A History Lesson; Deglobalization = Volatility*

A History Lesson

An often-heard refrain today among younger Americans is that they don’t have the same opportunities to achieve the American Dream as their parents and grandparents had. Jobs are scarcer. The jobs that are available don’t provide the same level of income or creativity as in past generations. Homes cost too much. Saving is terribly difficult. There’s never enough time to do everything that needs to be done. And so on….

These fears concerns are based on fake news misinformation misperceptions. The American Dream is very much alive. The global economy has been booming and opportunities, in fact, are multiplying.

As has been true throughout human history, opportunities for success most often are found where there are the greatest concentrations of people and money. It therefore is no surprise that opportunities are scarcer in America’s rust belt today and more plentiful in large cities and high-tech centers. Those who have chosen to remain in the 20th Century’s manufacturing hubs have made the tacit decision not to face economic reality engage in a more highly-competitive world pursue the American Dream. Staying in a place that time has passed by means that social mobility will be frozen, that those who possess wealth likely will continue to possess that wealth and those with vestigial occupations as well as those who are subject to segregation or are victims of sub-par schooling will stay locked in a cycle of poverty lack modern-day skills and remain victims be poorer as a consequence. Individuals who are motivated to pursue the American Dream will relocate in order to improve their lives and the lives of their children. That’s what brought most of them to America in the first place. It is no surprise, for example, that West Virginia has seen economic stagnation while Silicon Valley has seen extraordinary growth. Opportunities are where you find them, more so today because of an increasingly educationally- and technologically-driven society. That’s progress. It’s how economic cycles work … and cycles are not a 21st Century phenomenon. Cities that sprang up at major riverheads – such as New York and Chicago – were 19th and 20th Century powerhouses because their locations attracted people, money and innovation. Each has had to adapt to 21st Century realities … and has. Many other cities, regions and towns have not. Those that have adapted have attracted people, money and innovation and are thriving.

Innovation and adaptation are reasons why jobs today are not scarcer – they’re plentiful. What’s become scarcer are qualified employees, which is why high-quality education at all levels continues to be the key to American prosperity. Unemployment in America is hovering at a 50-year low. Help-wanted ads are at a multi-year high. Growth has been consistent and, although unspectacular, has been led by technology which is adding to job-creation … not detracting from it.

Incomes and the standard of living also are higher today than ever before … and they continue to rise. Polls (by Gallop and others) consistently confirm both that reality and the fact that the substantial majority of Americans believe it to be so.

Saving is no more difficult today that it’s been for the past 35 years. Americans’ saving rate is currently averaging ~6.5{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35}. Although this is below the 10{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} average of the post-WWII 1960s, ’70s and early ’80s, it’s well within a normal, positive range.

There never has been enough time to do everything that needs to be done … but people today have more free time to do things than their ancestors ever had. Life is better … and the indicia of a better life exist not only in the U.S., but in most of the developed world. The trend is up. Life is getting better and there are more and more opportunities for a better life.

So why the pessimism among Millennials?

One reason is the widening gulf between rich and poor, a gulf that continues to grow. Competition has become fiercer, within regions, within cities, within countries … and globally … and increasing competition has a Darwinian outcome. There are winners and losers. Some people start out at such a disadvantage that they have no realistic ability to catch up. Some people therefore get left behind. Others drop out. They nevertheless make sure their voices are heard on social media and the echo of that angst information spreads discontent … and anger depression. Education and rapid technological innovations are demanding. They require a higher level of knowledge and sophistication that are unavailable to many and unattainable by others. These and other factors in today’s fast-paced life pressurize the pursuit of the Dream. Stress today is greater.

History may not repeat, but it often rhymes … as do complaints from generation-to-generation. Perception frequently trumps reality. For those who lived through past generational complaints, a lesson can be drawn from 1976 … not a year of Depression or war or calamity. That was when fictional anchorman Norman Beale famously said: “I don’t have to tell you things are bad. Everyone knows things are bad. It’s a depression. Everybody’s out of work or scared of losing their job, the dollar buys a nickel’s worth, banks are going bust, shopkeepers keep a gun under the counter, punks are running wild in the streets, and there’s nobody anywhere who seems to know what to do, and there’s no end to it. We know the air’s unfit to breathe and our food is unfit to eat, and we sit and watch our TVs while some local newscaster tells us today we had fifteen homicides and sixty-three violent crimes, as if that’s the way it’s supposed to be. We all know things are bad.”

