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IntelDigest
LAW – POLICY – FINANCE – MARKETS
INFORMATION FOR THE ENTERPRISE AND INVESTOR
MAY 17 , 2017
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Today, we begin a series of articles on “Work in America” here in IntelDigest. We will first address the current political situation in the U.S., as the two topics are very much intertwined.
The Political Millstone, Redux
We have discussed why the Bull Market of recent years took off after the Election and ran up for almost five months, reasoning that investor optimism was based on having a Capitalist entering the White House. Unfortunately, as we stated last week:
“Because both financial markets and a large segment of the American Public are losing confidence in the ability of the Trump Administration and Congress to adopt stimulus measures for the U.S. Economy, we have entered a holding pattern in the broader markets. We believe that significant advances in the markets will resume only when Tax Reform becomes a reality … Fall of 2017 at the earliest, and perhaps not until Spring, 2018.”
It appears that improving the U.S. Economy has not been a priority for the new President. Mr. Trump’s actions … where he has actually taken action … have been focused on destroying or reversing any law or executive order put forward by Barack Obama. This feels very much like a vendetta, not the level-headed actions of the Leader of the Free World.
We really shouldn’t be surprised. Trump did not campaign as a fiscal conservative or a supply-side tax-cutter …. he was a fire-breathing Populist!
The investor community convinced itself that he was something that he is not, and bid up asset prices on the expectation that he would act quickly and decisively in areas where he, apparently, has little interest. With reality setting in, the broad stock market will settle back and find its fair (lower) value.
Politics and American Jobs
In his campaign, Donald Trump focused his message at a segment of the electorate which has been under economic stress and pressure in recent years. His core constituency is the white lower-middle class. Many middle-class Americans have felt “The American Dream” slipping away. Where a middle-class family could reliably obtain a house, car, vacation, and a comfortable lifestyle over the last few generations, these goals have been harder and harder to achieve in the 21st Century.
According to the Pew Research Center, real wages for American workers have been flat or declining for decades. In addition, recent studies have shown that the real incomes of the top One Percent in the U.S. have grown by more than 30% just since 2009, while the income of all other Americans has barely budged.
Trump leveraged this discontent and resentment, and he garnered just enough support to win the Presidency. He capitalized on the disenchantment of those who had gone from full-employment to unemployment or underemployment; who felt that they had been getting a raw deal in 21st Century America; who were willing to follow anyone who promised a radical change of government and bureaucracy and culture. To many of his followers, his propensity to freely offend various (mostly non-white) people was viewed favorably as independence and a willingness to counter political correctness.
Fundamentally, America is now divided on class-based lines, with many in the mostly-white, mostly-lower-middle class segment firmly in Donald Trump’s corner.
Unfortunate for many in his constituency, the President has made no moves thus far which could improve the lot of these aggrieved voters.
Work in America
The heart of the problem for many of these Americans is that American jobs, especially in manufacturing, have been contracting for decades. Blame has been directed primarily at imported goods, but statistics paint a different picture.
Many people believe that offshore manufacturing has led directly to the loss of most American jobs. Certain facts lend support to this view:
* many tons of imported goods are brought into the U.S. every year;
* several foreign countries, most especially China, have been growing at rates several times the U.S. growth rate over the last 20 years
In reality, better efficiency and productivity have much more to do with the change in the American manufacturing landscape. Some researchers have estimated that over 85% of manufacturing job losses in recent years are attributable to growth in productivity in U.S. factories, while closer to 13% can be traced to foreign imports.
Automation
Many Americans would be startled to walk onto the shop floor at many U.S. manufacturing plants … shocked to see how much of the space accommodates machines rather than human workers.
The Industrial Age began over 250 years ago with the inventions of a practical steam engine and a loom powered by water. From that time, human ingenuity has been employed non-stop to increase productivity. Newer, faster, more accurate machines have been invented every year to replace older technologies and processes, and also replace some human workers. The resulting increases in productivity have always been viewed as good for the country and society, even with the loss of some jobs.
The Information Age has followed the same script, but now at vastly higher speed. Advances in computing and robotics over just the last 40 years have been breathtaking, and have done far more to change society and eliminate millions of “old technology” jobs than any other factor, including imported goods.
Where will Automation take us next?
Certainly, more robust Information Technology … Cloud computing and storage, faster computing speeds, more widespread application of digital technology to the analog world … will continue to transform our world, with inevitable impact on both manufacturing and non-manufacturing jobs.
We will likely see, over the next 20 years, greater use of machines which can work on their own, with little supervision. This certainly includes self-driving vehicles, which have already driven over One Million Miles in research programs on the streets of several U.S. cities. Fleets of autonomous trucks will be criss-crossing the country within that time frame.
Meanwhile, the development and expansion of Artificial Intelligence could have a major impact on employment in many sectors, not just manufacturing. This raises many questions about the Future of Work.
This topic is very large, and we will be spending several weeks on various aspects of Work. We will continue next week with discussions of Labor Markets and Labor Force Participation.