Monday, January 10, 2011

Quick Summary of Underlying Economic Forces

The current state of the U.S. economy is one of growing income disparity and high unemployment. The underlying forces responsible for this situation are:

  • Globalization
  • Reaganism (ownership society)
Globalization has put U.S. labor in competition with much lower cost labor around the world, resulting in higher profits, lower wages, and higher unemployment in the U.S. Government efforts to mitigate these harsh effects have been prevented by the small government philosophy which took hold under President Reagan.

The economy is increasingly unstable as the small government philosophy prohibits government action to address issues such as:
  1. Financial regulation
  2. Exorbitant health care costs
  3. Energy dependence
  4. Environmental safety
  5. Unemployment
  6. Stagnant wages
  7. Inadequate social services and safety net
  8. Chronically overpriced assets
Chronically overpriced assets result from the greater pool of investment funds that result from the higher profits enabled by globalization, lack of regulation, and tax policies that provide favorable treatment of investment income. Economic growth, however, is limited due to the stagnation of wage dependent consumption. So more money is available for investment, while there are less productive investment opportunities. As a result, there have been repeated asset bubbles (dotcom, housing, commodities), which ultimately collapse.

In recent years, the Republican party has been holding the economy hostage. They have successfully used brinkmanship to continue the Reaganist policies which reduce government power and stop the government from addressing issues such as those listed above. While Democrats had some limited success in passing health care reform and financial regulation, the Republicans won politically and are now in a stronger position to block government action on these and other issues.

Other countries, not hindered by the small government philosophy that plagues the U.S., have been better able to deal with national issues. Health care is the prime example, with the U.S. having the highest cost and least effective system of any developed nation. With regard to employment and economic growth, the nations of east Asia generally follow mercantilist national policies which have resulted in more manufacturing jobs and trade surpluses with the U.S. European countries have addressed their energy supply issues more effectively through high taxes on gasoline and greater commitment to alternative energy sources.



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