Now, as a spotty rain falls in Beverly Hills, for a few words on the economy.
There are several big issues, and it’s impossible to assign a ranking to them. But all of them have the same crisis in common: lack of education.
Just for laughs, we’ll start at the top. In a few days we are likely to have as President-elect a woman who has repeatedly said she is an enemy of “the corporation.” I am well aware that she had to do that to compete with Bernie Sanders’ well-worn hatred of “the corporation.” She also had to play on the same team as the most dangerous woman in the nation, Senator Elizabeth Warren of Massachusetts. Mrs. Warren has repeatedly hectored the nation on the dangers of “the corporation,” which does not cry, does not feel pain, does not love, according to a speech Mrs. Warren gave in 2012.
Now, Mrs. Warren is a Native American and she is also a professor at Harvard Law School, both mighty credentials. And I also saw her not long ago walking by herself pulling her own luggage through Reagan Airport, which is a genuine credential.
But Mrs. Warren knows little about the way the economy works. The corporation is at this point just a data point in some state government’s files. It is like a contract or a driver’s license number. That’s the legal quality of the corporation.
However, of course, a corporation is owned by people, and if it’s a large corporation, it’s owned by a great many people, except in rare instances. At all times, it’s owned by people of some kind, even if it’s people in a foundation or the beneficiaries of the corporation’s foundation.
Those people receive the benefits of the corporation’s earnings and dividends and capital gains. Those earnings and dividends and capital gains pay for retirement, for medical care, for school, for housing, for just plain living.
They also pay for museums and art galleries and scholarships for inner city children without fathers and mothers.
The corporation’s work is done largely by people. Its products and services are used by people who cry and laugh and feel sad just as people who work for Harvard do. By the way, I wonder if Mrs. Warren, who works for Harvard, knows how much of her salary, which recently came down to far, far, far more than $1,000 per hour of classroom work, comes from the corporate stock in Harvard’s gargantuan portfolio. I assume Mrs. Warren laughs and cries and feels pain, and she does much of it on the dime of the corporations.
By one of the great ironies of politics, Senator Warren’s specialty is bankruptcy law. Her specialty is helping companies in bad shape reorganize so they don’t have to pay PEOPLE who have loaned money to the corporation and PEOPLE who have worked or sold goods and services to the corporation.
Anyway, Mrs. Professor Warren and Senator Sanders whipped up hatred of “the corporation” to such a fever pitch in the Democrat primaries that Mrs. Clinton had to move to the corporation haters’ side of the table.
Never mind that she gets two or three hundred thousand dollars per speech to corporations and especially finance corporations. Now, she says she is going to whip the corporations into shape.
This idea that an agglomeration of human beings organized as a corporation is somehow more evil and in need of some more restraint than other organizations of humans such as unions or street gangs just makes no sense at all.
Aside from government, almost all of our economy is organized into corporations, large and small. Why Mrs. Warren and Mrs. Clinton would think that by demeaning these corporations and “cracking down on them,” as Mrs. Clinton has said, the economy will be saved is a total mystery.
It’s totally understandable that college kids, whose schools are largely funded by corporations and whose parents send allowances earned from corporations, and who live in a state of suspended animation inside computer games, would have no appreciation or understanding of the corporation. But for Mrs. Clinton, a senator and fund raiser from corporations on a titanic scale, to have no understanding or appreciation of corporations is worrisome.
I’m not that worried, though. Mrs. Clinton knows where the money is, and she’ll play ball with Mr. Blankfein of Goldman Sachs just as he plays ball with her. But when push comes to shove, she’s got to please her base and her base has been taught to hate “the corporation.” That could mean higher taxes on corporations, closing “loopholes” for corporations, which means lowering the amount of income available to shareholders, and regulating corporations beyond what is meaningful.
I want to emphasize here, as I often have before, that I fully believe in regulation when it comes to protecting worker safety and the beauty and health of the environment. But I also believe in employing men and women in decent jobs. At some point, these goals will come into conflict and many believe they already have.
This will very much affect productivity. As I have mentioned on other occasions, excess regulation is a negative on growth. It’s worth remembering that Senators Sanders and Warren have pushed the reasonable Mrs. Clinton into an anti-corporate stance. That same stance from Mr. Obama has already devastated the coal industry. What it will do in the future against any and all manufacturing and extraction and utilities work is unclear but worrisome.
