by Gary Griffin
Here’s where we get to the heart of the matter. Clearly the energy requirements of the twentieth century were met through the use of petroleum. Much of this was consumed through the production and distribution of products and services. As discussed in the previous paragraph, the primary energy needs for the twenty-first century information society will be around electricity that will be required to support an advanced technological infrastructure of computers, networks, data centers, etc.
As described in chapter 3, American society is in transition from an industrial society to an information society. The completion of this transition and the type of infrastructure that will support it has its own unique demands. Currently, almost half of the electricity supply in the United States is produced using coal fired burners. Coal is abundant in the United States. The sectors that consume the most electricity are residential and commercial sectors. As the electricity demands continue to grow in the twenty-first century, we must find ways through established social policies to redirect energy and energy sources that will support such growth. That is to say, residential and commercial electricity needs must be met by some other energy source. Once that is accomplished, the current residential and commercial dependencies can be reduced and that energy can be redirected to support the substantial electricity needs of the infrastructure of the information society and knowledge-based economy.
At the same time, a comprehensive energy policy for the United States in the twenty-first century must take into account the increased demands for petroleum (oil) that are required in the manufacturing and transportation industries. While manufacturing may increasingly be transferred to other countries, the energy needs to produce the goods and services for consumption have not disappeared. We must also decrease our needs for petroleum. Such changes will not be easy, as they require considerable alterations to structures and organization of our society. These changes can only come from individual choices that are reflected in our style of living. Such changes are directly tied to a healthy U.S. economy and cannot be ignored. If not addressed, they will have dire consequences on our standard of living.
In the twenty-first century, the force that will propel America forward is the work of the individuals as the owners of the means of production in a knowledge-based economy. This force will require energy as individuals contribute to the efficient and effective forces of production of an information society and a knowledge-based economy. This work is mental, not physical, and it requires the tools and technologies that allow individuals to be productive as active participants in the production process. As long as individual Americans allow politics to stand in the way, we will never be able to regain the power we need for a healthy twenty-first century economy. The gravitational pull toward poverty will be too great, and the object called America will continue its downward spiral. As a result, our standard of living as a nation must decline.
THE U.S. ECONOMY IN THE TWENTY-FIRST CENTURY
In chapter 7, I focused more on economics and economic theory as it is related to philosophies, ideas, and social policies that are driven by the politics of such thinkers. That is to say, economists and economic theory do not make an economy. They simply have ideas about what it is that should make an economy healthy; they aren’t always right, as we have seen at the end of the first decade of the twenty-first century. My focus here is to describe a healthy economy based on the macro level trends mentioned in chapter 1 and the 2E x 3E or 6E = Productivity as a function of work formula I described in the first section of this chapter.
There are a number of ways to measure economic activity of a nation. The one currently used by the United States is Gross Domestic Product or GDP. GDP is a basic measure of a country’s overall economic output. It is the market value of all final goods and services made within the borders of a country in a year. It is often positively correlated with the standard of living. GDP per capita is not a measurement of the standard of living in an economy. However, it is often used as such an indicator, on the rationale that all citizens would benefit from their country’s increased economic production. Similarly, GDP per capita is not a measure of personal income. GDP may increase while incomes for the majority of a country’s citizens may even decrease or change disproportionately. For example, in the United States from 1990 to 2006 the earnings (adjusted for inflation) of individual workers, in private industry and services, increased by less than 0.5 largely per year while GDP (adjusted for inflation) increased about 3.6 largely per year over the same period. The major advantage of GDP per capita as an indicator of standard of living is that it is measured frequently, widely, and consistently. It is measured frequently in that most countries provide information on GDP on a quarterly basis, which allows a user to spot trends regularly.
The major disadvantage is that it is not, strictly speaking, a measure of standard of living. GDP is intended to be a measure of particular types of economic activity within a particular country. Nothing about the definition of GDP suggests it is necessarily a measure of standard of living. For instance, in an extreme example, a country which exported 100 percent of its production and imported nothing would still have a high GDP but a very poor standard of living. The argument in favor of using GDP is not that it is a good indicator of the standard of living, but that, all other things being equal, the standard of living tends to increase when GDP per capita increases. As such, GDP can be a proxy for the standard of living, rather than a direct measure.
