Tuesday, August 27, 2019

Resurrecting the American Economy

Donald Trump has recently ordered US corporations to move production out of China and into the US. Easier said than done!—or, rather, undone. Moving production to China (and, in case of IT, to India) allowed US corporations to benefit from the large wage differential and an easier regulatory environment in order to be more profitable. They spent these excess profits by buying back their own stock, paying generous dividends to their shareholders and using their artificially inflated stock prices to justify exorbitant executive salaries and bonuses.

Along the way, they impoverished American workers by depriving them of gainful deployment, eroded the skill base of the American population and, perhaps most importantly, destroyed demand for their products because more and more Americans could no longer afford them. As these trends played out, making China prosperous and the US increasingly distressed and impoverished, with close to 100 million working-age people permanently jobless, US corporations could no longer profit from their offshored production to the same extent, and so they took advantage of low interest rates to borrow huge sums of money and use it to continue buying back their own shares, paying dividends and continuing with the exorbitant executive compensation.

By now, many of the major US corporations are financial zombies, waiting for an uptick in interest rates to drive them into bankruptcy. And it is these zombies that are being tasked with bringing production back to the US. Good luck with that! Which is to say, it is highly unlikely that such an effort could possibly succeed. But even if it could succeed, would it solve the problem—which is that the US is gradually degenerating into a bankrupt third world country? Perhaps not, because, you see, the entire theory of “making America great again” is based on a fallacy—which is that China became the world’s largest economy (by purchasing power) and the world’s factory simply by virtue of the fact that American corporations offshored production to it.

No, China’s stunning success primarily has to do with its superior economic planning and social governance. Call it Stalinism 2.0. Under Stalin, the USSR was able to produce steady double digit growth rates through a combination of central planning and market mechanisms. It also had some 4 million political prisoners, which, for a country of 200 million, seems a bit much, but that’s politics, not economics. When it comes to managing the economy, Stalinism, and especially Stalinism 2.0—its modern, Chinese version—was and is a stunning success. Fundamentally, it is a recipe for building socialism using capitalist (mainly state-capitalist) means with whatever market elements are found to be effective.

Just bringing back production from China would not save the US. To achieve results comparable to China’s, the US would have to make some changes, to bring it more in line with Stalinism 2.0. I will now sketch out a few of these changes, to give you a sense of what would be involved.

First, the political system in the US is a mess. There are two political parties that agree about a few things—endless war, endless borrowing—and argue all the time. This is an unproductive waste of time. Eliminate them and replace them with a single party. Call it the Communist party, if you like; it doesn’t matter, since nobody knows or cares what communism is anyway. The purpose of the one party is to hand down the decisions made at the federal level down to every last inhabitant and make sure that they are obeyed. Don’t want to make America great again? OK, then, you must be a terrorist. Welcome to the Gulag! There is also the problem of states: there are too many of them, and each has its own legislature, executive branch, court system and so on. Eliminate all of that, group the states into regions, and make the regional authorities into federal departments: Department of the Northeast, Department of the West, etc.

Next, something has to be done about the exorbitant legal costs. The US has more lawyers per capita than any other country in the world and the legal profession is privatized and self-governing—basically a law onto itself. Worse yet, the legal system is a jumble of federal, state and local laws. Finally, the courts are allowed to base their decisions on precedent, which is an outrage, because this allows them to reinterpret laws and to second-guess legislators. Lawyers should either work directly for the government, and be paid based on a single schedule, or not be allowed to work at all. Case law should be done away with completely and replaced with just two sets of laws: a criminal code and a civil code, both at the federal level. Juries should be eliminated and replaced with panels of judges and, for more routine cases, with magistrates.

The medical system in the US accounts for a quarter of the economy, and it is all a waste. Cuba spends around 5% per capita on medical care relative to what the US spends, and it has much better health outcomes. Medical practice should be treated as a public service and de-privatized. Medical priorities should be established based on national priorities, with the highest priority assigned to maintaining a healthy, productive workforce. To this end, children’s health care should be prioritized above all else, since healthy children are the basis of the future workforce, while retirees and those not economically active should be afforded a modicum of mainly palliative care for the purpose of maintaining public morale. Geriatric medicine in the US currently accounts for 35% of all medical spending; this needs to be brought down to roughly 2%.

Since much of the industrial base in the US is either obsolete or has been dismantled and sold off as production was moved offshore, it needs to be built up more or less from scratch. To this end, the federal government should seize large areas of land, declare them federal economic development zones and construct industrial clusters on them, complete with worker housing, schools, clinics and other resources. The housing should be high-density housing, in the form of high-rise apartment buildings, and served using public transportation. The sites for these zones should be chosen based on proximity to resources and on logistics. Large sections of suburban sprawl currently used as commuter housing can be bulldozed to make room for them.

Many other, more minor changes would need to be made as well. For instance, the obsolete Imperial system of weights and measures, still in use in Liberia, Myanmar and, most curiously, the US, needs to be done away with. Any use of Imperial measures should be outlawed. The mentally ill, who are currently allowed to wander the streets in the US, need to be locked up. To improve social cohesion the use of languages other than English should be disallowed. Mandatory reeducation programs should be set up for those who fail to follow the dress code, behave in an impolite manner or use bad grammar or foul language. And so on and so forth…

But perhaps most importantly, it must be understood that repatriating production to the US and redeveloping the industrial base will not be a profitable venture, at least not initially. At the outset, and for at least the duration of the first Five-Year Plan, it will definitely lose money. Borrowing it is a bad idea; the federal government is already $21 trillion in debt. Instead, this money needs to be confiscated from the top 1% of the population which owns close to 40% of the country’s wealth. Doing so will yield roughly $50 trillion—more than enough to fund this project. This is best done as part of a Cultural Revolution: round up the one-percenters, make them wear dunce caps and march them through the streets while pelting them with fruits and vegetables and heaping verbal abuse on them. Oh, and take away all of their money and sentence them to a lifetime of free public service.

These may seem like significant changes, and indeed they would be. But there are reasons to believe that if they are made and Stalinism 2.0 is imposed on the US and followed faithfully, then there is a chance that America can indeed be made great again. And so, good luck and God bless!