The U.S. Economy: A Fading Illusion?

Jack Curtis

Coming up on the 2020 U.S. presidential election, President Trump takes repeated curtain calls for his creation of the best economy ever, crowing endlessly over an unemployment rate currently 3.5%. His would-be Democrat opponents whom usually attack him for even breathing, do not attack his assessment. Their somewhat dubious pack of intended opponents instead promises an unbounded cornucopia of government-supplied goodies to fall into voters’ hands from their election to office. Both the President and his opponents are hoping to be elected before economic reality has time to disillusion American voters currently distracted by a faux impeachment, the North Korean threat, and other dramatic manufactures.

That economic reality is cold: The U.S. economy and those of much of the world have become illusions clothed in concealing political posturing and propaganda. For instance, the crowing centers upon unemployment rates that no longer reflect the long term unemployed, only those currently collecting unemployment benefits. The more inclusive labor force participation rate rose significantly when the erstwhile housewives had to find jobs in the 1970s but it has remained in decline since about 2000. The passing of the middle class housewife was the first significant evidence that established family living standards could no longer be maintained on a single income. Put differently, labor was losing economic value. That value had been propped up by politically influential labor unions but as that influence waned, so did the relative price of labor.

Digital automation has accelerated the trend: Computerized machines became cheaper as labor became more expensive so the machines began to take the jobs. As transportation and communication improved, the jobs began migration to lower cost Mexico, India and China, places to which American enterprises went to maintain profitability . Union based politicization could increase labor’s share of profits for a while, but that could not be maintained in the face of post World War II foreign competition. The coup de grace has come from government expansion that has stultified productivity in endless regulatory minutiae, impeded markets with modern mercantilism, seeded exchanges with corruption and wasted huge amounts of capital on unproductive military adventures. America’s expanding politicization has made it into one of the world’s high cost producers.

Few now dispute that America’s middle class is degenerating back toward a proletariat as income inequality increases, driven by shifts in political power. As business, finance and government interests merged into America’s current crony capitalism and foreign competition has grown, labor and its unions weakened; government workers have come to earn more than those in private enterprise. The jobs of which President Trump is so proud now not only often fail to support a middle class family but in too many cases even two family earners are no longer enough. Some 69% of U.S. families have no significant savings.

At the same time, employers are demanding more from their job applicants; high school graduates face declining prospects and at least some college education is coming to be expected. Unfortunately, too many of today’s proliferating college degrees are increasingly worthless in the job market. And perhaps no less unfortunately, graduates with valuable degrees are too often indentured with heavy student loan burdens as they enter the job market, crippling them financially for years. The cost of college degrees has risen with demand for them but in most cases, the associate rewards have not kept pace. The average millennial is handicapped by a subprime credit score.

This widespread financial vulnerability seems a natural result of government policies that minimize interest rates and support monetary inflation as the Federal Reserve and other central banks have continued to do in recent decades. There is little incentive to save money when it offers no significant return and its value is inflated away. Governments that cling to such policies are imposing dependence upon their citizens, forcing them in essence to live hand to mouth, deprived of the ability to provide for their own futures.

That is bad enough; worse is the fraudulent values pumped into real estate and the stock market by the proliferation of fiat money and credit from the Federal Reserve. Stalling off the 2008 U.S. financial collapse with a flood of instant electronic money did not increase real wealth, only the amount of money available to buy things, particularly stocks and real estate. Prices rose to reflect the xtra money bidding for the goods; the real economic value of the goods did not change; only their money prices inflated. Such inflated values disappear overnight in market corrections often called “crashes.” Or they are merged into the wider economy when prices of everything else inflate to match them. Either solution leaves a lot of people worse off. Already, the average family can’t afford to buy a home in 71% of the country.

As of 2020 the Federal Reserve is intervening again on a large scale to keep the markets afloat; such manufactured money once used, becomes an addiction because no politician wants to ride out a market correction (likely crash) for which blame may attach. But if continued too far, such expansions pop of their own extremity; pick your poison.

However, that’s not all that’s hanging over us: There is also, courtesy of the same politicians, a Damoclean debt. Per the National Debt Clock, the average U.S. family share of total U.S. debt is about $877,000. There is interest to be paid too, of course. When will U.S. taxpayers repay all that? For now, the U.S. Treasury continues rolling it over, paying off the old, due amounts with newly borrowed money. People and countries provide some of these loans for now though that may dry up as the perceived risk rises. The Federal Reserve can manufacture and loan its electronic magic money to keep the Treasury going only so long as nobody wonders what those electrons are really worth. Profligate governments have created these sorts of insolvencies throughout history; they have ended in overnight or more gradual, inflationary collapse for those governments, just as they do with profligate individuals; governments just take longer to fail. President Trump, and the politicians who support or oppose him know that well; the former are determined to hold off any economic disturbance until after the coming election while the latter are committed to presenting it to Trump as soon as possible, hoping to make him another Herbert Hoover, the president who took the hit for the Great Depression.

Current full U.S. employment means that a lot of workers are busy; it does not mean that they are enjoying a plenteous society as present politicians would have us believe. In fact, the citizens have been led to depend upon their government and that government is insolvent, indebted beyond its ability to pay. Consider for a moment: Were not the serfs of the Middle Ages even more fully employed than American workers today?

Jack Curtis is a CPA and the author of Training Figure Skaters. He blogs at jcurtisblog.