Part of this blog may look like a repeat, but I do have a new slant. I have studied economics at both the under graduate and graduate level and never agreed 100% with any of my professors. They all followed the "company" line and never were able to connect the dots to my satisfaction. After many years of observation, I think that I have a more correct understanding of economics. Here goes.
Here are the three main segments of our economy that needs to be considered. (1) Participation Rate, (2) Value Added Per Person, (3) Exploitation Of Natural Resources Per Person. I have also been watching the candidates for President to see if they are talking about any of the points above. Sorry to report, they have not really focused on the economy.
Look at the economic story of the USA. It was a one time historical event when Columbus discovered a New World and then smallpox wiped out 90% of Native Americans and left the USA open for exploitation. This type of thing had never happened before and it will never happen again. Get used to that critical point when you think about the economic history of the USA. The USA was wide open with more unexploited natural resources than any other country in the world, but without the people to exploit those natural resources. Next came very low skilled immigrants from Europe. Like a bunch of ants, these new immigrants flooded over the land, clearing land for farming, digging coal and gold, building roads and dams and drilling oil wells. There were only a few cities and most people lived on farms or very small towns. The USA was very rural. Figure that there were many 40 acre farms with a family of 5 or 6 people exploiting the land. Land was given away for "free" until there was no more land to give away. At that point the USA started shifting from rural to urban with people who were born and raised on farms moving to bigger and bigger cities. Farmers now farm over 1,000 acres with a family of 4 or 5. That means we need less than 1% or 2% of the people we once did to exploit our natural resources as we did when the frontier was being first settled. The point is that we don't now need as many people as we once needed to exploit our natural resources. What do those people now do to make their economic way? Value added!!
Look at oil. I used to be a rough neck in the oil fields. When oil fields are being developed you needed a lot of workers, but not for the 50 to 100 years while the oil is being pumped out. This is the normal pattern for all kinds of natural resource exploitation. After drilling, those workers need to figure out how they are going to make a living by value added work like most of the rest of the world.
Now, most workers have to do it by "value added", but we know that no country has ever been able to get rich by "value added" alone, but we do know of many countries who have gotten rich by the exploitation of their natural resources. In the past, if you had the capital to buy a fancy machine, you could operate that machine and create "value added". Back then only a few people or countries had the capital to buy those fancy machines. but now almost every country can buy those fancy machines so we no longer have any advantage. As value added has shifted toward intellect, people who have the intellect can compete, but we don't have any more intellect than most other countries. Remember we rank about 35th in math in the world. If you listen to the politicians, they only talk about "education" as the way to make your "value added" more valuable. The thing that most people do not understand is that education does not make you "smart". We need more smart people and we don't have them.
Now, how about the participation rate? It is going down when it needs to be going up. Look at it this way. When a person drops out of the work force, they not only stop producing any value, they start eating the value added produced by those fewer people who are still working. This is what I call a "double", because it has a "double" impact. We have to think about that point. Why do people drop out of or do not enter the work force? I think there are several reasons. (1) Government support programs are so liberal that a person can live well on government programs and thus is not motivated to get a job. (2) Due to our economic history, many workers have been paid much more than they were ever worth. That gives them a false sense of their value and causes them not to accept lower paying jobs that they are offered. (3) Government minimum wage laws have the affect of eliminating many entry jobs and thus there is no first rung on the economic ladder for new workers. (4) The final point is that the very people who need to find jobs do not complete their basic high school education and thus are not qualified for many of the entry jobs. Their basic lack of discipline demonstrates to prospective employer that the potential worker is not qualified or is a serious risk.
Given the 4 factors above, what is being done to off set them? If we don't, the USA will continue to go down hill. That's the problem. What we need to do is to make it more painful to be without a job rather than to make it easy as we do now. Reduce most of the support programs for those who do not want to work. We need to get more of our people carrying their own weight and not a free ride. If we can get a higher percentage of our qualified people working, we will have more value added even if it does not change the average much. It would be nice to get more value added and more per person, but that may not be in the cards. I don't think education alone will do the job. We could lower taxes and the size of government. That would allow more qualified people to enter the "real" workforce and reduce the burden on those who do have "real" jobs. More immigrants only help if they can raise the median family income and we know that over 98% of immigrants actually "lower" the median family income. There is one final factor and that is the exploitation of natural resources. We need to reduce regulation on the exploitation of our natural resources and greatly reduce immigration which increases the number of people that the value of natural resources has to be divided by.
