Revenge of the Gamer

How many people do you know that are currently unemployed?  I have two family members and a double handful of friends that have been unable to find work no matter how long they’ve searched.  Some have been looking for as long as two years.  One has given up entirely.

The economy lost 11,000 jobs a day since December of 2007.  Over eight million jobs simply disappeared, leaving people scrambling to find work.   Many people are asking when the economy will improve.  They want to know when the jobs will be coming back.  The answer is grim.  They aren’t.  The old industries and ways of doing business are dying, and many of us will need to retrain for different fields if we want to find work.

There are many factors preventing the revival of existing industries.  When taken together they paint a very disturbing picture about the future of the American economy.

Trade Imbalance

As you can see from this chart the US hit its peak as an exporting nation in 1970.  Until that time we sold more goods to the world than we bought, and we invested the difference.  Our nation was the richest in the world because we out produced everyone else.

We invented cars, radios, televisions, planes and home computers.  The world clamored for these inventions and we got rich meeting the demand.

1971 was the first year that this changed.  Foreign companies took our inventions and created cheaper, more efficient versions.  Suddenly we were importing more than we exported, and the imbalance increased year after year.  Why buy a Ford pickup when you could get a Toyota for 70% of the price?  Why buy an American television when you could get a Sony cheaper?

U.S. companies scrambled to find a way to become more competitive.  They knew that they needed to reduce costs if they wanted any hope of competing with their foreign rivals.  Unfortunately this was no easy task.  Foreign based corporations had cheaper labor, cheaper material cost and cheaper development cost simply because their countries had less wealth.

As a result American companies began going out of business at an alarming rate.  Over the last forty years we transformed from a manufacturing economy to a FIRE economy.  Steel Mills, auto plants, canning companies and many other businesses folded as they were undercut by cheaper foreign competition.

In their place came Finance, Insurance and Real Estate companies.  This transformation has so overwhelmed our economy that every one of you knows several people who work in one of the FIRE industries.  I’m living proof.  I currently work for a credit union, and before that I worked for a mortgage bank.

Why is this a bad thing?  None of those companies produce anything.  They make their money on the backs of the manufacturing economy.  Remove that manufacturing and eventually the FIRE industries go out of business.  An economy needs goods to survive, and we’ve lost the ability to produce our own.

In 2009 we imported 380 billion dollars more than we exported.  From blenders to TVs to washers to cars we’re buying from other countries instead of manufacturing ourselves.  That simply isn’t sustainable in the long term. 

The less we produce the less the dollar is worth, and eventually the world will stop taking worthless pieces of paper in exchange for their goods.  Traditionally the dollar was backed by gold and silver, but when it was decoupled in 1979 our currency was no longer based on anything.

In theory its value comes from the manufacturing power of what was once the most powerful nation on earth.  However, that power fades every year thus weakening the once mighty dollar.

Outsourcing

Most of us are painfully aware of jobs being outsourced.  From the auto industry to toys to engineering our jobs have been shipped overseas at an ever increasing rate.  When did this begin?  Why did it happen?

U.S. corporations have long searched for a way to remain competitive in our new global economy.  The best way to do this is cutting costs, and one of the largest expenses most companies face is labor.  If you have to pay someone $45 an hour, pay for pensions and pay benefits as U.S. automakers do how are you going to compete with a company that pays $7 an hour with no benefits?  It can’t be done.

That leaves a CEO in a difficult position.  Either you move your manufacturing overseas and pay that same $7 or you get undercut by your competition who does.  The long term effect of this outsourcing has been devestating.

Fifty years ago one third of U.S. jobs were in manufacturing.  Today that number has dropped to less than 10%.  In the last decade alone two million manufacturing jobs have moved overseas.  This means that today four fifths of our 131 million person work force is in service based industries.  Which brings us too…

Automation

How many of you have used the Redbox DVD service located in most grocery stores?  It’s a pretty cool little setup.  You browse a computer terminal, select the movie you want and pay a buck a day to rent it.  You don’t generally have to wait in line, and the service is far cheaper than going to a video store.  The service has exploded in popularity, but unfortunately it has created a grim side effect.

Do you remember when there was a Blockbuster on every corner?  Those days are gone.  Blockbuster has closed over 40% of their stores and has lost billions in the last few years due to the rise of Netflix and Redbox.  Thousands of employees were laid off, and you can bet that number will increase as Blockbuster rolls out new Redbox like kiosks.

