Other than the Great Depression, recessions were typically followed by periods of expansion. Starting in the 2000’s the recessions have not been marked by significant growth. Furthermore, the jobs that were created in the 2000’s have been of lower skill and pay than in previous decades.
By Dave H, a reader of SHTFBlog.com & SurvivalCache.com
The primary reasons for recessions were over production and over consumption. These two factors work together to create the business cycles in the economy. If a manufacturer created too much inventory then they would need to slow production until the excess inventory was consumed. On the other hand if consumers over purchased they would slow or stop purchasing until they ran out of the excess product. What historically drove the rebound in the economy was the reduction in inventory as well as the end of life for consumer products. Let’s take microwave ovens for example and let’s assume for this exercise that a manufacturer created a technological breakthrough in microwave technology.
Consumers may purchase the new microwave for the new feature rather than wait until their old microwave failed. This would create a significant amount of demand and the manufacturer would increase production to meet this demand. They would continue with the increased production until after the initial rush of consumers ended. They would end up with excess inventory and either cease or slow production. This reduction in production would not only affect production workers it would affect the suppliers, the transportation companies, the warehouses and the retailer.
This slowdown could continue for an extended period of time as consumers of the new microwaves would not be in the market for a replacement model until either the technology changes again or the product failed. Now imagine the over production and over consumption model happening simultaneously over large sections of the economy and you will see the natural business cycles of the economy. Given this information you would expect that the economy would return when products need to be replaced and inventories reduced. Since the 2000’s that has not happened.
What has happened is the manufacturing that drove the model has moved overseas and therefore we have not seen a return to prosperity. The jobs created by the increased demand are now in countries like China, Vietnam, Mexico and Brazil.
Why did the jobs leave?
To understand this answer we need to return to WWII. During WWII the United States ramped up manufacturing to meet the war demand. During this same time the European and Asian production facilities were being devastated by the war. At the conclusion of the war the US was the only country in the world with significant manufacturing capabilities. If the world needed a hammer, a dinner plate, clothing or any other manufactured goods they needed to buy them from the US. This monopoly continued through the 1960’s.
By the 1960’s most of Europe and Japan were past the post war reconstruction phase. They began to invest in their own production facilities. By the late 1960’s and into the 1970’s they were competing with and beating US manufacturers. During the post war reconstruction period the US manufacturers failed to invest in plant and material. They ended up using manufacturing equipment from the 1930’s and 1940’s to compete against German and Japanese manufacturers with 1960’s and 1970’s technology.
In the early 1980’s the US government recognized the problem and created the 401K retirement savings program. This program not only provided the average American the ability to save for retirement, it gave a much needed capital influx to US corporations. The US corporations took advantage of the capital and invested heavily in plant and equipment. Unfortunately, those investments were not made in the United States. They legacy of labor unions and high wages from the post war reconstruction period forced corporations to look overseas to remain competitive. The net effect of this was that the US corporations used the wealth of the US worker to become multinationals with overseas operations which pay no US taxes.
Why won’t the jobs return?
On the surface the US would appear to be an excellent location for manufacturing. It has abundant educated labor, it has extensive natural resources and it has comparatively cheap energy costs. The unions are dead and labor rates in the south east portion of the country are lower than in some parts of China. Are you aware that the labor cost in the US to make a ton of steel is equivalent to the transportation cost to bring a ton of steel from China to the US? Obviously the cost of labor is not the issue. So, what is the problem? Government regulations are making us non-competitive on a global level.
When the Environmental Protection Agency (EPA) was founded back in the early 70’s by Richard Nixon, the ecology of the US was pretty poor. Lake Erie was dead, a river in Ohio burned and the air was polluted. It sounds like China today. They instituted regulations that cleaned the air and water. We certainly don’t want to return to the heavy pollution industrial days.
On the other hand, we now have an agency which we set up to write regulations but they have gone way past their original intent. The current EPA, with over 15,000 full time employees, reminds me of a Thomas Jefferson quote “”My reading of history convinces me that most bad government results from too much government.”
What does the EPA do when they have written all the common sense and reasonable regulations? They continue to write regulations. They are good at it and they keep getting funded. They create so many regulations they need to change their name to the Economic Prevention Agency. The other problem with the agency is they are politically driven and they are no longer focused on the environment. They just forced the closure of the last US lead smelter. However, they allow Monsanto to sell GMO’s that have killed 70% of the Monarch butterflies and are devastating bee populations. So, Monsanto and their heavy campaign contributions gets a pass while causing extensive damage to the environment and the lead smelter gets shut down.
I used the example of the EPA to make a point. Unfortunately, they are not the only culprit. You could include OSHA, the Department of Labor and many others. We need to change the way we think of these organizations. We give them the ability to make laws outside of congress and subsequently our representation. Maybe they should be convened on a temporary basis. That way they get disbanded when they complete their original mission and they don’t install unnecessary regulations. Another change would be to remove their regulatory powers and only authorize them to recommend regulations to congress. That way we can restore constitutional authority and representation to our government and not let this economy cause a slow sh*t hits the fan event.
This is the best, clearest explanation of this issue I’ve ever heard. It makes perfect sense, and a lot of this is true in Canada as well.
Thank you for explaining it in terms we can all understand.
Thank you for the clearest explanation of this issue that I’ve ever read! It was an interesting read, and unfortunately, much of the piece can be applied to Canada as well.
You forgot the most important factors: corporate greed and corruption.
Predictability happens only when the rules of the game are followed. Attempting to paint regulations as the bad guy is just calling the sheep a wolf. If EPA regs were lifted as they were in most eastern bloc countries after WW2 we would now be living in nothing but a pillaged polluted wasteland.
