Three major obstacles that will create a difficult economic future are solidly carved into our path forward. Regardless of record new highs in the stock market and the positive predictions being made by the media, there is no guarantee as to how long this growth trend will go. When easy money is the fare of the day leverage is generally growing at a rapid pace. While leverage tends to drive a market higher when it is on the rise it also has exactly the opposite effect when the market is falling only it often works faster and magnifies the fall. Below are three key challenges that America must confront and deal with or their impact will bode poorly upon our ability to maintain our position in the world.
1. The Low Job Participation Rate; Today America has a very low civilian labor force job participation rate because many people have left the workforce. The work ethic has taken a hit over the last few decades as many people adopted the attitude that often the reward for going the extra mile was just not there. The longer someone is out of the workforce the more difficult it is to return. Expensive job retraining programs will not solve the issue of creating new jobs in a world where higher mandated wages push employers to replace workers with robots that can perform repetitive tasks.
|A Smaller Percentage Of Americans Are Choosing To Work|
It should be noted that globalization has elevated the importance of creating jobs and a balanced economy that supports a strong middle class. A huge difference exists between creating a valuable and worthwhile product that benefits society and breaking a window then praising the jobs replacing it yields. It is difficult to envision a larger share of Americans rushing to find jobs when society has come to accept not working as acceptable.
2. Exploding National Debt; During recent years the national debt has soared and all indications are that it is about to get bigger as the bill for entitlements increases. The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face brings with it a false optimism and hope. In all truth, we have allowed those we have sent to Washington to spend money we don’t have and continue to ignore the ever-growing debt being created.
|Click Here To View The National Debt Clock|
Our recently passed tax reform bill and a rash of natural disasters coupled with the call for military and infrastructure spending is setting us up for higher deficits. The fact is our trillion dollar deficits will become commonplace before long.The deficit during the Obama years ran at over twice the nosebleed levels that had been projected. As things stand America continues to rack up a deficit each year of nearly $2,500 for every man woman and child in the country, such deficits were unheard of in the past unless it was during a major war.
Currently, the costs of entitlement programs are slated to rise in coming years. When we couple that with the recently passed tax reform bill that is expected to add to the deficit with the cost of paying over 100 billion dollars for a slew of natural disasters plus increased military and infrastructure spending it is not difficult to see deficits grow larger, Trillion dollar deficits will become commonplace in coming years unless taxes or raised. Sadly, this massive deficit is what is propelling the economy forward, and it is not sustainable.
|America Remains A “High-Cost Producer”|
3. Jobs Will Not Come Rushing Back; The truth is the recent tax reform bill that President Trump signed into law may slow jobs from leaving America but is not enough to cause them to return. The cost to produce goods in American remain higher than in many other parts of the world because of things like healthcare and regulations governing things such as liability and pollution.
Many people have mistakenly surrendered to the idea America is too small to lead based on population numbers do not understand that quality beats quantity hands down. Sadly, the spirit of, “I will gladly pay you Tuesday for a hamburger today” is alive and well in many of those advocating free trade and the expansion of globalism. Those advocating free trade would have been wise to remember that countries such as China that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey.
Trade policy has massive long-term ramifications on the strength of a nation’s economy. Often people fail to note the difference between free and fair trade. In many ways, the global economy has become an ill-regulated business model tilted to favor big business and giant conglomerates. We should not lose sight of the fact that while free trade is important, fair trade is far more so and should be the main issue. Balanced trade instead of huge deficits or surpluses between various countries would contribute to both global cohesion and the world economy.
The combination of the three obstacles listed above constitutes a grave problem with no easy fix. The bottom-line is that the longer we go before making a real effort to mitigate our problems and change our current policies the larger the negative ramifications will become. Clearly, America is not the only nation to face such problems or imbalances which means mankind and society, in general, will see economic challenges unfold in coming years.
H/T: Bruce Wilds