New book explains the difference and the results.
intercst
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I think there’s a bit more than that (though, I haven’t read the book, so maybe it’s covered in there somewhere).
Americans don’t like taxes. They vote for tax cuts all the time, and yet also don’t like it when services are cut. They are all for “infrastructure” until you tell them the price tag, and then it’s “I’m taxed enough!”. Even though we aren’t taxed nearly enough.
I think that’s a major part of the decline of the American “empire” and society.
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Another aspect is that manufacturing is very profitable and drives a strong economy. Loss of manufacturing has been painful in many ways. Loss of good paying blue collar jobs is a major factor. We have become a service economy. Finance is very profitable but requires extensive training. Clearly not for everyone. Service jobs tend to be low paying.
China seems to be using its strategic planning in manufacturing too!!
I think the jury’s still out on that.
One of the positives of having to go to the American people and asking them to tax themselves to fund new infrastructure - and the accompanying reticence to do so - is restraint. You get less infrastructure, to be sure: but the infrastructure you get is far more likely to be useful and necessary. As noted in the interview conducted with the book’s author in the above article, China has built a shirt-ton of infrastructure and housing and whatnot that might not have any real utility. They’ve built massive amounts of housing they don’t need, highways in areas they weren’t necessary, etc.
If you do things like that, you’re hurting your economy in ways that aren’t apparent in the short term. You get the “sugar rush” of putting lots of people to work to build the stuff, but then you’ve got all those resources allocated to the “wrong” thing.
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Valid point. OTOH, there’s a reason we have a $28T(?) debt, and I think much of what I said is why. We want the services, but we don’t want to pay for them. We want the services AND tax cuts. That’s simply not a sustainable model.
I think it’s a similar effect to some of the old colonial empires. Once their colonies were gone, the citizens no longer had the benefit of the -roughly- free assets (materiel, tax flows, etc). They had to pay for stuff now, and they didn’t like it. And many still don’t. I’ve heard a few Brit expats say that many in Britain still want to live as if they were a colonial empire.
So it is with us. For thirty years after WWII, we were the only game in town. Now we’re bordering on being has-beens. Much of our heavy industry is gone, we import a lot of stuff we used to make, we’ve lost the expertise to make that stuff…we’re becoming a litigious service economy. With a bunch of over-paid CEOs, and then a big gap until you hit the proles who are barely scraping by.
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I mean….that’s just not true. We’re the biggest economy in the world. Real median household income in the U.S. is very high - not the average, the median. Right now, median household income adjusted for inflation is 2.5X what it was in the Eisenhower dyas. It’s simply not true that the country is mostly proles, just scraping by - the median American household is pretty well off by global and historical standards:
Real Median Family Income in the United States (MEFAINUSA672N) | FRED | St. Louis Fed
…and I think a part of the reason for that is that while we tend to prefer borrowing to paying for things up front (and I don’t want to diminish the potential problems with that), we generally have a pretty dynamic market economy that keeps chugging along and growing and mostly engaging in a fairly good allocation of resources.
China made tremendous leaps in becoming a major economic power by dint of simple industrialization. The act of moving hundreds of millions of people out of subsistence agriculture and into an industrial economy has expanded their economy enormously. However, the next test - operating efficiently as an industrial economy - has only gotten started.
There’s a reason why recently - over the last several years or so - the U.S. economy started growing faster (per capita) than the Chinese economy again. China’s plowed a ton of resources into a massive manufacturing capacity that….might be too much? Like, at some point you don’t need to have enough manufacturing capacity to build 50 million cars - especially when you’re only building 30 million cars, and even that may be more than you can actually sell at a price that makes sense? If you do things like that, you’re not going to be a global economic powerhouse for very long, even if it looks really super-impressive to folks who look back to the Eisenhower-era Big Three days with nostalgia….
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That’s not surprising. Ike started in 1953. Demand started after WWII. We had to demobilize, convert to peace-time economy, and start cranking. Ike caught the early part of that. It continued for the next 20 years, until Japan started rising. Wages would have to go up simply because there was demand for US labor.
Also, the GI Bill had a HUGE effect, enabling millions to be able to go to college who otherwise wouldn’t have. So we had a smarter workforce, too. More engineers, scientists, doctors, etc. Whom demand higher wages.
A quick check tells me that poverty in the US peaked in the 50s, bottomed in the 70s, and has hovered between 11-15% ever since (5 decades). We’re coasting at this point.
Also, I don’t have data for this point, but it does seem to me that China is following a similar path to Germany in the 1930s. The German economy was a disaster, making our Great Depression look like a party. Hitler put people back to work on infrastructure, and industry (most famously the VW Beetle, but there was a lot more). He also started rearming. Takes a lot of labor to build battleships and tanks. IMO, China is on a similar trajectory. They are building from scratch a navy that soon will rival ours. Their army has always been huge. I don’t know if you were being hyperbolic about 50M cars, but maybe it’s not cars. It’s naval vessels and other military assets that they are building the facilities to make. IMO, they are being incredibly smart about energy; building lots of capacity (solar, nuclear, and coal).