Productivity is a measure of output from a production process, per unit of input. For example, labor productivity is typically measured as a ratio of output per labor hour, an input. Productivity may be conceived of as a metric of the technical or engineering efficiency of production. Production is a process of combining various material inputs (stuff) and immaterial inputs (plans, know-how) in order to make something for consumption (the output). The methods of combining the inputs of production in the process of making output are called technology. Technology can be depicted mathematically by the production function that describes the relation between input and output. The production function can be used as a measure of relative performance when comparing technologies. The production function is a simple description of the mechanism of economic growth. Economic growth is defined as any production increase of a business or nation. It is usually expressed as an annual growth percentage depicting growth of the company output (per entity) or the national product (per nation). Real economic growth (as opposed to inflation) consists of two components. These components are an increase in production input and an increase in productivity.
Politicians and economists judge America’s economic health based on the GDP. Production within a country’s borders, both domestically and foreign-owned enterprises, counts as part of its GDP. A similar measure Gross National Product (GNP) is almost the same, but GNP is products produced by enterprises owned by a country’s citizens. Those produced by noncitizens are not counted. In 1991, the United States switched from using GNP to using GDP as its primary measure of production.
While this aggregate measure of a healthy economy may have been appropriate in the twentieth-century industrial society where the output of goods and services for consumption was the primary objective of the system of production, it no longer applies today. An economy consists of the specific economic system of a country or other area, the labor, capital, and land resources, and the economic agents that socially participate in the production, exchange, distribution, and consumption of goods and services of that area. A given economy is the end result of a process that involves its technological evolution, history, and social organization, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. The first economist in the true meaning of the word was Adam Smith. He defined the elements of a national economy: products are offered at a natural price generated by the use of competition—supply and demand—and the divisio
n of labor. He maintained that the basic motive for free trade is human self-interest. The United States of America became the place where millions of expatriates from all European countries were searching for free economic evolvement. In Europe wild capitalism started to replace the system of mercantilism (today: protectionism) and led to economic growth. The period today is called Industrial Revolution because the system of production and division of labor enabled the mass production of goods. As I pointed out earlier, the production processes of the twenty-first century are decentralized, which means that the mass production of goods no longer takes place in a given country.
After the chaos of two World Wars and the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy. The prevailing view was that held by John Maynard Keynes, who argued for a stronger control of the markets by the state.173 The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism. In the late 1950s the economic growth in America and Europe brought up a new form of mass consumption economy.
Labor productivity is the ratio of (the real value of) output to the input of labor. Labor productivity should be interpreted very carefully if measured by hours worked, rather than the number of employees. With an increase in part-time employment, hours worked provides the more accurate measure of efficiency. In particular, it reflects more than just the efficiency or productivity of workers. Labor productivity is the ratio of output to labor input, and output is influenced by many factors that are beyond the workers’ influence, including the nature and amount of capital equipment that is available, the introduction of new technologies, and management practices. Productivity growth is a crucial source of growth in living standards. Productivity growth means more value is added in production, and this means more income is available to be distributed. In the most immediate sense, productivity is determined by: 1.) the available technology or know-how for converting resources into outputs desired in an economy, and 2.) the way in which resources are organized in firms and industries to produce goods and services.
This principle can be demonstrated by the following set of numbers. As demonstrated, the sum total output that would be possible from a system of production is shown. In a system of production, one person can only produce what one person can produce. It is possible that one person produced nothing. It is possible that input can be divided. It is also possible that input is additive or multiplicative in the cases where tools and technology is used by the person to increase productivity. Let’s take the number four as an example. As shown below, in a production system where individuals are the owners of the means of production, they may choose to not be productive and their output would essentially be zero. It is also possible that the input of four people cancels out or divides the output such that the total net result of productivity is a value of one or 4/4. If the four people involved in the production system extend themselves through the use of technology, tools, etc., then their output can be additive and the output value of four people may be eight or 4 + 4. By the same logic, using technology and tools, individuals may be able to maximize their output. In this way, their maximum output is multiplicative and the maximum value produced is sixteen or 4 x 4. If we add the individual parts to get the total possible output from a system of production of four individuals, then we would have a total output value of twenty-five or 0 + 1 + 8 + 16. This total output value is not possible in a system of production where only four individuals are the owners of the means of production. However, as we see in the illustration of numbers below, if we add another person to the system of production and then maximize their productivity, then we can get the total maximum output of twenty-five or 5 x 5.
