I could not believe what I heard, as I was watching the TV show on a Cable channel. “middle income wage earners have not had an increase in wages in 15 years. You can look at the statistics from the government. They’re furious, they’re beleaguered, they’re angry. They’re looking for someone to represent them and that turns out to be Donald Trump who has tapped into this anger,” Kudlow explained.
Was it really the Larry Kudlow? Where was Larry when there has been constant obstruction from the Republicans to any investment in infrastructure in all these years? Where was Larry when everyone in the industry and the business community diligently took advantage of lower cost manufacturing in China, while eliminating well-paying jobs in the US? Does Larry truly think that it is the Chinese Government and the Mexican immigrants who are the causes of the problem and the investors and the business men in the USA have no part in it? How can he believe that one of these businessmen who took the American workers to the cleaners will be their savior going forward? Now my mind is growing numb in disbelief.
We are not political or partisan. We do not support either party or any candidate. But when public discourse leaves reasoning and logic to the way side, we are obliged to point out such folly. We have earlier pointed out that US economy can continue to grow without a related growth in higher wage jobs. https://stimsinstitute.com/2014/02/16/can-the-economy-continue-to-grow-while-creating-fewer-well-paying-jobs-the-answer-is-yes/ We have also pointed out the reasons for such jobless recovery and its impact on the growing disparity between the rich and the poor. https://stimsinstitute.com/2015/10/18/why-are-the-rich-getting-richer-and-the-poor-getting-poorer-what-can-be-done-about-that/ We have also described how the support for Mr. Trump and Mr. Sanders emanate from the same reasons, even though the language and style of these two gentlemen are the polar opposites: https://stimsinstitute.com/2015/07/24/what-is-common-between-bernie-sanders-and-donald-trump/
As long as jobs are the only source of income for the workers, they are paid through their contribution to work in three ways: Knowledge work (Professional), Information work and Physical (labor) work. This is true for any job and at any level. Of these Information work can be increasingly automated and this also enables the physical labor work to be outsourced to low cost countries. Scapegoating the Chinese Government or Mexican immigrants by the Trump campaign will not reverse this reality. It is merely preying on their anger, like a thirsty man being led for water by pointing to the mirage in a desert.
Distributing the wealth from the rich to the needy is not a political reality in the US at any time. With the Republican party dominating the Congress (in both houses) and a large Republican majority in many state governments, even fair and equitable distribution through progressive taxation is in question. The appeal of Sander’s campaign to the young with a promise of re-distribution of wealth is hence rooted in their enthusiasm for change more than it is rooted in reality.
The gradual elimination of information work and physical labor as human centered activities is a development over the past four decades. Evolution in Digital Technology in broad terms and Information Technology in particular is their cause. It is like life before electricity and life after. There is nothing one can do about this shifting nature of jobs and employment, by merely clinging on to the old paradigms and economic tools.
There was limited room to accommodate the shifting of wage earning capacity. As factory labor jobs became scarce, people took to IT jobs. As they become scarce we need new ways for people to work and earn their wages. Government investment in infrastructure projects is one way forward. This will create labor work to some extent. This is the proven path from the Eisenhower days. Failure for such large investments and their negative impact should be placed squarely on the US Congress and its inaction. It has resisted any large scale infrastructure investments in every step for the past decade. This role of the Congress is like those who are happy to cut their face in spite of their nose! Can Mr. Trump or Larry Kudlow reverse this inaction in congress? Can Mr. Trump claim to have a mandate for such investments? Will the congress heed to such mandate any more than their obstruction to Mr. Obama’s plans? It will require opening of their purse by the rich – friends of Mr. Ludlow – through a more progressive tax plan. It is not clear how Mr. Trump will accomplish that any more than Mr. Obama could with an intransigent congress?
Indeed large growth in employment through infrastructure investment has been a major source of economic growth in countries like China. These investments in airports, roads, bridges and power plants in China by the Chinese Government have also been a source of “subsidy” for business men like Mr. Trump, who make their products cheaper there for sale in the USA. This economic reality cannot be swept under the rug in the heated rhetoric now in vogue in the presidential debates.
Higher education has been used as a tool for moving away from the diminishing factory labor jobs – rust belt jobs – into belter paying information work on the East and West coast. As this transition seems to have reached its limits we have more people with college degrees and large student loans. Mr. Sanders can wipe out their debt burden, but what are they supposed to do after that? Where will the new jobs come from?
Reducing college debt by having the beneficiaries re-pay that through service work of value to the nation is a temporary measure. That still leaves several issues for an economy with limited demand for human capital. We call this as the Binary Economy, which by definition has the relentless focus on eliminating whatever we call as the “middle”, which is composed of human centered work focused on information and physical labor. This Binary Economy is propelled by unrelenting development and deployments of the tools of IT and in a broader sense the Digital Technology. The Genie is out of the bottle. There is no way to reverse that. No amount of demagoguery against the Chinese, Mexicans, immigrants or Muslim will solve this problem. No amount of anger directed against the Wall Street and its greed and the crony capitalism will address this fundamental driving force. But the wise minds must find the answers before the anger fueled by Mr. Trump becomes a global anger. That will be far worse than the global terrorism we are forced to confront today.
We are a nation where individuals take action long before the actions of the government. To those who believe in self-help we suggest a strong dose of education on System Thinking and Transformational Skills.