In the early part of 2018, a piece appeared on this site titled; “The Three Reasons America Faces A Difficult Path Ahead.” These three major obstacles are and will most likely remain solidly carved into our path forward. Regardless of record new highs in the stock market or any positive predictions, there is no guarantee as to how long this growth trend will go. When easy money is the fare of the day leverage is generally growing at a rapid pace. While leverage tends to drive a market higher, when it is on the rise it also has exactly the opposite effect, when the market is falling only it often works faster and magnifies the fall. The three key challenges that America must confront and deal with are explored below. Our failure to deal with them will impact and bode poorly upon our ability to maintain our position in the world.
1. The Low Job Participation Rate
Yes unemployment is at fifty-year low but much of that is because we have a very low civilian labor force job participation. Many people have left the workforce. The work ethic has taken a hit over the last few decades as many people adopted the attitude that frequently the reward for going the extra mile is just not there. The longer someone is out of the workforce the more difficult it is to return. Expensive job retraining programs will not solve the issue of creating new jobs in a world where higher mandated wages push employers to replace workers with robots that can perform repetitive tasks.
A Smaller Percentage Of Americans Are Choosing To Work
It should be noted that globalization has elevated the importance of creating jobs and a balanced economy that supports a strong middle class. A huge difference exists between creating a valuable and worthwhile product that benefits society and breaking a window then praising the jobs replacing it yields. It is difficult to envision a larger share of Americans rushing to find jobs when society has come to accept not working as acceptable.
2. Exploding National Debt
During recent years the national debt has soared and all indications are that it is about to get bigger as the bill for entitlements increases. The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face brings with it a false optimism and hope. In all truth, we have allowed those we have sent to Washington to spend money we don’t have and continue to ignore the ever-growing debt being created.
Click Here To View The National Debt ClockThe fact is our trillion-dollar deficits will become commonplace before long. The deficit during the Obama years ran at over twice the nosebleed levels that had been projected. As things stand America continues to rack up a deficit each year of nearly $2,500 for every man, woman, and child in the country, such deficits were unheard of in the past unless it was during a major war. Currently, the costs of entitlement programs are slated to rise in coming years. When we couple that with Trump’s tax reform bill which has added to the deficit to the cost of paying over 100 billion dollars for a slew of natural disasters plus increased military and infrastructure spending it is clear the deficit will continue to grow. Trillion-dollar deficits are set to become commonplace in the coming years unless taxes or raised. Sadly, this massive deficit is much of the driving force that is propelling the economy forward, and it is not sustainable.
3. Jobs Will Not Come Rushing Back
The truth is the recent tax reform bill that President Trump signed into law may slow jobs from leaving America but is not enough to cause them to return. The cost to produce goods in American remains higher than in many other parts of the world because of things like healthcare and regulations governing things such as liability and pollution.
America Remains A “High-Cost Producer”
Many people have mistakenly surrendered to the idea America is too small to continue to remain the world’s premier nation. This is based on population numbers and discounts the idea that quality beats quantity hands down. Sadly, the spirit of, “I will gladly pay you Tuesday for a hamburger today” is alive and well in many of those advocating free trade and the expansion of globalism. Those advocating free trade would have been wise to remember that countries such as China that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey.
We should not lose sight of the fact that while free trade is important, fair trade is far more so and should be the main issue. Trade policy has massive long-term ramifications on the strength of a nation’s economy. Often people fail to note the difference between free and fair trade. In many ways, the global economy has become an ill-regulated business model tilted to favor big business and giant conglomerates. It is these companies that promote “free trade” which has replaced the idea of fair trade. Companies have long pushed for national borders to vanish as they pursue ever-larger markets and strive to achieve greater supply chain efficiency. Transnational companies have sold us out and made it completely about profit.
The combination of the three obstacles listed above constitutes a grave problem with no easy fix. The bottom-line is that the longer we go before making a real effort to mitigate our problems and change our current policies the larger the negative ramifications will become. Clearly, America is not the only nation to face such problems or imbalances which means mankind and society, in general, will see economic challenges continue to unfold. Balanced trade instead of huge deficits or surpluses between various countries would contribute to both global cohesion and the world economy. Unfortunately, a country’s prospects can rapidly diminish and when they do it can be incredibly difficult to turn things around. Like it or not in an unfair world tariffs may be the only tool able to protect the ability of the middle-class to earn a living.