This simple list of numbers and basic mathematical operations demonstrate the challenge of developing a healthy economy in the twenty-first century. In a society where individuals are the owners of the means of production, the philosophical, social, political, and economic structures must allow for the maximization of output in the system of production. This currently does not exist. We must build effectiveness and efficiency into the system so individuals are measured based on their output or performance. Such a system would eliminate the need for time and space management, which has its own set of challenges, as time and space are also commodities in America that contain vested interests in maintaining the structures that protect those investments in those commodities.174 National measures must focus on the intersection of national productivity and consumption as a means of health. If people are consuming but not producing, that is they are not productive, then we cannot achieve prosperity in America in the twenty-first century.
Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
Sun Tsu
A TWENTY-FIRST CENTURY STRATEGY
I wish I could say that careful analysis shows that America’s future is bright. I cannot! America’s future is undetermined. It’s up to us, the people of this great nation, to make the changes that are required, so that many future generations of Americans can also have a bright tomorrow and enjoy the fruits of prosperity. This absolutely cannot and will not happen based on our current status. It appears that our leaders have no strategy. They certainly are busy executing something, but just like the quote from Sun Tzu, I believe these tactics are nothing but noise, and we are dangerously close to being defeated.
Think of the stress most Americans experience every year starting around January 1st and ending around April 15th. We all have to pay Uncle Sam, but he’s not our uncle. Whose uncle is he, and most importantly, why do we have to pay him every year not a little but a lot?
Taxation has been around a very long time in America. If you study our history, this nation was forged in response to excessive taxation by England. The Boston Tea Party and the slogan No Taxation without Representation come to mind. How is it that their taxation warranted a revolution but the current levels of taxation do not? We are taxed heavily and often—not fairly and evenly. We pay taxes on income derived from our work, and we also pay taxes on everything that can be taxed—food, shelter, clothing, etc. Why is this necessary? Where does all that money go? Some is used to support welfare programs. Why does someone I’ve never even met need so much of my money? No American wants to pay taxes, so why are we forced to do so? As Americans, the Declaration of Independence declared our freedom, but our system of taxation does not provide freedom. If anything, it’s a form of slavery.
Most Americans would agree that some level of taxation is necessary, but it is baffling that we pay so much in taxes, and yet the national debt continues to grow. A commonsense approach would be to collect one trillion dollars and to only spend one trillion dollars, but this never happens. Our government seems to know no bounds that require fiscal discipline. This national debt is real, isn’t it? Our children can pay for it. They’re young, and they have their whole lives to work. We need to only be concerned with today. This is the attitude of our elected officials in Washington and business leaders on Wall Street. Let’s live for today and only think of ourselves.
Such a thought process makes a number of assumptions about economics and the future of America that are not based on anything more than wishful thinking. It’s nice to dream about the American dream, but that ideal is no longer an option for most Americans based on our current situation. A little reality pill could go a long way toward curing what ails this country. What is this ailment?
The trends we’re witnessing today aren’t new. We’ve seen it before during the 1920s and the 30s, and again in the 50s and 60s, and again in the 80s and 90s, and again in the first and second decades of the twenty-first century. You would think that we’d get tired of the merry-go-round, but we seem destined to repeat it over and over. The trouble is that we are at a point where we can’t afford to repeat it again. We’re at a crossroads, and we need to move forward. We need a vision of the
future for America in the twenty-first century. Without a vision, the people of this nation will perish.175 We need leaders with a vision for the country that leads to a twenty-first-century prosperous nation where all can share in that prosperity. Based on the analyses provided throughout this book, the strategy map in figure 8 illustrates that vision.176
Figure 8: A Twenty-First Century Strategy Map for America
MEASURING PROGRESS OF TWENTY-FIRST CENTURY RECONSTRUCTION