Can America Fix Itself?
America’s in decline. But is the decline terminal?
Demagogues rising, middle class imploding, child poverty rising, drug abuse spiking, entire generations sacrificed, schools and libraries closing, the rich wealthy enough to buy entire cities. America’s seen profound, troubling, and disruptive changes to the structure of its political economy over the last few decades. For the first time in history, the middle class is now a minority. The majority of public school kids are now in poverty. The middle’s imploded into the new poor, while the rich have grown ultra wealthy. Now, society is riven and fractured.
Though we’ve normalized all the above to cope with the despair of it, the fact is: America’s in deep, steep decline. Hence the pressing question now isn’t: how did it get here? It’s: can it pull itself up from decline?
To answer it, consider a tiny idea about what the opposite of decline really is.
True prosperity is built not merely when the rich and privileged reach their potential. But when everyone does.
If you accept the proposition above, then there are essentially three ways out of stagnation in meta-modern America.
First, central bank injections to people’s bank accounts. What is colloquially called “helicopter money”, or “people’s quantitative easing”. The logic is simple. Just as the government bailed out banks, so it should have bailed out the real economy instead. In previous eras, such a strategy was impossible — how was the central bank physically to distribute cash across the economy? But now it is as simple as entering data.
Second, social insurance. While it’s been eroded to the point of insignificance in America, especially in times of stagnation, when middle classes are imploding, people must be insured against the loss of their income, assets, opportunities, etc. That insurance mustn’t merely be for a mere few weeks — but it’s horizon should be long enough to provide people true stability. That social insurance can be conditional, as it is in many other countries. Whatever its contingencies, the idea is simple: direct cash transfers to citizens from the government.
Third, basic income and basic assets. Basic income is the idea that all citizens should receive a lifelong stipend from the state. It is not a panacea. It will not magically fix stagnation overnight. But what it can do is set a wage floor, and thus allow the economy to free itself from the low-wage trap it is ensnared in. Basic assets, the idea that every citizen should have a fundamental set of resources, whether a nest egg, home, or retirement savings, funded by the state, goes further — and offers a truer buttress against the triple forces eroding the middle class’s power and stability.
We may call these by different names — assistance programs, subsidies, investment funds. The semantics don’t matter. The central principle and objective of all three of these approaches is precisely the same. That cash flows into declining households where it is needed most from where it is needed least. That and that alone can reverse decline, for the simple reason that what is declining is the human potential of the majority.
Some of you here will object: how are we to fund it? Will doing so not bankrupt us as a nation?
No. The truth is the very opposite. In a negative interest rate world, money is better than free. For leaders not to take the bargain markets are offering is not just foolish — it is irrational. If I turned down free money while my children were starving, you would call me worse than a fool. But that is precisely what American leaders are doing — and they should be investing with a vengeance in the very people they have failed instead.
Let me try and connect all these dots for you. Vast surpluses have piled up at the top of the American economy, as a result of bad choices failed leaders made — not as a natural consequence of technology, economics, or history. The surpluses piling up are so vast that interest rates have turned negative: money is idle in unproductive assets, so much so that it is willing to pay to find a useful home. We do not have to take it, tax it — society can merely borrow it. And it should, for at the moment, an economy trapped in seemingly endless negative interest rates could not send a clearer signal: too much money is chasing too few investment opportunities. At the same time, the middle is imploding, and the ranks of the poor are growing. This isn’t a coincidence: it is what poor choices result in. The two are connected: wealth is flowing upwards, and that is what stagnation is.
To reverse stagnation, wealth must flow in the right direction again — from the top, to the bottom. Not just for moral reasons, because it is ethical — but because there are simply no good or productives uses left for it at the top. It is as if the economy’s financial markets are literally screaming: “please!! take this money and put it where it is needed!! where it has the highest social returns!! it’s useless here!”. That money, those hard-won resources, should, can, and must be invested inthe most marginal human potential. It should, can, and must be invested in turning today’s dog-walkers into tomorrow’s Einsteins, Picassos, JFKs, and MLKs.
The central task of American leaders is to find ways to channel idle surpluses at the top to the imploding middle and growing bottom.
Let us think for a moment about how American demagogues want to fix the economy: with walls, whether made of bricks and stone and sensors, or rules and laws and procedures. What will these walls accomplish? Will they accomplish that central task?