The real threat to America is the way Wall Street minipulates politics and democracy. If we play by the so-called rules we are screwed because big money politics will squash those whose only power is contained in the Constitution.
No democracy has ever escaped suicide. If history is to be used as a roadmap then I’d suggest investing in companies that build guillotines.
I whole heartedly agree with your comments. We are no longer a government of the people, by the people and for the people. We are a government of big business, by big business and for big business. Unfortunately, we only have one political party. The fund raising party! How did Jon Corzine escape jail when he stole segregated accounts at MF Global? Because his law firm is the same as Eric Holder. The corruption in government has reached unprecedented levels and it does not appear to stop. Start looking at wealth distribution in the US and you will see an incredible polarization at the top.
The US spends trillions of our money so corporations can make billions and they can pay off our politicians with millions. Disgusting!
it seems like crashing the US economy is now the policy,
not merely a side effect.
The market continues to climb higher but most people either got out of the market or can’t afford to invest in a stock market that is more like gambling. So the rich, continue to get richer (I don’t fault them) while the the poor & middle class are stuck in neutral or reverse. It would be nice to see less taxes, less regulation, and less government hand outs. That is the only way to jump start the stagnate middle class. The perpetual poor and uneducated will always be at a disadvantage and we need to provide education & job opportunities for them to work their way out of poverty and also provide a safety net for families who fall on hard times but when I hear that 50 million Americans are on food stamps, it makes me ill. We are creating a class of people who rely on government hand outs. I am by no means a rich man. I work for a living. I would have to fall on some pretty serious hard times before I would consider a government hand out. Like a car crash where I was paralyzed from the neck down…those kind of hard times. Good read.
Another idea behind the creation of 401K programs, was to get more Americans bound to the stock markets. No matter how corrupt and greedy it got you are stuck or pay the penalty for getting out. Realistically, besides prepper purchasing and paying off all debt, there aren’t many good options for investing safely anymore. When savings accounts and CD’s are paying 1% or less, Real Estate and PM’s are about as good as it gets.
It seems the United States is 10-20 years behind the rest of the world in many aspects. We are failing in education and a living wage. Many of the jobs lost are now handled by an automated process or by software more than likely written overseas.
We spend billions of dollars revitalizing the economies of our former enemies and giving their citizens the jobs we used to have. Sure, they may be dirty and dangerous sometimes, but there are people who are willing to do them to feed their families. And at a much lower wage than in the USA. The more we invest in other countries, the closer we become a dormant, and thus a useless, nation of hungry low skilled and in debt up to our ears society.
It’s a shame how mighty we used to be, and to watch how far we can fall.
And because we’ve got COMMUNISTS running the US.
Why isn’t the economy any better? Not sure, it may be because we have a government that is spending money like a drunk navy and printing money like crazy.
Also another question “Why is gold and silver prices so low?”
Here’s an interesting post by Chris Martenson about Central Banks and debt bubbles. If this doesn’t scare you nothing will.
That is a good article and it touches on one I was starting to write. The bank behind the bank behind the bank. Take a look at the Bank for International Settlements (BIS.Org). They set global monetary policy. The chairman of the Federal Reserve System and the head of the New York Fed are all on the board of directors. Look at the countries listed and all of their central banks. They are also treated as diplomats, they cannot be subpoenaed and they do not need to follow any immigration laws.
Just an FYI the current Fed is the 3rd iteration of a US Central Bank. The second one was ended by Andrew Jackson and it was the last time the US was debt free as a nation.
According to the book “the sec rets of the temple” all the recessions from WWII up to the present were created by the Federal Reserve to regulate and control the economy. I do not know if the present recession was also so created. Recessions are when the banks harvest the people and make the most profits. They take back real property lost to the banks by investors. the equity in real estate lost goes to the bank as profit. Since banks create recessions they are prepared to profit from them obviously. Each recession kills on average 50,000 Americans due to suicide, stress, poor medical care etc Thus up to this recession the banks knowing the lethal effect of their actions have killed about 350,000 Americans for the greater good. Added to this millions of marriages have failed due to economic stress. Tens of millions of homes have been repocessed. the death toll due to created recessions exceeds the death toll of Americans in WWII. Hitler and Tojo were enemies but our own Federal Reserve is more fatal to Americans and more cold blooded than the SS.
“The troublesome rumours of military infiltration into DIY communities and Fiber Arts institutes around the US has been proven true. In 2012 the community around Make Magazine and the Maker Faire was shaken by the in-your-face DARPA funding of the MAKE MENTOR division of O’Reilly. As hinted in the long defence of this military intrusion into peaceful crafting, the DARPA-MAKE initiative reaches into (at least) a thousand schools, not only limited to the United States. This verifies the unnerving trend that much of the global trend of “makerspaces” is centrally controlled by the DARPA-MAKE axis. Not only does this seem like a DARPA-funded global outsourcing of arms research, but also a large-scale infiltration and surveillance by “embedded” makers within arts, crafts and DIY communities. But as some argues, “if you want to work in education, you need to work in the government”, and the same logic can be applied to most cultural work, making the this issue all the more urgent.
However, the worrying development of MAKE-militarization has also surfaced from within the highly trend sensitive part of the military-industrial-complex: the “Gun Lifestyle”. There has been a long history of “lifestyle” weapons and products introduced in computer games and movies, but over the last years a more explicit lifestyle trend has emerged where the “army-of-one” everyday soldier is also doing more artsy DIY stuff: a blatant example of how the military industry is encroaching on the arts community.” https://carpaleaks.org/?p=877
More people are going to need to learn to operate independently as a matter of survival.
would you prefer soldiers/sailors/airmen/Marines be doing something other than crafting in their spare time?
we only have an internet on which to play because of DARPA.
“Educators” it seems to me have created many of our problems.