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These are temporary measures with no cure for the terminal disease. The U.S. economy is seriously ill with uncontrollable expenses, high debt, sky-high living, unwanted wars and an overemphasis on the so-called “American dream.”
The United States has a choice – to adopt temporary measures like those mentioned above, or to go for some sort of a permanent cure. This cure is unlikely to come from within, because those in charge now have grown up with excesses and believe that living beyond one’s means is normal. As a matter of fact, that mindset has caused the illness in the first place. Going back to the causes and doing a self-appraisal will help the United States make a dent in the current economic malaise.
Some surefire cures for today’s economic ills are:
a) Cut back on oil imports.
b) Bring back manufacturing to the United States from China.
c) Cut wages and salaries by as much as 20 percent with tax holidays for lower income groups.
d) Reduce the size of government to cut expenses.
e) Cut military adventurism abroad.
Although the United States is aware of its illness, it has trouble facing it. If an urgent and concerted effort is not made to address it, the future is insecure given its US$12 trillion government debt and several more trillion dollars in state, personal and business debt. And if the United States falters, the rest of the world will follow suit.
The current U.S. economy is the outcome of excesses that free market mechanisms permit. Minimal market controls in the last 10 to 15 years gave rise to the subprime loan crisis. Besides, investors like Bernard Madoff – charged with perpetrating what may be the largest investor fraud ever committed by a single person, to the tune of US$50 billion – have added to the financial woes.
It is unclear how many more Madoffs exist. The bulk of pension funds, rich people’s billions in hedge funds and the savings of average families, invested in the stock market, are now history. The illusion of high returns on Wall Street has gone sour.
In the last 40 years, the United States has developed an unhealthy appetite for credit. The U.S. government, its citizens and its businesses live beyond their means. U.S. consumers have US$850 billion in credit card debt alone, and carry $2.7 trillion in other consumer debt. The latter figure does not include mortgages, which total $8 trillion. This is too large a burden for any nation to carry. To get out of this mess the United States has to start living within its means. But where does it begin?
Oil imports cost the country an average US$700 billion annually. This needless drain of cash occurs due to big consumer appetites for oversized vehicles, transporting goods long distances, traveling too much on minor excuses and generally living a high life.
To rectify the situation, the country must cut consumption, explore domestic oil resources where environmental impact is minimal, withdraw all objections to nuclear energy, prevent oil speculation in commodity markets to prevent wide price swings and seriously pursue renewable energy resources.
As energy demands cannot be fulfilled solely by renewable energy sources like the sun, wind and geothermal currents, it must be balanced with nuclear energy. Switching to coal has grave consequences, as greenhouse gases will destroy our fragile planet before energy alternatives are found.
Manufacturing lost to China under the pretext of globalization and price competitiveness due to cheap Chinese labor has to be brought back to the United States.
The dream of the United States – that it is a hub for financial services and a center for cutting-edge technologies and science – is over. With its finances in deep trouble due to mounting debt, it can no longer afford to be a service nation. Its financial clout died with the current financial crisis while its technological clout is slowly eroding. It would have eroded even faster had the Chinese been proficient in English.
Chinese manufactured goods exported to the United States rose to US$340 billion in 2008. That is 8 percent higher than the year before, and the trend is likely to continue. U.S. exports to China for the same period were only $66 billion. This gives the U.S. a current account deficit of $274 billion with China alone. After oil, this is the second biggest drain on the U.S. economy – and it must stop.
To cut this uneven trade, all manufacturing lost to China should be brought back. Retailers like Wal-Mart, which have become huge outlets for Chinese manufactured goods, must look at domestic sourcing.
Wages and salaries in the United States are out of control. The car industry is faltering because U.S. wages are too high and nearly all U.S. manufacturing sectors are victims of high wages and high expectations. The net result is that the labor-intensive manufacturing sector is fleeing the country. How can this problem be fixed?
Expectations must be lowered and a stable and secure work environment provided. If manufacturing is brought back to the United States, work environments will automatically become more secure. People will prefer continuous steady work to interrupted and temporary work with high wages. Stability will be traded for lower wages.
A wage cut for white-collar workers and those who work on commissions, contracts and fat bonuses should be undertaken. The millions of dollars in commissions paid to chief executive officers of investment houses should be curtailed, along with those for workers in other sectors like information technology and engineering, where high wages have resulted in jobs outsourced to India.
This should be followed with tax cuts for wage and salary earners in low-income groups. The burden should be shifted to the wealthy, who cannot complain because their excesses have created the current problems. It is in their interest to have a stable marketplace before they can earn high profits.
Although the United States lectures others about excessive government spending, its expenses are very high, close to US$ 2.5 trillion. This does not include the stimulus packages announced by former and current governments.
This year’s deficit – expenditures minus income – is about US$385 billion and likely to rise. Gone are the days when former U.S. President Bill Clinton handed over the presidency to his successor, former President George W. Bush, with a $250 billion surplus. Something has gone wrong. The surplus has been squandered in providing tax cuts to the wealthy and fighting an unpleasant war in Iraq.
To balance its books, the United States must end the war in Iraq. Tax cuts that benefit high-income groups should be repelled. All wasteful aid, both military and economic, to countries like Pakistan under one pretext or another should be curtailed. And fancy government departments must be closed.
The United States also suffers from manipulative political lobbying. Close to US$4 billion is spent on politicians and officials to get legislation passed. This money corrupts politicians and officials. The country has to learn to run its democracy without lobbying. Legislatures have to vote on their integrity and convictions.
If Obama succeeds in force-feeding a bitter pill to the American people and politicians, the country may be on a stable path to recovery. Europe, which has similar problems to those faced by the United States, is going to have to pursue a similar remedy.
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(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)
