How Could This Happen to Us?

America's days as a dominant economic power are numbered. The remaining days of middle-class excess are even fewer. When we go to the mall and see people with bags of goodies they don't need, and when we're stuck in traffic surrounded by gas hogging SUVs, and when we're walking through the financial district of a big, bustling city it doesn't seem like the country is on the brink of an economic meltdown. You only get that impression by looking closely at the numbers and really understanding what they mean: We are hopelessly buried under a mountain of debt so large that it will soon radically alter our standards of living.

This blog entry isn't about exactly how big that debt is. I've been charting, quantifying and explaining that for the past month and a half. This entry, as the title suggests, is about how we got into this position. Simply stated: It happened because certain people in power wanted it to happen and because other people in power didn't care or didn't understand what was happening but benefitied from it anyway.

Here's who made it happen:
Foreign governements
Multinational corporations

Here's who let it happen:
Politictians
Wealthy Americans
Clueless Voters

Friday I outlined how the mounting trade gap benefitted foreign countries by building up their wealth and infrastructure relative to the US. US-based multinational corporations have been instrumental in this process as their profits have grown tremendously as a result of outsourcing cheap labor and growing sales in developing markets. Looking at statistics for employees, capital expenditures and sales for US multinational coprorations it is easy to see how their growth has shifted away from the American marketplace.

From 2000 to 2004, US multinationals:
Reduced US employment by 10.93%.
Increased foreign employment by 1.55%.
Reduced US capital expenditures by 21.55%.
Increased foreign capital expenditures by 15.06%
Increased US sales by 2.55% (a substantial reduction in real terms).
Increased foreign sales by 30.91%.

As American business leaders sought to boost profits, it made good business sense to look abroad for growth. Along the way, they lobbied our leaders in Washington for "free trade" agreements that have undermined the competitive advantages of Amercian production and the standard of living for American workers. The US consumer temporarily benefited from the inflow of cheap goods and easy credit, but will soon be left with a massive debt hangover and reduced earning power when the bills come due.

Politicians have needed the financial support of large corporate donors to win elecions in media dominated campaigns. They've passed the laws the multinationals have written for them and they have made the profits of multinational corporations the basis for international policy. In pursuit of their own, selfish political objectives, they've let the problems grow.

Wealthy Americans have also been complicit, as they've invested in the multinational corporations and benefited from cheap foreign and immigrant labor. Wealthy Americans prosper when the masses can't bid up the prices for luxury items and travel packages. They're existing assets have been inflating as the the global economy became imbalanced, and they'll be able to pick up the assets of middle-class Americans on the cheap as the rebalancing process takes its toll, so whether or not they understand the system, they are glad to let it continue.

Clueless voters don't understand the nature of our political process and how it serves multinational corporations. They don't understand how the national debt and trade gap are undermining their future living standards. Clueless voters know that life is hard, but the change has been so gradual that they can't connect the dots. They continue to get sidetracked by the usual divisive issues lobbed at them by the two political parties and miss the big picture.

The rebalancing process does not have to be painful, but based on the actions and interests of people in positions of power, it appears certain that it will be. Perhaps a sharp economic shock is necessary to wake people up, as the voting masses and people who would otherwise care don't seem smart enough to understand where things are heading and how to reduce the suffering it can bring.