How many of you have used the automated checkouts now located in Walmart or your local grocery store?  They sure are convenient, but they also reduce the need for both checkers and baggers.  Technology is destroying service jobs at an alarming rate, and the people it displaces lack the job skills to seek other employment.

This sort of automation has also been embraced by manufacturing.  Robotic components are replacing many jobs that have traditionally done by humans.  The more this happens the more people are forced to search for work elsewhere.

If you lose a service based job your only hope is retraining for another industry, but competition for those jobs is already fierce.  Even if you make it back to school and come out with say an accounting degree you are fighting against a sea of accountants with job experience for the few open positions.

An Ever Increasing Labor Pool

Millions of immigrants and high school / college graduates enter the work force every year.  So many that we need to add 150,000 jobs every month just to meet population growth.  Yet that work force is already saturated by the unemployed who have been seeking work for months or even years.

Worse, our graduates are some of the worst educated in the world.  They aren’t graduating with the skills necessary to find employment.  They are being trained for jobs that no longer exist.  Even engineers and programmers can’t find jobs after graduation, because those jobs have moved overseas. 

Most of these graduates are saddled with enormous debt ranging from $20,000 to over $100,000.  How will they pay that back with no job?  It’s a bleak situation and one has to ask.  Who is benefitting from all of this?

The Top 1%

The wealthiest 1% of U.S. citizens control a staggering 42% of our wealth.  Contrast that to the bottom 80%, which controls just 7%.  The numbers haven’t been this skewed since the Great Depression.  Coincidence?  Or course not.

No economy can function when the bulk of the wealth is in the hands of so few.  A healthy economy is one that distributes the wealth across a much broader spectrum, as was the case in the United States in the 50s and 60s.  Back then the wealthiest 1% controlled just 8% of our collective wealth.  Their share of our economy has increased by 500% in just under 50 years.

Since they have the vast majority of the money it means the bottom 80% don’t have the capital necessary to create new businesses, the lifeblood of our economy.  That makes creating new jobs extraordinarily difficult, and puts the average citizen at the mercy of large corporations who have no sympathy for their plight.

Quite simply they are siphoning the wealth from the middle class and casting the vast majority of americans into perpetual debt slavery.  Our livelihoods are disappearing to line the pockets of the mega-rich who have a stranglehood on our politicians.

Nor is this the first time it’s happened.  The same rampant greed crippled the U.S. in the 1920s, and led to the Great Depression.  It took fifteen years and World War II to pull us out of the economic collapse wrought by the richest men in the country.

Is it any wonder that we’ve lost over eight million jobs in the last three years?  That figure doesn’t even include all the self-employed people whose small businesses folded.  Many estimates suggest that the number of jobs lost is over ten million when you take those small business owners into account.

The official unemployment statistic is 9.5%, but that’s a completely bullshit number.  It doesn’t include anyone who was self employed, or anyone whose unemployment benefits have run out.  The Senate’s failure to pass the latest unemployment extension removed 1.2 million from the official statistics, which makes the ‘official’ unemployment lower.  How much sense does that make?

The real unemployement number is closer to 16%.  Some estimates place it as high as 20%.  This is easily verifiable.  Of the people you know who are old enough to work how many are unemployed?  There’s a pretty good chance that one in five of your friends is out of a job.

Nor will this trend reverse itself anytime soon.  Our trade imbalance prevents manufacturing from returning.  Our service jobs are being gutted by automation.  The flow of jobs being outsourced hasn’t slowed.  Our education is the worst among the developed nations of the world.

The ugly reality is that most U.S. jobs are not coming back.  If we want to compete again we need to deal with these problems, or our future is looking pretty grim.  We need education reform.  We need to develop new manufacturing industries.  We need to stop the outsourcing of our jobs.  We need to halt the flow of illegal immigration.

If we can’t accomplish these things expect to see our standard of living continue to deteriorate.

Not all bad news

If all of this sounds like gloom and doom there is a silver lining.  As our standard of living drops and the value of the dollar decreases it makes us more competitive globally.  Eventually it will be cheaper to manufacture goods here than it is in China or India, and when that happens expect to see a return of at least some of our manufacturing jobs.

Also, even if 20% of our work force is unemployed that means that 80% is employed.  The bottom won’t fall out of our economy tomorrow, but we will see a slow decline no matter what we do.  You know what?  That’s ok.

Americans have lived beyond their means for so long that we forgot what being frugal meant.  We are going to have to return to the core economic principles that catapulted our country to greatness, and when we do we’ll begin the long climb back to prosperity.

The next two decades will be difficult, but it will also return our nation to the work ethic and drive that made us the wealthiest in the world.