U'S' Economy

1
U.S. Economy
2
History The Beginnings

• Jeffersonian liberalism and laissez-faire
• Adam Smith Wealth of Nations
• Faith in the individual distrust of govt.
• The Puritan work ethic
• Opportunity, but not guarantees
• The U.S. as the promised land

3
History The 19th Century

• The rise of industry
• Unleashing of resources and labor
• Between 1860 and 1914
• US population tripled
• The of workers in manufacturing x 5 ½
• The value created in manufacturing x 12
• The investment in industry X 22
• The above reflects a characteristic still valid
  concerning the U.S. capacity for production
• Union bashing

4
Rapid, unregulated growth

• Monopolies were not only the product of
  monarchies
• Rockefeller, Carnegie, Morgan, Stanford,
  Vanderbilt, Hill.
• Of 43 leaders of businesses studied by Chester
  Destler, 36 used monopolies to build their
  business
• US Steel controlled 60 of the marketstabilized
  the price of steel over a decade.
• J.J. Hill controlled most of the RR west of the
  Mississippi
• J.P. Morgan was asked by the President to protect
  the financial standing of the US government at
  the same time he controlled the financial world
  to the point of being in a position to render
  impossible all attempts to restore normal
  competitive conditions in the industrial world
  Pujo Committee.

5
The Growing Division

• Growing gap
• Between the ideal of the free, independent,
  self-reliant American and the wage slavebetween
  the source of plenitude and the degradation of
  those producing it.
• Between the rich and the poor.
• The speed, scale and thoroughness to completely
  alter American life was except for the
  controlling few, undoubtedly a source of anxiety.

6
The Rise of Unions

• Industrial capitalism created the labor movement
• Deplorable factory conditions, 12 hour days, and
  high accident rates
• The rise of the capitalistic system was seen as
  undermining the basic principles of American
  life independence and freedom.
• Ironically, capitalism had freed men from the
  domination of feudalistic society only to enslave
  him in a factory system where he sold his labor
  and was denied the security of a feudal
  paternalistic father.
• An employer had to be free to dismiss labor when
  supply and demand curves warranted it.

7
Strikes

• Poor safety condition and general disregard for
  the workers health led to
• 72,000 deaths on railroad tracks
• 158,000 deaths in repair shops and roundhouses
• These statistics are for the railroad industry
  alone.
• 85 of workers were either close to or below
  poverty line.1880s
• Railway strike of 1877 left 100 dead Haymarket
  Affair, 1886

8
Modern Developments

• Reaganomics
• National debt from 1 trillion to 4 trillion
  (1980-92)
• Tax cuts and military build up
• Bush continues the deficit build up Modern
  Developments
• Clinton temporarily reversed the situation aided
  by a 7 year period of growth leading to budget
  surpluses
• Distribution of Wealth
• Top 1 own 60 of all corporate stock and assets
• 46 of Bushs tax cut will go to the top 1
• AFL-CIO just lost 4 million workers to break-away
  unions

9
Modern Developments

• Downsizing
• Huge job cuts and job insecurity
• Combined with high debt levels gives rise to
  anxiety
• Unions 15 memberships and recent declines in
  the major union AFL-CIO
• Lost 4 million members
• Walmart and union bashing

10
Nickel and Dimed

• Still an endemic problem?
• 48 million Americans have no health insurance
• 12.5 are poor (By OECD figures, 23.8)
• 1/3 are working poor (15 million)
• 5.85 minimum wage
• 1/3 earn less than 9/hour
• Unemployment insurance26 weeks
• AFDC transferred to the states
• Walmart syndromethe state covers 1/3 of an
  employees salary through welfare.

11
Debt

• Budget Deficit 158 billion 2007. Down 90
  billion from 2006
• National Debt 8.99 trillion 28,500 per
  citizen
• Trade Deficit 800 billion (2006)
• Consumer personal debt 25,000 for every man,
  woman and child
• Savings ratio of disposable income 0.2 to 2
• Financing the debt Foreigners owned 44 Japan
  and China being to two largest holders
• We cannot depend on imported capital to offset
  low domestic savings indefinitely. Greenspan

12
Debt its Consequences

• of the national income
• 198132 2007 69 (OMB prediction)
• Servicing the debt could reach 1.7 of the GDP by
  2014
• Foreign ownership makes U.S. vulnerable
• Due to fears of a weak foreigners (central
  banks (66 of foreign held debt), insurance
  companies and private investors) may sell off
  fall and panic
• Italy, Japan, Russia, UAE, Sweden have begun
  selling U.S. debt papers

13
Debt its Consequences

• A run on the ?
• Are we seeing signs of this already?
• A rise in interest rates to attract foreign
  investors which would hurt the stock mkt.?
• Takes out a substantial portion of American
  private savings which could be put to more
  productive purposes.
• Money is being borrowed from Social Security
  accountwhat about baby boomers?

14
Could the U.S. Go Technically Bankrupt?

• Yes!
• Ballooning budget deficits rising social
  security costs and Medicare benefits could send
  the U.S. into financial insolvency.Professor
  Laurence Kotlikoff (U.S. Fed Bank, St. Louis)

15
Debt

• Debt level 25,000 per individual man, woman
  child. Caught in the credit card debt trap.
• The average American household has 8,000 in
  credit card debt.
• U.S. families use 13 of their disposable income
  to pay debt the highest figure since 1986.
• The consumer boom and foreign indebtedness
• 4.5 trillion in 2004 twice what it was in
  1998.

16
Bubbles

• Pop goes the weasel
• Real estate
• Refinancing to fuel consumer spending
• Banks left holding the bag if prices fall
• Is the bubble poppinghousing sales down 4.2 in
  August
• A sign of a slowing economy as the housing market
  has been the driving force in the U.S. economy
• A loss of cash and confidence
• What to do?Cut interest rates? What about
  inflation? What about savings? Investment in
  houses diverts money from more productive
  investments

17
The Good News

• Strong academics
• Producing top minds to innovate
• Risk intensive investment plus foreigners
  willingness to provide capital
• Dynamic economy
• Continually developing new companies
• A list of the top 25 companies from 25 years ago,
  only 6 remain. The other 19 are new on the list
• Compared to Europe where the list is exactly the
  same.

18
The Good News

• The GDP for this year is predicted at 2
• Unemployment figures are low at 4.8
• CPI down to 2.8 compared to 4.1 2006
• Consumer spending remains strong despite the
  sub-prime and high oil price impact
• Weak dollar is positive for exports (but will
  raise the cost of imported goods)
• .

19
The Bad News

• Sub-Prime Loans
• Market instability
• Oil prices
• Housing market
• 70 of U.S. GDP is generated by domestic
  consumption
• We may see a slow down

20
Working in the U.S.

• Work week 46 hours
• Vacations average 9 days of paid vacations per
  year
• 25 of those in the private sector take no paid
  vacations
• No paid maternity leave
• Large lay-offs especially in industry and IT.

21
Possible Dark Clouds

• Sub-prime more skeletons in the closet?
• A weak dollar may lessen foreign investment
• Iraq the costs
• Chavez and oil supplies