Tuesday, April 10, 2012

On the Future of Capitalism: Two Tiers for the Economy and Society?

Tyler Cowen describes an economic future in which he predicts the US will once again become a dominant exporter of goods to the world. The consequences he foresees from such a development are not necessarily beneficial to society. Our interest here is not so much in the future of the export sector as in Cowen’s description of the consequences, because in the process he gives us a picture of our current system being taken to its logical conclusion.

Cowen’s article appears in The American Interest and is titled What Export-Oriented America Means. He begins by reminding us that US exports have been growing at a rate of about 16% per year, and at that rate might even reach the doubling in five years that President Obama promised.

Cowen believes that there are a number of factors that will contribute to an ever more powerful export sector in the US. First is the ever greater sophistication in manufacturing that will benefit the US because of its skill and experience in artificial intelligence and computing power. Secondly, we will become a net energy exporter.

"The second force behind export growth will be the recent discoveries of very large shale oil and natural gas deposits in the United States. Come 2030, the United States may well be the new Saudi Arabia of energy markets. We have new fossil fuel discoveries to draw upon, enough to fuel this country for decades, and there is plenty of foreign demand for those resources."

"This is a technology pioneered and mastered by the United States, and it is the United States that has the greatest capacity to transport the product, market it and deliver to the final customers, including those overseas."

He trivializes the environmental issues posed by the fracking process, and assumes those will be overcome. He cannot help but take a swipe at those who would practice caution.

"These particular constraints reflect some more general reasons why European economies are usually less flexible than America’s—namely, that European cultures and politics are less geared toward rapid economic change."

Perhaps European cultures benefit from the wisdom that comes with age.

The third way in which exports will benefit comes from the increasing wealth of the developing countries.

"To put it simply, the closer other nations come to our economic level, the more they will want to buy our stuff. Indeed most of those nations are growing rapidly, so we can expect their attentions to shift toward American exporters. The leading categories of American exports today—civilian aircraft, semiconductors, cars, pharmaceuticals, machinery and equipment, automobile accessories, and entertainment—are going to be in the sweet spot of growing demand in what we now call the developing world."

There is plenty to discuss in each of Cowen’s three assertions, but we will pass on to his predictions about what this rejuvenation of our economy will produce in terms of jobs.

"Skilled laborers who work with smart machines or even hold advanced managerial jobs will continue to make big gains, as the numbers have been showing for some time. Capital will do well too, especially if it is geared toward export success. The class of elite labor will grow, and protest against the "one percent" will seem anachronistic. Expect something more like, ‘We are the ninety percent.’ That will still fall well short of the median, so significant segments of the American workforce are likely to continue suffering falling real wages, even in a time of rising export prowess."

Cowen’s vision of progress is moving from an upper class of 1% of the population to an upper class of 10%. He sees this development of a lower class as inevitable. The export economy will produce a few good jobs for the highly skilled, make the owners of capital fantastically wealthy, and drive down the wages of any other jobs that cannot be eliminated. Cowen sees this further concentration of wealth in the hands of a few as a good thing.

"The wealthiest American earners will be very wealthy indeed, even by current standards. Due to their export activities, they will take an increasingly global perspective, and they will give away lots of their money, just as Bill Gates has expanded his philanthropy abroad. Recently the Gates Foundation claimed that Gates’s giving has saved six million lives, in large part by making medicines and vaccines available to the developing world. He probably could not have achieved comparable moral value by redistributing that money just within the United States."

So—the world would be a better place if more wealth could be placed in fewer hands. Apparently the fabulously wealthy hide their moral tendencies while accumulating wealth, but once a given level is attained moral sentiments emerge and the wealthy then try to give all their money away on socially useful projects. Apparently a new stage in the evolution of humanity has been reached and only Cowen was sufficiently alert to take note.

Cowen sees a coming battle between the forces of good and the forces of evil, making it quite clear which side he is on.

"On one side of the divide will be the push to redistribute more of these resources to the American worker or to the unemployed using public policy and the tax system; some of the Democratic Party agenda already reads along such lines. On the other side of the divide will be a combination of elites and cosmopolitans defending the very wealthy and their global charitable giving and making sure that America remains sufficiently free economically to maintain its export success."

The emphasis is mine.

Cowen sees the economy—and society—splitting into two sectors. The first is the highly efficient export sector, and the second is the highly inefficient service sector. He sees the service sector providing most of the jobs, but at low wages. It is, of course, the fault of the government and its liberal policies.

"Services, in contrast, are often produced inefficiently, but the jobs are more extensively cocooned within a protected domestic market, often based on government privileges and market-distorting third-party payment schemes."

He implies that if only we would allow the service sector more freedom to follow market principles we could create great disparities in wealth there also. Wouldn’t that be great!

Finally we come to the ultimate conclusion—the endpoint of free market capitalism.

"These days, this old portrait of the two-tiered economy, originally applicable to a developing economy, may be re-emerging for the United States. We had not thought through seriously enough the possibility that the world’s most technologically advanced economy would, over time, develop persistent and indeed growing productivity differentials across sectors. It clearly has, and the social and political frictions this has caused now dominate our politics—or soon will."

We are truly in a bind. We are going to create great wealth, but if we tried to redistribute it we would hamper the charitable initiatives of the fabulously wealthy. Whatever will we do?

We have encountered Cowen previously in On the Future of Capitalism: The Great Stagnation? There he used an unconvincing analysis of the present to provide an unrealistic picture of the past. Here he returns to use an unconvincing view of the present to provide an unrealistic picture of the future. Keep up the good work!

If one wanted credible future predictions one always had two directions in which to turn: to economists and to science fiction writers. It seems we are now down to a single option.

1 comment:

  1. Thanks Rich. Seems the Rand philosophy is carried forth by Cowen. Keep the average American poor so maybe, just maybe, one of the new wealthy dudes will do something nice to a select group of his choosing.


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