Why isn’t the Economy Any Better?

Other than the Great Depression, recessions were typically followed by periods of expansion.  Starting in the 2000’s the recessions have not been marked by significant growth.  Furthermore, the jobs that were created in the 2000’s have been of lower skill and pay than in previous decades.

By Dave H, a reader of SHTFBlog.com & SurvivalCache.com

The primary reasons for recessions were over production and over consumption.  These two factors work together to create the business cycles in the economy.  If a manufacturer created too much inventory then they would need to slow production until the excess inventory was consumed.  On the other hand if consumers over purchased they would slow or stop purchasing until they ran out of the excess product.  What historically drove the rebound in the economy was the reduction in inventory as well as the end of life for consumer products.  Let’s take microwave ovens for example and let’s assume for this exercise that a manufacturer created a technological breakthrough in microwave technology.

Consumers may purchase the new microwave for the new feature rather than wait until their old microwave failed.  This would create a significant amount of demand and the manufacturer would increase production to meet this demand.  They would continue with the increased production until after the initial rush of consumers ended.  They would end up with excess inventory and either cease or slow production.  This reduction in production would not only affect production workers it would affect the suppliers, the transportation companies, the warehouses and the retailer.

This slowdown could continue for an extended period of time as consumers of the new microwaves would not be in the market for a replacement model until either the technology changes again or the product failed.  Now imagine the over production and over consumption model happening simultaneously over large sections of the economy and you will see the natural business cycles of the economy. Given this information you would expect that the economy would return when products need to be replaced and inventories reduced.  Since the 2000’s that has not happened.

What has happened is the manufacturing that drove the model has moved overseas and therefore we have not seen a return to prosperity.  The jobs created by the increased demand are now in countries like China, Vietnam, Mexico and Brazil.

Why did the jobs leave?

To understand this answer we need to return to WWII.  During WWII the United States ramped up manufacturing to meet the war demand.  During this same time the European and Asian production facilities were being devastated by the war.  At the conclusion of the war the US was the only country in the world with significant manufacturing capabilities.  If the world needed a hammer, a dinner plate, clothing or any other manufactured goods they needed to buy them from the US.  This monopoly continued through the 1960’s.

By the 1960’s most of Europe and Japan were past the post war reconstruction phase.  They began to invest in their own production facilities.  By the late 1960’s and into the 1970’s they were competing with and beating US manufacturers.  During the post war reconstruction period the US manufacturers failed to invest in plant and material.  They ended up using manufacturing equipment from the 1930’s and 1940’s to compete against German and Japanese manufacturers with 1960’s and 1970’s technology.

In the early 1980’s the US government recognized the problem and created the 401K retirement savings program.  This program not only provided the average American the ability to save for retirement, it gave a much needed capital influx to US corporations. The US corporations took advantage of the capital and invested heavily in plant and equipment.  Unfortunately, those investments were not made in the United States.  They legacy of labor unions and high wages from the post war reconstruction period forced corporations to look overseas to remain competitive.  The net effect of this was that the US corporations used the wealth of the US worker to become multinationals with overseas operations which pay no US taxes.

Why won’t the jobs return?

On the surface the US would appear to be an excellent location for manufacturing.  It has abundant educated labor, it has extensive natural resources and it has comparatively cheap energy costs.  The unions are dead and labor rates in the south east portion of the country are lower than in some parts of China.  Are you aware that the labor cost in the US to make a ton of steel is equivalent to the transportation cost to bring a ton of steel from China to the US? Obviously the cost of labor is not the issue.  So, what is the problem? Government regulations are making us non-competitive on a global level.

When the Environmental Protection Agency (EPA) was founded back in the early 70′s by Richard Nixon, the ecology of the US was pretty poor.  Lake Erie was dead, a river in Ohio burned and the air was polluted.  It sounds like China today.  They instituted regulations that cleaned the air and water.  We certainly don’t want to return to the heavy pollution industrial days.

On the other hand, we now have an agency which we set up to write regulations but they have gone way past their original intent.  The current EPA, with over 15,000 full time employees, reminds me of a Thomas Jefferson quote “”My reading of history convinces me that most bad government results from too much government.”

What does the EPA do when they have written all the common sense and reasonable regulations?  They continue to write regulations. They are good at it and they keep getting funded.  They create so many regulations they need to change their name to the Economic Prevention Agency.  The other problem with the agency is they are politically driven and they are no longer focused on the environment.  They just forced the closure of the last US lead smelter.  However, they allow Monsanto to sell GMO’s that have killed 70% of the Monarch butterflies and are devastating bee populations.  So, Monsanto and their heavy campaign contributions gets a pass while causing extensive damage to the environment and the lead smelter gets shut down.

I used the example of the EPA to make a point. Unfortunately, they are not the only culprit.  You could include OSHA, the Department of Labor and many others.  We need to change the way we think of these organizations.  We give them the ability to make laws outside of congress and subsequently our representation.  Maybe they should be convened on a temporary basis.  That way they get disbanded when they complete their original mission and they don’t install unnecessary regulations.  Another change would be to remove their regulatory powers and only authorize them to recommend regulations to congress.  That way we can restore constitutional authority and representation to our government and not let this economy cause a slow sh*t hits the fan event.
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James Lee

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