We need a lot more focus on median family income rather than just the total size of the economy. More immigrants can increase the size of the economy while actually lowering the median family income in the process. That point needs to be gotten across if we ever expect to make any changes that will improve the quality of life for ourselves and our children.
Here are the three main segments of our economy that needs to be considered. (1) Participation Rate, (2) Value Added Per Person, (3) Exploitation Of Natural Resources Per Person. I have also been watching the candidates for President to see if they are talking about any of the points above. Sorry to report, they have not really focused on the economy.
Look at the economic story of the USA. It was a one time historical event when Columbus discovered a New World and then smallpox wiped out 90% of Native Americans and left the USA open for exploitation. This type of thing had never happened before and it will never happen again. Get used to that critical point when you think about the economic history of the USA. The USA was wide open with more unexploited natural resources than any other country in the world, but without the people to exploit those natural resources. Next came very low skilled immigrants from Europe. Like a bunch of ants, these new immigrants flooded over the land, clearing land for farming, digging coal and gold, building roads and dams and drilling oil wells. There were only a few cities and most people lived on farms or very small towns. The USA was very rural. Figure that there were many 40 acre farms with a family of 5 or 6 people exploiting the land. Land was given away for "free" until there was no more land to give away. At that point the USA started shifting from rural to urban with people who were born and raised on farms moving to bigger and bigger cities. Farmers now farm over 1,000 acres with a family of 4 or 5. That means we need less than 1% or 2% of the people we once did to exploit our natural resources as we did when the frontier was being first settled. The point is that we don't now need as many people as we once needed to exploit our natural resources. What do those people now do to make their economic way? Value added!!
Look at oil. I used to be a rough neck in the oil fields. When oil fields are being developed you needed a lot of workers, but not for the 50 to 100 years while the oil is being pumped out. This is the normal pattern for all kinds of natural resource exploitation. After drilling, those workers need to figure out how they are going to make a living by value added work like most of the rest of the world.
Now, most workers have to do it by "value added", but we know that no country has ever been able to get rich by "value added" alone, but we do know of many countries who have gotten rich by the exploitation of their natural resources. In the past, if you had the capital to buy a fancy machine, you could operate that machine and create "value added". Back then only a few people or countries had the capital to buy those fancy machines. but now almost every country can buy those fancy machines so we no longer have any advantage. As value added has shifted toward intellect, people who have the intellect can compete, but we don't have any more intellect than most other countries. Remember we rank about 35th in math in the world. If you listen to the politicians, they only talk about "education" as the way to make your "value added" more valuable. The thing that most people do not understand is that education does not make you "smart". We need more smart people and we don't have them.
Now, how about the participation rate? It is going down when it needs to be going up. Look at it this way. When a person drops out of the work force, they not only stop producing any value, they start eating the value added produced by those fewer people who are still working. This is what I call a "double", because it has a "double" impact. We have to think about that point. Why do people drop out of or do not enter the work force? I think there are several reasons. (1) Government support programs are so liberal that a person can live well on government programs and thus is not motivated to get a job. (2) Due to our economic history, many workers have been paid much more than they were ever worth. That gives them a false sense of their value and causes them not to accept lower paying jobs that they are offered. (3) Government minimum wage laws have the affect of eliminating many entry jobs and thus there is no first rung on the economic ladder for new workers. (4) The final point is that the very people who need to find jobs do not complete their basic high school education and thus are not qualified for many of the entry jobs. Their basic lack of discipline demonstrates to prospective employer that the potential worker is not qualified or is a serious risk.
Given the 4 factors above, what is being done to off set them? If we don't, the USA will continue to go down hill. That's the problem. What we need to do is to make it more painful to be without a job rather than to make it easy as we do now. Reduce most of the support programs for those who do not want to work. We need to get more of our people carrying their own weight and not a free ride. If we can get a higher percentage of our qualified people working, we will have more value added even if it does not change the average much. It would be nice to get more value added and more per person, but that may not be in the cards. I don't think education alone will do the job. We could lower taxes and the size of government. That would allow more qualified people to enter the "real" workforce and reduce the burden on those who do have "real" jobs. More immigrants only help if they can raise the median family income and we know that over 98% of immigrants actually "lower" the median family income. There is one final factor and that is the exploitation of natural resources. We need to reduce regulation on the exploitation of our natural resources and greatly reduce immigration which increases the number of people that the value of natural resources has to be divided by.
We need a lot more focus on median family income rather than just the total size of the economy. More immigrants can increase the size of the economy while actually lowering the median family income in the process. That point needs to be gotten across if we ever expect to make any changes that will improve the quality of life for ourselves and our children.