Let us imagine that America builds its many walls. Walls of bricks and stones, laws and regulations, rules and procedures. Will they help the imploded middle at all? The imploded middle that is now polishing the cars, walking the dogs, and filing the fingernails of the ultra wealthy will…still be doing exactly that. They will not magically have the means, the motive, nor the opportunity to become teachers, doctors, lawyers, surgeons, entrepreneurs, artists, creators, rebels, dreamers…who might create the cures, products, paintings, films, books, treatments, therapies, that improve everyone’s lives. They will be even less capable of it — for now society’s resources are dedicated not to their potential, but to thwarting the potential of others, those who wish to cross the wall. But, they, the imploded middle, will still be glorified neofeudal servants — thwarted from realizing their full potential. So by failing to invest in people, America’s demagogues aren’t going to expand human potential.
In fact, they will shrink and diminish it, thus reducing the total potential of the economy. how? By attempting to protect the imploded middle with duties and tariffs, they will raise the price of goods — which, because they are suddenly more expensive, means that the struggling are even more impoverished tomorrow than they are today. Hence, there are even fewer investment opportunities after a wall is built than before it. When a household suddenly pays $100 for the same goods that cost it $70 just a week ago, prosperity will be even more distant. They’ll be even less capable of becoming who they might be at their best — surgeons, lawyers, teachers, world-changing entrepreneurs, etc.
That does not I mean do not have sympathy for the imploded middle whose stable manufacturing jobs fled overseas. But the best way out for them is not building walls. For there are two sides to this story: the lives of those who in India and China have been innumerably bettered. If we are to sacrifice one side’s gains for the other’s losses, no true progress has been made at all.
The mistake that American leaders made wasn’t simply offshoring jobs. It was creating an economy where the gains realized from offshoring were concentrated amongst the then super rich — turning them into the ultra wealthy. They should have been reinvested in precisely those people whose livelihoods were lost — in educating them, enabling them, supporting them. This mistake was one of the great peripheral causes of American stagnation and decline. For as the middle imploded, and lost its power to spend, save, and invest, so the economy ground to a halt. If American leaders had instead invested in the people who lost the most to globalization, then everyone might have won: the Indian and Chinese peasant now employed in a middle class job, and the American worker who might have leapfrogged to a better one, started a new business, or created a newer, higher value, wage, and lifelong earnings career for himself entirely.
The great mistake of American leaders was failing to practice precisely this great lesson of leadership: when economies begin to stagnate and decline, then leaders must invest the most in precisely those lives that are suffering decline most.
Let me try and distill the key lesssons.
Decline is not evenly distributed. Some people suffer more decline that others. And the people that suffered American decline are the people formerly known as its middle class. Decline is a consequence of stagnation. Stagnation is not merely what we often think it is: money, investments, assets, disappearing. Rather, it is a subtler concept to properly grasp.
Stagnation does not mean prosperity vanishes into thin air. It means that it begins to flow in the wrong direction. From the bottom, to the top. Not from the top, to the bottom. But prosperity flowing upwards in a society is undesirable. Because when surpluses pile up at the top, not only are resources misallocated and malinvested — society itself begins to fracture. After a time, the people will revolt — and turn to demagogues, who promise to liberate them from their masters. But the demagogues promise is an illusion — putting people to work building literal and figurative walls, he only enslaves them further.
That is the story of America over the last fifty years. The very same forces that imploded the middle benefited disproprtionately the top. Globalization benefits the top by increasing top rates of profit, and decreasing tax rates. Technologization benefits the top because they own the technologies taking the jobs of the middle. And financialization benefits the top because they are able to buy the assets the imploding middle are now selling cheaply (mortgages, savings, debt).
Now, people are turning, in desperation, to demagogues, because prosperity has flown upwards for too long. Their human potential is stagnating, and demagogues promise to free them. But protecting them from imaginary monsters will not free them the real problem. It will not reverse the imbalances that have come to suck prosperity out of society, and redirect to the top. Building walls will not do anything about oligarchs, plutocrats, and inequality — it is only likely to entrench all three, by squandering people’s human potential further still.
The job of a true leader is to invest in human potential. Creating new investment opportunities in human potential means simply this. Rebuilding all the things that are declining — infrastructure, healthcare, education, transportation, energy…human potential itself. Leaders alone holds the power to correct the mismatch between cash furiously seeking a home, and an imploded middle desperate for cash, by directing funds to people — and thus enabling them to create, imagine, build, dare, grow. If they are stuck being low-wage appified taxi drivers, then everyone is worse off — for those very same taxi drivers are not going to have the opportunity, means, nor motive to create tomorrow’s cancer cures, cheap energy, starships, life-savings drugs, world-changing breakthroughs.
True prosperity is built not merely when the rich and privileged reach their potential. But when everyone does. America is a lesson — and a warning — to the world. Of what happens when inequality reaches too sharp a degree, people’s suffering turns to anger, and demagoguery ignites. The challenge for American leaders today isn’t merely offering people a few more crumbs — but a rewritten social contract, in which everyone is free, at last, to reach their potential.
Umair
London
March 2016
