The 1992 study, Army 21, for 2005-15 forecasted the future as the “political perception of economic winners and losers” and, consequently, “greater globalization or polarization” in economics. The forecast still fits in 2025. Trump’s tariffs may be a big shift away from globalization or just a bargaining ploy. Regardless, tariffs isn’t an antidote to devastating changes. The cause of economic change was inevitable, but the outcome wasn’t.
The briefing slide for Economics for Army 21 showed arrows going towards Haves and Have Nots. The arrows were labeled: High technology engine for capital growth, globalization and foreign competition, government economic policy, value-added skills, quality of labor, restructuring management, and Post-Cold War Defense adjustments. The walkaway banner read, “Fundamental Change: Industrial to Information Economy.”
Just as America changed from a Frontier Economy (and Era) to Agricultural Economy to Industrial Economy, our Country was transformed by technology to the Post-Industrial or Information. Every transformation has disruptions. Every transformation has positive effects and serious defects which must be fixed.
The information technologies which fueled the changes in production, management, finance, marketing, and distribution happened under the hegemony of the US Uber Super Power status concurrently with China opening up its vast cheap labor pool.
Yet, Army 21’s projected squeeze on the Middle Class was going to happen even if no jobs left the US. Information Technology reduced the need and increased the productivity of information managers. Far fewer people are needed to make, read, and share the huge volume of data and reports in business.
Those who stayed used more skills and were paid more. Those who had less skills moved further down in wages – even unto unemployment and welfare.
The continuing technology breakthroughs in robotics, nano-technology, and the human genome, as well the stunning potential of Artificial Intelligence as the next wave of IT-based transformation will move more people into the Haves and push others into the Have Nots. I don’t see data on the split Have: Have Not for any job in any particular industry is either 30:70 or 45:55 or what?
The consequence is what the Left calls the wealth gap or wage gap. The divide between rich and poor – even adjusted for inflation – is very large and growing. The Left fails to point out the relative wealth gains for even the poorest Americans.
Tariffs do nothing to change the income distribution. Fixed tariffs are a tax on capital which kills jobs for the lowest wage-earners first while protecting a few workers and business owners at everyone else’s expense.
Capital creates jobs. Tariffs and other taxes kill jobs.
Globalization created enormous wealth for the US.
So, what happened in small towns and Rust Belt industries that wiped them out?
It wasn’t foreign tariffs – except on a case-by-case example of where a product was sold to one and only one overseas purchaser. In other words, let’s say Canada had a tariff on dairy products. Is Canada the only place on the planet that buys those dairy products? They can’t be sold elsewhere? There is no other market?
Cheap labor and cheap supply chain costs weren’t alone in killing American production. Corporate taxes and government regulations added to the costs for making things in America. When could cutting them have been sufficient as cuts to save a production facility in the US? Need to see the numbers.
Army 21 posited that new “Safety Nets” could have protected more Have Not Americans. Insurance pools for health care, profit-sharing for education and retirement, as well as reductions in personal taxes could have provided lower and middle income workers some coverage for the big ticket expenses in life. Workers wouldn’t need wages to be as high – which actually force their employers out of production in America.
Finally, look at any rundown urban or rural area. There has to be a means of production or a service to add a dollar’s value to a product or service.
If the only source of capital is government welfare and entitlements, then there’ll be just enough capital above subsistence for cottage industries of hair and nail salons, tattoo parlors, and food service to move the capital the government deposits among the residents.
Extracting an agricultural resource, a mineral, oil, or timber from a place generates capital. What can be done to that resource to give it more value-added worth? If there are insufficient profitable resources to sustain the population, what human capital can produce a value-added product or service?
Where there is little – material or human – to be made into a profit, there’ll be little to be gained. Tariffs don’t change that. In fact, tariffs just slow the growth of the economy to punish further people in less profitable neighborhoods or regions.
Furthermore, the value of production overseas added to our sales in US products and services actually returns to the US in US dollars invested in the US stock market. This investment grows companies which grows jobs.
The Rust Belt and Rural areas won’t return as they were. They’ll come back as something different like robotics manufacturing, bio labs, IT- especially AI – software and a growing array of new IT hardware and services, etc.. Tariffs won’t make a better future. More trade with only reciprocal and temporal tariffs will increase wealth.
Improved safety nets with a reduced welfare state and, especially, eliminating the Federal debt will do far more good across the Rust Belt and Rural America than tariffs.
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