US needs a new direction
Jeffrey Sachs wrote a very good piece in the Boston Globe regarding the way forward for the US economy. Some interesting data:
- 1.4% GDP between 2009-2015 when it was projected at 2.7%
- 81% of Americans experienced flat or falling incomes between 2005-2014
- 1980 – top 1% earn 10% of income
- 2015 – top 1% earn 22% of income
- 10% unemployment in October 2009 – dropped to 4.9% today. Mainly caused by those of working age leaving the labour force entirely.
- Employment relative to working age (25-54) in 2000 was 81.5%. In 2015 it was 77.2%
- US Treasury debt owed:
- – 2007 = 35% of GDP
- – 2015 = 75% of GDP
- – 2026 = 86% of GDP – forecast
- – 2036 = 110% of GDP – forecast
Issues with the US Economy
US manufacturing jobs have shifted overseas – remember NAFTA. Northern Mexico saw a huge influx of US companies as they took advantage of cheaper labour costs.
Automation – the advent of smart machines seems to be shifting income from workers to capital, driving down wages and leading to frustration of low wage workers.
As well as debt sustainability the US economy needs to shift its reliance on carbon-based energy to non carbon energy sources – hydro, wind, solar etc. Some have argued that the US has simply run out of big new inventions to sustain growth levels but ultimately the world has got to change its model as resources will eventually run out. We can’t keep relying on people buying more and more stuff to maintain growth or the Chinese building more cities and blowing up and rebuilding bridges.
Jeffrey Sachs argues that sustainable development works best when it focuses simultaneously on 3 big issues:
- Promoting economic growth and decent jobs
- Promoting fairness to women, the poor, and minority groups
- Promoting environmental sustainability.
US growth has tended to focus on economic growth and neglect inequality and environmental issues. Future growth needs to focus less on current consumption but investment in future knowledge, education, skills, health, infrastructure and environmental protection. Furthermore if the investment is carried out efficiently the economy can growth in an environmentally safe as well as being fair. Good investment requires two things:
- Planning – need to overcome complex challenges for our future – e.g. energy
- Public investment – replacement of a crumbling infrastructure – roads, bridges, water systems, seaports etc
Jeffrey Sachs recent research measured how 150 countries performed with regard to sustainable development and the progress that countries will need to make to achieve the recently adopted SDGs – see image below. The Scandinavian countries came in top – Sweden, Denmark, Norway – the US was 22nd out of the 34 high-income countries whilst Canada was 11th.
Click the link below for an article on income inequality from the Boston Globe by Jeffrey Sachs