President Obama held this year’s State of the Union address on Abraham Lincoln’s birthday. While Obama is hardly facing the same problems as Lincoln, the state of the union in 2013 is still troubled. I hate to bring more bad news to a country facing lingering unemployment and record deficits, but the fact is we haven’t created much long-term real wealth since the early 1970s. We’ve just been treading water economically, while getting deeper and deeper into debt. While I believe these were mostly problems Obama inherited, the state of the union is simply not good and we’re likely facing a massive rebuilding effort.
Data from the Bureau of Labor Statistics shows that the U.S. economy peaked sometime between 1967 and 1973, and we’ve been struggling to get back on track ever since the OPEC oil embargo in late 1973 that sparked the first energy crisis. The percentage of Americans under age 62 not working has remained at roughly 15 percent for the last five years, the worst run since the Great Depression. Only 64 percent of Americans are participating in the labor force (i.e., working or actively looking), which means that nearly 100 million Americans are not working.
The average hourly wages of ordinary workers adjusted for inflation are now 5 percent lower than they were in 1973, according to the bureau, $9.26 per hour in 1973 compared to $8.74 in 2012. The minimum wage reached its purchasing peak in 1967, the same year wages peaked for American men. (Women, on the other hand, have greatly improved their educational status and earnings). Our standard of living has simply declined on a quantitative basis.
How could this be when everyone has more of everything: more cars, more big-screen TVs, more cellphones, more home computers and bigger houses? The answer is that most of those goods were bought with borrowed money. Total personal debt reached an all-time record level of $12 trillion in the last five years, or roughly equal to the nation’s yearly output. Household debt as a percentage of disposable income peaked during the financial crisis of 2007-09 at more than 100 percent of family income.
High-tech workers, professionals and government employees are also important in the rising Gross Domestic Product. They have all done much better economically than private sector blue-collar workers over the last generation. For example, most of the business growth in the 1970s and 1980s came from corporate mergers, which made lawyers, investment bankers, brokers and executives richer, but didn’t do a lot for the average worker.
The other reason we’ve been able to keep consuming more is most families now have two parents working. In 1990, just as a recession was starting, Chicago Tribune columnist Joan Beck wrote that the main thing keeping the economy going was the work of “superwomen.” She had an excellent point. In the 1950 Census, less than half of American women worked outside the home, and women earned on average less than half of men. In the 21st century, there are more women than men in college. With wages for men stagnant since about 1967, every dollar of family income added since the 1970s has come from spouses (mainly wives) going to work outside the home. But even with the higher incomes from both parents working, are we really better off than our parents were a generation ago?
Ten years ago, Harvard Law professor Elizabeth Warren and her daughter Amelia wrote a book answering that question titled, “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke.” Their simple answer was no, on average, we are not better off than the single-income families of the 1940s, 1950s and 1960s.
They wrote: “The average two-income family earns far more today than did the single-breadwinner family of a generation ago. And yet, once they have paid the mortgage, the car payments, the taxes, the health insurance, and the day-care bills, today’s dual-income families have less discretionary – and less money to put away for a rainy day – than the single-income family of a generation ago.”
Big-ticket items, especially housing prices, health care, college costs and local taxes, have simply outpaced most families’ incomes – even with both parents working. There was a satirical bumper sticker from the ’80s that read: “I owe, I owe, so off to work I go.” It is no longer a joke.
In 2009, Paul Krugman said that “we’ve spent the last 20 years lurching from bubble to bubble. … The excesses that got us to this point are ready to do it to us again even if we get out of this current trap.”
The bubbles Krugman was referring to include the defense spending/real estate/stock market bubble of the mid-to-late-1980s under President Ronald Reagan, the high tech/stock market bubble of the 1990s under President Bill Clinton, and the real estate/stock market bubble of the last decade under President George W. Bush. All three resulted in quick, but spectacular, booms. However, all three failed to create long-term sustainable growth and ended with serious recessions. They essentially papered over the nation’s long-term stagnation while producing only short-lived boosts.