I agree that they may be approaching a wall (or cliff?). Germany’s answer to that was to start invading neighbors. China is already seizing islands/atolls that don’t belong to them, and are ramming coastal defense ships (and chasing away fishing vessels) that try to navigate their own legally-recognized waters. There are some other tactical/strategic reasons for this, some involving Taiwan, but that’s tangential.
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And it’s still going up. U.S. economic growth didn’t stop in 1973 - or at any time.
My point isn’t about equal distributions or fighting poverty. I’m pushing back on this notion that the U.S. is an economy in decline, being eclipsed by the Chinese superpower to come. That’s absolute bunk. By virtually all measures, the U.S. is one of the strongest economies in the world, and both over the longish term and recently has been growing faster than virtually any other economy - including China over the last five years or so.
The distribution of our economic strength may still have elevated levels of poverty (though poverty is a relative measure and conventional measurements of poverty are usually pre-transfer rather than post-transfer) - but the strength of our overall economy shows that we are vastly wealthier in the median of the economy than we were not just in the Eisenhower days, but in the Carter days or the Reagan days or really any time. The U.S. economy simply remains insanely strong, even compared to China’s – and not just for the rich, but for the center of the economy as well. We’re not a nation of proles barely scraping by - we’re a nation of people that are very well-off, from top to near-bottom, compared to almost any other country on earth.
The “Chinese Way” worked really well to get them out of an agrarian society into an industrial one, which resulted in tremendous growth - but it’s not at all clear that their approach of command economy over-investment in manufacturing is going to keep paying dividends for them. Especially with a TFR of around 1.1 and a population that’s already started to actually decline - all those car plants that are already not being used, and all the housing and roads and trains they built in anticipation of future population growth that’s not going to come, are going to be a millstone rather than a source of economic strength.
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Except in that “big gap” you find everybody on this board and millions and millions of others.
DB2
That big beautiful bill mostly aided corporations. 401ks did well so far. That includes lots of working middle class. They continue to spend.
Is “trickle down” working? Will GDP continue to grow? I think we see the Trump admin strategy.
Seems to me it depends how you look at it. Just a simple example: housing. There is a growing population of 20-30-somethings that can’t afford their own abode. Sure, the economy is doing well by most metrics. But not this one. It isn’t translating into reality for a lot of people, people who are gainfully employed and still can’t afford rent without a roommate. A quick check says that young adults 25-34 (the age my father would have kicked me out if I wasn’t already gone**) living with their parents increased from 12% in 2004 to 18% in 2023.
I agree that China is going to have problems. As I mentioned, Germany had similar problems in the 30s, and I pointed out how they addressed them. There’s a good chance China will do similarly, IMO.
Also, I’m not a macroeconomist. However, our national debt is roughly equal to our GDP. I recall reading many years ago that if that happened, bad things would follow. I honestly don’t know how much plasticity there is in such an economy, but unless the scholarship has changed about this, we could be teetering on the edge of an abyss. Again, I’m not an economist. I don’t pretend to know where that edge is, or the latest scholarship regarding this.
Also, the U6 unemployment rate has been steadily increasing since the post-pandemic rehiring (~2022). That reflects the folks that have given up(discouraged workers), as well as the only-periodically unemployed. Note that this crosses between administrations, implying it’s the base economy more than any specific policies.
**Actually, he would have kicked me out at age 18 unless I enrolled in college, or -as it came to pass- enlisted. He would have preferred me going to college, and I did get on it after discharge.
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That’s not really relevant. Again, my point is about the strength of the national economy - not whether every middle-class person can afford to live in every metro area that they want to. Housing is a positional good, so it is more sensitive to distribution effects - but the fact that housing is expensive in some areas is not evidence that the economy isn’t going gangbusters.
Again, the U.S. economy as a whole is crushing virtually every other economy on earth, and is not an economy in decline. That is not the same as arguing that the economy is without problems - just that we’re vastly stronger vis a vis China (or any other country) than some folks argue, like in the OP.
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I disagree. I think it is very relevant. Sure, we have a “strong” economy by most metrics. And relative to other nations, I have no doubt we’re -at present- stronger than any of them. But if it’s just corporate profits and economic activity generated, without regard for how us proles are faring, then I think it’s an incomplete picture. What the good of having a strong economy if more and more people can’t afford to live on their own? Can’t afford food?
Yes, there are numerous factors in those numbers. However, people have to go where the jobs are. The cost of living may be really low in -picked at random- Topeka KS. But what jobs are there? I didn’t choose to live in the Phoenix area. That’s where I found a job. That’s where my skillset landed me. If I had been a lawyer, that would be very portable. I’m sure you could find a job in any city with a population over maybe 20000. As a physicist/engineer, I can’t. That was an unintended consequence of my choices.
