Last time I raised the big question of: even though the U.S. is much richer now than it was 40 or 50 years ago, why is it that we're missing so many of the basics that were part of our lives back then? Where did all the money go?
The nation's GDP, or Gross Domestic Product, is about $14 trillion today. GDP, which is the most widely used measure of a country's wealth, tells us how many goods and services are produced in a year. If we want to know how wealthy the average citizen is, however, we're better off looking at GDP per capita, or the amount of goods and services produced in a year, per person. Our GDP per capita is about $45,000 these days, which is one of the highest figures in the world.
The nation's GDP, or Gross Domestic Product, is about $14 trillion today. GDP, which is the most widely used measure of a country's wealth, tells us how many goods and services are produced in a year. If we want to know how wealthy the average citizen is, however, we're better off looking at GDP per capita, or the amount of goods and services produced in a year, per person. Our GDP per capita is about $45,000 these days, which is one of the highest figures in the world.
By contrast, let's look at the year 1965, which in many ways was a high point for this country. The Vietnam war was not really a problem yet, inflation and unemployment were virtually non-existent, the U.S. was the unquestioned manufacturing giant of the world, and civil and generational upheavals were mostly a couple of years down the road still. All of these things would change quickly, but in 1965, the nation's real GDP (GDP that is adjusted for inflation) was about $3.5 trillion, or about a fourth of what it is today. GDP per capita, also adjusted for inflation, was about $18,000, or a bit more than a third of what it is today. So it's pretty fair to say that as a country, the U.S. is about 3 to 4 times richer today than it was in 1965.
Getting back to the original issue: why is it that today's much wealthier nation - 3 to 4 times wealthier than in 1965 - cannot provide many of the basic services that were a "given" back then? Why have police, firefighters, teachers, librarians, sanitation workers and other key public servants' jobs been eliminated, with many more cuts likely? Why are key government offices closed several days a month, and school years being cut, just when we need to focus more on education, not less? Why are our bridges and roads falling apart after decades of neglect? Why is medical care an unaffordable luxury for so many Americans?
Now debt's not always a bad thing. If you or I or a business or the government borrows money to make a sensible investment, then debt can be good. So if I borrow to pay for a solid college education, a business borrows to build a new factory, or the government borrows to build a better transportation system for the country, then those things are most likely going to pay me, the business, and the country back several times over in the long run. Similarly, if the government borrows to fight a necessary war, well - that's a necessity, isn't it? That's good debt.
On the other hand, though, if I borrow so I can take a high-end European vacation, the business borrows to pay its top executives un-Godly large bonuses, and the government borrows to pay for wasteful pork or an expensive war that perhaps was unnecessary, then all of us are going to end up with nothing to show for it down the road except a reduction in our net worth. That's bad debt.
I think the reality is that a lot of the borrowing that we saw in the 1980s was associated with a number of supply-side policies, and that it was "good debt". Starting in 1981, marginal tax rates for businesses and individuals were cut, giving them more incentive to work harder and invest. Regulations on businesses were cut back, making it easier and more profitable for them to operate and expand. More savings was encouraged by opening up IRAs and 401(k) plans to millions of Americans, helping to reduce the cost for businesses to borrow. The end result of all this was that more money went into research and development, into opening new businesses and expanding existing ones. All this investment (along with major developments in technology, communication, and trade) then set the stage for the explosive growth of the late-1980s and all of the 1990s.
To be sure, a lot of the borrowing of the 1980s, and especially the 1990s, went for silly, materialistic stuff as Americans became more and more interested in "having it all." I'm just guessing here, but my intuition is that a lot of borrowed money went into productive businesses, research, infrastructure, etc. in the mid-1980s, but the percentage going there gradually dropped as the '80s became the 90s, and then the 21st century. My guess is that more and more borrowed money went into replacing smaller cars and houses with bigger cars and houses, eating at home with eating out, sensible clothes with designer label stuff, and so forth. And more money on an endless variety of government programs and bureaucracies.
To whatever degree that is true, then the nation switched from focusing on a better future, to having a better now. This would be a reversal of countless generations of thought, where it was always: "I want my children to have a better life than I did." And to whatever degree this is true, then, the answer to "where did all the money go?" is that it went to the banks, the wealthy, and the foreigners who lent us the money. By borrowing, we basically got lots of stuff, and they got lots of IOUs that are now starting to strangle the country. Next time, we're going to take a closer look at this huge paradigm shift, this gonzo consumerism that came to characterize the United States in the 1990s and continues even today.
1 comment:
The children of today are being affected for the bad decisions that politicians and people have made in the past. The country is in debt like never before yet we continue to borrow money and increase government spending. It is not right for children's education to be put in jeopardy as class sizes are enlarged due to the cuts of teachers which results in the students receiving less attention in class making it harder for them to receive a real education. This could end up haunting us fifteen years down the line as we begin to see these kids with no education becoming unemployed with nothing to fall back on.
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