government efforts to put more people in owner-occupied housing led to a housing bubble and mass bankruptcies in the face of a financial panic and the ensuing recession, the worst in eighty years.

    That is a very naive view of Government.

  • peter davis

    Professor Mead is insulated from reality. He does not once discuss the increasingly instrusive role of government. All levels of government accounted for about 15% of the economy 150 years ago and now usurp more than 50%. In the past, the economy certainly could lurch back and forth, partly because of technology but also because of government interference and corruption.

    Now, however, the combined effect of massive government regulation, money printing, cronyism, unions and historically high taxation, the lurches are most likely to be in the wrong direction. Among the bloggers, Ritchie The Riveter makes the most sense to me.

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