If the economy is not serving the proles, then how strong is it really? How effective is it? There are a lot of disconnects in our economy. Wall Street can be going gang-busters while we’re having a recession, and people are being laid-off (in fact, stocks often react POSITIVELY to lay-offs). The economy may be “strong” by many metrics, but people are struggling. I think we need to look at the big picture, and not just GDP and median income.
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It gives you the resources to address those issues. If the economy as a whole is very strong, then your country has the economic resources to address internal issues like that if it wants. As well as enormous power on the international stage, by dint of economic strength and the ability to support a large military.
After all, the concern about China’s ascension is not similarly accompanied by questioning whether China’s lower middle-classes can afford certain things. It’s looking at China’s burgeoning economic might in international trade markets, agreements with foreign countries, and their ability to project military power. Not whether young professionals who want to get a loft in Futian are having trouble making rent. Not whether there are people who are struggling in China, like in the U.S.
No economy, anywhere, is going to be perfect - there will always be aspects of the economy that people argue, with justification, aren’t meeting the needs of big portions of the population. That’s not the question raised by the OP. It’s whether China’s strategy of “Engineers vs. Lawyers” is somehow making China an economic powerhouse while the U.S. is fading….and that’s just balderdash.
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But what is the solution? This is the wealth divide all over again. With suitable training you can get a good job. Those who won’t train get low paying jobs. One solution is more training offered.
Loss of good paying manufacturing jobs has been painful. We have a service economy but they do not pay well.
Can raising minimum wage do it? Might help. Any other ideas.
Repatriating manufacturing is a step in the right direction. Are consumers willing to pay higher prices. IE INFATION!! Or do they expect a free lunch.
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Yes, it is. In the short-medium term, more training/education. Make college more affordable (or, preferably, free if you can pass an entrance exam at a state school). Vocational training, too, for those disinclined to seek college.
Raise taxes on the wealthy back to at least Reagan levels. That will allow us to fund more things like this.
Government should be making sure that industries aren’t leaving, and they likely have various means to do that. It’s a double-whammy because you lose the industry, but you also lose the expertise of the people of that industry. Over time, no one knows how to do something, and it’s difficult/impossible to bring that trade onshore.
Long-term, there sort of isn’t a solution. AI and automation will be replacing most jobs. Even white-collar. They aren’t there yet, but eventually AI will likely replace most engineering jobs, for example. The only safe professions will be skilled trades like plumbing and carpentry and similar trades that come to your home to address a problem you have. At that point, we will be needing a minimum basic income nationwide. Yang was a few decades early with that, but he had the right idea.
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Think of UBI as the “AI dividend” for taking everyone’s data to train the bots.
intercst
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It depends, it’s clearly working for some…but not others.
It’s been just under 10 months. The Big Fugly isn’t the reason the market is popping, it’s the AI frenzy driving the markets higher.
Everyone wants as much free lunch as they can get. That’s why trickle down hasn’t ever worked. The idea that those at the top would share their wealth with the rest below them is ludicrous.
Not likely. AI will certainly automate certain tasks, but it’s not going to replace the problem solving and other creative inputs needed for human directed engineering. Then there’s the ethical decisions that need to be made. The same holds true for healthcare and law. That’s not to say that AI won’t change those professions, but AI will never come close to replacing all the humans in those fields.
Edit - just trying to get things back on track. Good interview with Dan Wang describing the main points in his book. It’s 1 hour, but I know a lot of you have some time to kill…
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The fundamental problem is cost of labor which goes with high standard of living. Protectionists policies like tariffs and limiting immigration and H1-Bs can help keep wages high. But consumers must be willing to pay them. High cost of labor encourages automation in many forms including computers and AI.
Capitalism is a highly competitive system. We can have many winners but also losers. What do you do for the losers?
As I said, Yang was just a few decades early. UBI is going to be required at some point, or you’ll have riots.
Capitalism has driven, and will continue to drive, efficiencies in the work force. A lot of US industry is off-shore now because labor (and regulations) cost less. Evidently, some of that off-shore cheap labor isn’t cheap enough, and some on-shoring is being done into automated factories. Automation is becoming cheaper than -for example- Bangladeshi labor.
At some point, it will hit almost everything. Sure, there will need to be a few people to tend the machines. But not many. Mobile skilled trades (e.g. the plumber than fixes your pipes in your home) will still be there. But, with AI, even engineering jobs will mostly be gone.
It is already happening somewhat in semiconductors (where I used to work). Layout people used to have to layout the design of our chips. That was replaced with “auto place and route”. Designers used to design, now they program (i.e. input how they want something to work, and the computer assembles the circuit components into a design). It’s not a great leap from there to someone saying “I want a circuit that does this while consuming no more than y-milliamps”, and the AI designs it, and the auto-place and route lays it out. Done.
It’s not there yet. But within 2 or 3 decades, it will be. And it’s all because it drives down cost. However, without people to consume the products, the system will fail. And if you don’t have to hire people to do things, no one will have money to buy your products. Enter the UBI.
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