This fundamental economic slowdown since the late ’60s explains why our politics has been so volatile, why racial frictions have been exacerbated, why the two parties are so polarized and engaged in chronic trench warfare, why family life is so strained and why people generally keep saying they believe the nation is on the wrong track. In the last Gallup Poll on the subject, 68 percent of Americans were dissatisfied with the country’s condition.
Americans are clearly correct when they say something is wrong with the state of the nation. Most of us have been struggling to just keep up for the past generation. These economic struggles also explain why our politics has seemed so negative. Simply put, when the economic pie isn’t growing, people fight even harder to keep their share.
So, the problems are massive and real. How can we get a start on solving them? To oversimplify greatly, economic growth generally results from one of two factors. The first is development of natural resources: water, gold, silver, oil, natural gas, soil, minerals and so on. North America was blessed with abundant natural resources and we became the richest continent exploiting them. But there are limits to resources, as we discovered in the last generation. The second is a new technology that vastly increases worker productivity. Classic examples would be the steam engine, cars, telephones, airplanes and computers. We’ve certainly had our share of inventors and innovators: Thomas Edison, Henry Ford, the Wright Brothers and Bill Gates, to name a few. Walter Meade Russell was surely right when he wrote that we’re all waiting for the “next American upgrade.” The difficulty with new inventions is that we now have so many efficient competitors in Asia and Europe. Even if some young American genius invented, say, an engine that ran on water, there’s no guarantee that it would be made in Detroit.
With the highest long-term unemployment since the Depression, it is now imperative that both parties come up with a plan to restore real growth. Obama hoped to create new industries in the field of alternative energy, but the technology hasn’t appeared yet. The high-tech industry continues to create dazzling new products, but it may also be a “mature” industry in that families can only buy so many new gadgets.
Republicans can greatly help themselves win in 2016 by offering jobs and hope. In the past, wealth has been created through “mining, manufacturing and farming.” Manufacturing has been in decline for years and farming is stable, that leaves the “mining” of energy sources.
Perhaps the best chance for Russell’s “upgrade” would be the development of natural resources, particularly natural gas. And that would be in the Republican Party’s traditions: after abolishing slavery and preserving the Union, Lincoln’s next biggest achievement was opening up the American West, mainly via the transcontinental railroad, which was completed after his death. This “growth plan” turned out to be both good policy (the West provided jobs and wealth) and good politics (the Mountain West and Farm Belt often voted Republican). Western farmers, ranchers, small businessmen and oil and gas workers (outside the South) were usually a good source of votes and contributions to the Republicans.
The guess here is that the “fracking” revolution in the oil and natural gas fields is the Republican Party’s best chance to restore real growth. According to the International Energy Agency, North American energy supplies and production could easily surpass Saudi Arabia as the world’s largest source by 2030. We may be on the edge of what the IEA calls “the Golden Age of Gas.”
But is fracking environmentally safe? Could injecting a mixture of hot water and chemicals into the earth permanently, fatally damage the water supply? Those are the $20 trillion questions.
Since I’m not a scientist, I can’t answer those questions. But if it turns out to be safe, the natural gas revolution could get the nation back on track. Massive exports of oil and gas to Asia and Europe would go a long way toward creating numerous jobs, putting revenue into coffers and reducing our trade deficits. The oil boom of the 19th century coincided with Republican dominance of national elections after the Civil War. Might history repeat itself?
Incidentally, Warren will now have a more direct chance to raise the incomes of ordinary Americans: In November 2012, she was elected to the U.S. Senate from Massachusetts. We should all wish her well in this goal, because with the nation going sideways economically for last four decades, the task is going to be Herculean.
Patrick Reddy is a Democratic political consultant in California. He is the co-author of “California After Arnold” and the author of the forthcoming “21st Century America,” a study of national politics.