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The United States is increasingly
similar to a 3rd world county in several ways and is accelerating towards 3rd
world status. Economic data indicate a harsh reality that obviates mainstream
political debate. The evidence suggests that, without fundamental reforms,
the U.S. will become a post industrial
neo-3rd-world country by 2032.
Fundamental
characteristics that define a 3rd world country include high unemployment,
lack of economic opportunity, low wages, widespread poverty, extreme
concentration of wealth, unsustainable government debt, control of the
government by international banks and multinational corporations, weak rule
of law and counterproductive government policies. All of these
characteristics are evident in the U.S. today.
Other
factors include poor public health, nutrition and education, as well as lack
of infrastructure. Public health and nutrition in the U.S., while below
European standards, stand well above those of 3rd world countries. American
public education now ranks behind poorer countries, like Estonia, but remains
superior to that of 3rd world countries. While crumbling infrastructure can be
seen in cities across America, the vast infrastructure of the United States
cannot be compared to a 3rd world country. However, all of these factors will
rapidly deteriorate in a declining economy.
Unemployment and Lack of Economic
Opportunity
Unemployment,
which is a deep, structural problem in the U.S., is a fundamental challenge
to economic opportunity. The U.S. labor market is in a long-term downward
trend linked to globalization, i.e., offshoring of manufacturing, outsourcing
of jobs and deindustrialization.
The
U.S. workforce has declined by approximately 6.5% since its year 2000 peak to
roughly 58.2% of working age adults and the U.S. now suffers chronic unemployment of 9.1%. Although the workforce grew in the
1980s and 1990s, as dual income families became the norm, the size of the workforce is
shrinking
due to a lack of economic opportunity.
Officially,
long-term unemployment is 16.5% and the ranks of the long-term unemployed (those
jobless for 27 weeks and over) include 5.9 million, 42.4% of those unemployed. However,
prior to the Clinton administration, unemployment measures included workers
who are now no longer counted as part of the workforce. Using the more
accurate pre-Clinton criteria, unemployment exceeds 22%, only 3%
below the worst point (24.9%) of the Great Depression. For countries with
populations greater than 2 million, Macedonia leads the world with
33.8% unemployment, followed by Armenia at 28.6%, Algeria
at 27.3% and the West Bank and the Gaza Strip both at 25.7%.
Compounding
the unemployment problem is the fact that an entire generation of young
Americans is being left behind in terms of economic opportunity. Student loans exceed $1 trillion while the labor force participation
rate for those aged 16 to 29 who are working or looking for work fell to 48.8% in 2011, the lowest level ever recorded. Lack
of economic opportunity among the youth, including millions of unemployed
college graduates, is a political wildcard reminiscent of countries like
Tunisia.
The
structural decline of the U.S. labor market will continue as American workers
are merged into a global labor pool in which they cannot yet directly compete
for jobs with workers in countries like China and India. In China, for
example, gross pay, in terms of purchasing power
parity,
is equivalent to approximately $514 per month, 57% below the U.S. poverty
line. According to the Economic Policy Institute, the U.S. trade deficit with
China alone caused a loss of 2.8 million U.S. jobs since 2001.
Falling Real Wages and Household Incomes
Workers
earning more dollars are actually poorer in terms of purchasing power when
the cost of living rises faster than wages,. In
fact, if household income is adjusted for inflation, most American families have grown
significantly poorer over the past ten years. In 2010, for example, real median
household income fell 2.3%. Although the average wage has risen steadily in
nominal terms, dwindling purchasing power is a reality for most Americans.
When adjusted for inflation, the wages of most Americans have not kept up
with the Consumer Price Index (CPI).
According
to famed economist Milton Friedman, “inflation is always and everywhere
a monetary phenomenon.” In other words, prices rise when the money
supply is increased faster than population or sustainable economic activity.
Apparent economic growth created through credit expansion, i.e., by
increasing the money supply, has a temporary stimulative
effect but also causes prices to rise. True
Money Supply is
an accurate measure of
inflation.
Although
CPI is sufficient to illustrate declining real wages, CPI does not measure
the cost of living in a realistic way. According to economist John Williams
of Shadow Government Statistics, CPI systematically understates
inflation.
The
decline in real household income has set Americans back to 1996 levels,
despite many households now having two incomes rather than one. Dual income families
accounted for much of the increase in real median household income during the
1980s and 1990s, but, today, two incomes are barely better than one income
was three decades ago. The decline in real wages was obfuscated in the 1980s
and 1990s by growth in the workforce, e.g., by women entering the workforce.
Real median household income rose while real wages declined because more
households had two incomes.
As
U.S. wages and household income continue to fall in real terms, both poverty
and reliance on government assistance programs will continue to rise.
Growing Poverty
According
to the U.S. Census Bureau, the poverty rate in the United States rose to
15.7% in 2011, with 47.8 million Americans living in
poverty
(1 in 6). The official poverty line, determined by the U.S. Department of
Health and Human Services, is $22,314 for a family of four. The number of
families living in poverty has risen sharply since 2006 and continues to
climb.
The
U.S. Department of Agriculture’s Supplemental Nutrition Assistance
Program (SNAP), commonly known as “food stamps,” serves 45.8 million households as of May 2011. The program
now feeds 1 in 8 Americans and nearly 1 in 4
children.
Based
on the outlook for employment and wages, both poverty and reliance on
government assistance programs will continue to grow. However, the negative trends
in employment, wages and poverty have not affected all Americans equally. In
fact, the household income and wealth of the wealthiest Americans has
increased sharply, despite the overall deterioration of the U.S. economy.
Increasing Concentration of Wealth
Alan Greenspan, former Chairman of
the Federal Reserve, warned that, “Ultimately, we are interested in the question of relative
standards of living and … trends in the distribution of wealth, which,
more fundamentally than earnings or income, represents a measure of the
ability of households to consume.” In other words, concentration of
wealth undermines the consumer base of the economy, causing GDP to decline
and resulting in unemployment, which reduces living standards. Obviously, the
total wealth of society is reduced when wealth is highly concentrated because
there is a lower overall level of economic activity.
Economic
data from several sources, including the Congressional Budget Office (CBO), show that wealth and income in
the United States have become increasingly concentrated with the wealthiest
1% of Americans owning 38.2% of stock market assets, e.g., shares of
businesses.
For the wealthiest 1% of
Americans, household income tripled between 1979 and 2007 and has continued
to increase while household wealth in the United
States has fallen by $7.7 trillion. The Gini Coefficient illustrates the growing disparity in
income distribution.
In
terms of the Gini Coefficient, the United States is
now at parity with China and will soon overtake Mexico, a still developing country.
It should be noted, of course, that the U.S. remains a far wealthier country
overall. If the current trend continues, however, the U.S. will resemble a
3rd world country, in terms of the disparity in income distribution, in
approximately two decades, i.e., by 2032.
Welcome to the 3rd World
The
United States is quickly becoming a post industrial
neo-3rd-world country. Partly as a consequence of worsening unemployment and
lack of economic opportunity, falling real wages and household incomes, growing
poverty and increasing concentration of wealth, the U.S. government faces a
historic fiscal crisis. Dominant corporate influence over the U.S.
government, particularly by large banks, weakening rule of law at the federal
level and destructive tax policies are compounding the economic problems
facing the United States. Barring fundamental reforms or a hyperinflationary
collapse of the U.S. dollar (due to the fiscal problems of the U.S.
government), the deterioration of the U.S. economy will continue and accelerate.
As the U.S. economy continues its decline, public health, nutrition and
education, as well as the country’s infrastructure, will visibly
deteriorate and the 3rd world status of the United States will become
apparent.
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