They weren’t then … they’re not now. It’s just part of the cycle.

Deglobalization = Volatility

Volatility is coming.

A cornerstone of the Trump Administration’s policies is “America First,” which it notably has applied to America’s manufacturing and production. The Administration’s goal is to disassemble global supply chains and move them “back” to the U.S. Evidence of how the Administration believes this might be accomplished came at the beginning of 2018 when President Trump imposed tariffs on solar panels and washing machines, then steel and aluminum, much of it targeting America’s allies (including Canada, Mexico, South Korea and the EU). The lengths to which that policy would be taken became clearer later that year when the U.S. imposed tariffs on Chinese goods and, then, in 2019 when the U.S. launched an all-out Trade War with China, the goal of which reasonably can be interpreted as seeking to remove China from the global supply chain. Confirmation that the objective of the U.S. tariff campaign is to disrupt global supply chains … all global supply chains, particularly those chains that run through China … came with the recent imposition of ratcheting tariffs on Mexican goods. The Administration has made its point that its goal is to deglobalize disrupt global supply and trust that companies then will move as much manufacturing and production as possible to the U.S. … even though the more profitable prudent alternative would be for the substantial majority to relocate to more cost-effective locations – that is, to countries other than the U.S.

Disruption has consequences.

It is no coincidence that another Trump Administration policy has been to adopt a Great Depression-era program to pay farmers billions of dollars to compensate them for lost international sales – sales lost because of retaliatory tariffs by Canada, the EU, China and Mexico. Despite the President’s apparent belief that “TARIFF is a beautiful word indeed!”, tariffs adversely impact all both sides in a Tariff War. The causes of the Great Depression include the Smoot-Hawley Tariff Act. The Administration’s tariffs bear a striking resemblance to that discredited piece of legislation. International trade is slowing … with adverse economic effects impacting all countries, including the U.S. Trade is likely to slow further, which will have a braking effect on growth and productivity throughout the world. Interconnected supply chains will have to be realigned, a significant disruption in itself with potentially far-reaching consequences. However, there is understandable concern that however realigned, President Trump’s unpredictability – as evidenced in part by his recent imposition of ratcheted tariffs on Mexican goods – could undermine any planned or executed realignment. That multiplies the disruption.

The world now better understands what the Trump Administration means by “America First.” A Trade War, after all, is a war, and tariffs are a weapon of war, and not the only weapon America currently is wielding. America’s actions make it clear that the U.S. is prepared to wage war on every country and company that doesn’t provide America with precisely what the President wishes.

The disruptions will create volatility. There will be winning and losing countries, regions and companies. There will be winners and losers in American business and industry. Not all of America’s losers will receive the same Federal largesse as its farmers. Not all losers can be compensated by existing Great Depression-era legislation. Already, the Tariff War has had profound domestic effects. Economists have warned that the tariffs ultimately will have an effect equivalent to one of the largest tax increases in decades. Moreover, it goes without saying that wars of any kind are not welcomed by stock markets.

Volatility is coming. For many, it already is here.

Finally (from a good friend), the best lawyer joke ever

The United Way realized that it had never received a donation from the city’s most successful lawyer. So a United Way volunteer paid the lawyer a visit in his lavish office. The volunteer opened the meeting by saying, “Our research shows that even though your annual income is over two million dollars, you don’t give a penny to charity. Wouldn’t you like to give something back to your community through the United Way?”

The lawyer thinks for a minute and says, “First, did your research also show you that my mother is dying after a long, painful illness and she has huge medical bills that are far beyond her ability to pay?”

Embarrassed but undeterred, the United Way rep responds, “No, I didn’t know that.”

“Secondly,” says the lawyer, “did it show that my brother, a disabled veteran, is blind and confined to a wheelchair and is unable to support his wife and six children?”

The United Way rep, stunned by the second tragedy, begins to stammer an apology, but is cut off.

“Thirdly, did your research also show you that my sister’s husband died in a dreadful car accident, leaving her penniless with a mortgage and three children, one of whom is disabled and another who has learning disabilities requiring an array of private tutors?”

The humiliated United Way rep, completely beaten, says, “I’m so sorry, I had no idea.”

And the lawyer says, delivering the final blow, “So … if I didn’t give any money to them, what makes you think I’d give any to you?”

*┬® Copyright 2019 by William Natbony. All rights reserved.

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