This week I committed to writing about the opportunity inherent in the fourth great economic transformation in America (Information and Technology Age). FYI, the other three were post-independence (the Industrial Revolution), post-Civil War (Age of Invention), and post-WWII (Rise of the Middle Class).
This fourth transformation comes not on the heels of war, as did the others, but as a result of the shift from a manufacturing based economy to a consumer based economy. As manufacturing’s role diminished, the services sector (think financial, healthcare, education) increased, and as the services sector rose, so did the need to process, collate, and distribute information quickly (think Internet). The US is now in the midst of this full-blown shift, and an integral part of that shift is the dramatic rise in the need for energy. Think about the myriad cell phones, desktop computers, laptop computers, tablets, and high-speed computers in use today. Add to the “information” devices the innumerable appliances, televisions, radios, cd/dvd players, and lights already online. Take this one step further. In the drive to reduce our energy needs (think oil and coal), the US is moving toward electric and battery powered cars, which means more energy usage, only in a different form. Thus, it is natural that investment opportunities are and will be found in the technology and energy sectors of the US economy. I intend to look at those tomorrow. Right now, I will address an important question a reader asked, as his question gets to the heart of the uncertainty in the market today (a roadblock for opportunity), and it is the hook upon which the doomsayers hang their hat.
I really enjoy reading your articles and how up beat you are on Americans and the American economy. With that said, it is hard to imagine how the American economy can survive the huge debt and spending that seems to have no end in sight. Thanks for your writings. I appreciate your work.
In the other three great transformations, massive debt was the common element. Those debts arose from the cost of war. The Iraq and Afghanistan Wars, and the incessantly huge rise in defense spending overall have contributed to the current massive US debt, but the excesses of government and irresponsible tax policy have contributed equally as well. The issue is, as the reader points out, can the US survive the debt? The short answer is the US has no choice but to survive its debt. It has done so three times previously, and it will do it again. Of great interest here is the doomsayers in the other three economic transformations predicted an apocalypse, as they are today, but lo and behold, the US came out of those debt-ridden eras richer and with a better quality of life for its citizenry.
Despite the political rhetoric, ignorance, and outright lies, the US has already begun to remedy its massive debt issues. The wars in Iraq and Afghanistan are winding down. The defense budget is slated for cuts, not increases. Excessive government spending is lessening currently, as government cuts jobs and programs. In fact, some 600,000 workers across the US do not have jobs today as government tightens its belt. This is a start, but it is not the complete answer, as our real debt derives from two other sources – the Federal Reserve printing money to accommodate the weak economy and the burden of an aging population on the social security and healthcare systems. Of the two, the latter is the more problematic.
The Federal Reserve over time can balance its books and reduce the amount of money flooding the system, but the social security and healthcare systems will take major reformation to reduce their contribution to debt, yet, both can and will be reformed. The solutions are there. The issue is our dysfunctional political system. Currently, it seems broken, as the issue of taxes and spending cuts dominate the “debate” and neither side seems able to find its way to the practical solutions, yet this too is not new. Go back to the three other economic transformations and although the specifics are different, the general context and rhetoric are the same. Politicians railed against debt and government spending and the media gave platforms to the supposed “really smart guys” so they could spout their doomsday predictions. None of it happened. The US found its way out of the debt and, as well, opened new doors to undreamt of prosperity.
In the end, my faith in a positive outcome is based on historical precedence. I believe that, ultimately, American politicians wise up and address the serious issues, if for no other reasons than their constituents and benefactors demand it. In the end, it always comes down to money and power, and there is no power if one loses an election and there is no money if the system collapses. This fall will test my faith-based theory.
On the one side, there are those who preach the road to recovery is the same road that Europe is following – severe austerity and the rapid dismantling of entitlement programs. On top of that, they are adamant about no new taxes. It appears to me this road is rather rough and leading nowhere fast.
On the other side, we have those who see more government spending as the way out. Those believers cannot see the writing on the wall. At some point, some cherished programs will need to take a hit in the process of reformation and simply raising taxes to pay for the programs creates diminishing returns.
Neither is right. It is those in the middle who see a combination of the two, along with reformation of the tax system, as the answer to the debt problem. Yes, the practical center is where we have come to before, and I believe we will come to again. It is the American way.
Trade in the day; Invest in your life …