The next area of worry about the future under Mrs. Clinton’s stewardship is about “social justice” issues, as they are called. These mainly have to do with answering the allegations of racism and gender inequality in the workplace.
There is a completely discredited narrative afoot in the land that there is widespread gender inequality in wages. This agitates human beings and causes discontent. The discrediting of this narrative is largely the work of a great woman statistician named June O’Neill. She showed clearly that once you took out the effects of women leaving the work force to have and raise children and thus lose seniority and skills, there was no meaningful inequality.
Nevertheless, the myth dies hard and if the government enacts regulations that consume a lot of time and energy to make women’s pay equal to men’s adjusting for the effects I just mentioned, that will create a meaningful burden on management. Not good.
The same thing is happening about racial issues. There is no doubt that non-white workers earn less on a consistent basis than white workers except in some highly specific fields. We do not know why this is true. To the extent that there can be measurement of the effects of non-whites having less education than whites, the puzzle gets worse. The whole complex problem of discrepancies between blacks and browns on the one hand and whites and Asians on the other is a continuing crisis. These discrepancies exist in education and income and in almost every other field. Just exactly why is one of the major issues of all American history. I wish I knew the answers but I don’t.
Still, this leads into the nagging question of productivity. I know I have mentioned it before and often. We had several decades of really great productivity growth during and after World War II. There was stupendous fiscal stimulus and slack manufacturing capacity and a highly trained labor force. Plus, the whole rest of the industrial world was in shambles. We were the only ones with modern capital goods and a fully functioning infrastructure.
America was the only nation to come out of WWII richer — much, much richer — than when it went in. This had a big effect on confidence and productivity and prosperity.
Then, about 1973, productivity growth began to slow. We don’t know why. It’s strange because this coincided with the flowering of the computer, the Internet, and a generally immense growth in artificial intelligence.
All of these — one would think — would lead to an explosion of output per worker hour. And indeed there were some spurts of good productivity growth. But mostly, growth in the 43 years since 1973 has been notably slower than 1941 to 1973.
There are many factors involved. An immense growth in manufacturing capacity in the Far East combined with lower wages than ours. This has restrained wage growth in the U.S. It has also greatly altered our manufacturing sector. Usually manufacturing jobs are relatively highly paid, are much more affected by machinery improvements, and affect productivity more than service jobs. As China and Thailand and yes, Mexico, have more and more manufacturing capacity, our manufacturing labor force shrinks and lower productivity jobs replace it. Mr. Trump is right. This is a real problem. Alas, it cannot be solved by walls or tariffs. Free trade is almost a physical law. Once it gets started, trying to stop it is well-nigh impossible.
Plus, we don’t want to stop it. We want to have consumers get the lowest cost goods. After all, everyone is a consumer. Only some are manufacturing workers.
That’s a painful problem. And it’s sad and horrible to lose your job or to see your town fall to ruin. But that is the effect of free trade and it benefits many more people than it hurts — although the pain to the few unemployed is far more agonizing per person than the joy to the many of getting a big screen TV for a hundred dollars. Here is a genuinely immense problem.
It’s all complex. But in any event, as we become ever more of a service economy, big gains in productivity are harder and harder to come by. This is true worldwide and worldwide, productivity is challenged.
Finally, we come to the problem of the skills of the labor force. As we add persons with lower skills to the labor force, we get lower productivity on average. As we add persons with steadily less education to the labor force, we get lower growth in productivity. We have had a big gain in artificial intelligence but, alas, a big fall in human intelligence in many areas. The lack of ability to think critically is a giant problem is many white collar areas. The inability to read instructions or directions — which is at super crisis levels among minorities in the USA — is a big challenge to the manufacturing and service and agricultural sectors. It’s hard to believe that in some of the major cities of the U.S., close to 80 percent — yes, 80 percent — of all junior high school students basically cannot read. In the high schools, close to one third of the students in some cities cannot read on a meaningful level. The story is even worse in mathematics. Far, far worse.
More and more seasoned, experienced workers are leaving the labor force year by year as the boomers age. As any HR manager of any kind of business or government agency can tell you, replacing them is not easy. My audiences routinely tell me that finding qualified, motivated workers is the hardest problem they face. Again, this will have an effect on productivity.
So, these are some of the challenges facing the economy beyond whether Kim Kardashian was really robbed in Paris or whether Lindsay Lohan’s nightclub in Athens will be a hit or a miss.