Economy

Kicking the Can (of National Debt) to the Kids

If you were in your early 20s, just starting your career, would you want your parents to toss you a debt bomb? Would you want to pay the tab of your parents’ spending spree?

And yet, on the level of macro-economics, that is what my generation is doing to millennials. 

As the graphs below demonstrate, my generation's addiction to debt is severe and non-partisan. The top graph shows the total gross debt trend (dark line) since 1940 to today. Starting in the early 1980s, Americans have almost constantly increased the national debt. Prior to 1980, debt levels declined slightly or stayed flat.

The second graph shows the U.S. debt in relation to Gross Domestic Product (GDP). This is how much we over-spend in relation to how much we earn. We see that the debt-to-GDP ratio is getting close to what it was during the height of World War II. Importantly, the high debt-to-GDP ratio in the mid-1940s was caused by a major global war. You can understand why the debt went up so much during that era. But is there a moral purpose to explain the debt addiction of 1980 to today?

Soure: U.S. Congressional Budget Office

Soure: U.S. Congressional Budget Office

Also notice that the debt-to-GDP ratio fell almost without fail—regardless of which political party was in power—from the post-war period to the end of Jimmy Carter’s presidency in 1980 (the year I graduated from high school). This indicates that the generation of my parents and grandparents had significant self-restraint. They sought to provide a better fiscal future for their children and grandchildren.

And what has my generation done with this sacrificial gift? Notice that from 1980 to the present day—regardless of which political party was and is currently in power—the debt-to-GDP ratio has skyrocketed, with the exception of a brief reduction in the late 1990s.

The numbers tell a moral story. As a nation, my generation (boomer and Gen-X) has given little consideration to the future well-being of our children and grandchildren. We’re spending now and forcing them to pay the bill.

It’s no use blaming “the other party” for this. The problem runs through every political party.

Love your neighbor as yourself. In national economics, as at home, that moral standard will unavoidably require sacrifice—a spirit of selflessness. Unless we restore in economics a selfless ethos, our children and grandchildren will bear the consequences of our moral failures.

The Human Toll of Corruption

Statistical portraits of commerce and economics are important, but big numbers gloss over the impact of economic trends and policies on individual lives and families.

The same occurs when talking about corruption, perhaps because it is so widespread. We talk about the global problem in abstract terms—about the amount of money siphoned away from economies—rather than in human terms.

Unemployed in Recife, Brazil. Photo by Tom McMahan

Unemployed in Recife, Brazil. Photo by Tom McMahan

So, here’s a human story. During a recent trip to Brazil, where corruption is creating social chaos and taking down high-level business and political leaders, I stopped in the northeastern coastal city of Recife. There I spoke with an executive of a private bus company that provides public transportation in this city of about four million people.

He told me that four years ago his company had close to 400 buses circulating through the city. Today, he said, the company is down to 80 buses. This number shocked me, because Brazilians are so dependent on public transportation. I asked him what accounted for the reduction.

“Corruption,” he said. “The federal corruption scandals have caused tens of thousands of people in this region to lose their jobs. With those job losses, there was a domino effect in other industries and even in small businesses. Fewer people are riding buses because they don’t have anywhere to work.”

No newspapers are paying attention to what’s happening in one bus company. But 300 idle buses sitting in a hot parking lot are tangible symbols of corruption's impact: people without jobs, families with no income, children who can’t get to school, a rise in emotional depression, and increased crime.

In today’s Wall Street Journal, we read that Brazil’s president, Michel Temer, has been formally charged with corruption. He could end up being the second Brazilian president forced out of office in 18 months. It’s estimated that 60 percent of Brazil’s lawmakers are either under suspicion of, being investigated for, or formally charged for corruption. The money lost from the economy is in the billions of dollars.

But it is in the homes of Brazilian families, in the lives of children, and in the stress of unemployed men and women that we see the full brunt of corruption.

At the core, corruption is a lack of love for fellow human beings. Without love in commerce, people suffer. Corruption dehumanizes economics and imposes suffering on people. 

For more on this topic, we encourage you to work through a book by Tom Petersen called The Economy of God, which can be purchased on Amazon in print or digital formats. 

Robots and Dark Factories

A story in the May/June 2016 issue of MIT Technology Review sums up the profound questions that we should be asking about new AI technology. The call-out for the article says: “Can China reboot its manufacturing industry—and the global economy—by replacing millions of workers with machines?”

Stop for a minute and think carefully about that question. Embedded in it are difficult questions about our beliefs and values, our worldview. Is our ultimate goal material wealth? China can reboot it's economy by using more machines, but should this be done? Is it moral to embark on a path of “. . . replacing millions of workers with machines”?

Thankfully, many thought leaders today are addressing the human and ethical questions that surround these technological trends. But such discussions tend to be drowned out by more pragmatic concerns. The pressure for businesses to use AI and robots, or else die, is intense.

One representative example is worth looking at. Cambridge Industries Group (CIG), which operates factories in China, hopes to replace two-thirds of its 3,000 workers with machines by mid-2017. A primary reason for this change, says CEO Gerald Wong, is because manufacturing in Germany, Japan, and the United States is already becoming cheaper than in China because of robotics, artificial intelligence, and automation. This means that, regardless of who is in the Oval Office, jobs are not likely to come back to the US; that's because these jobs will vanish. 

“It’s very clear in China: people will either go into automation or they will go out of the manufacturing business,” Wong says. “We’re going to use standard robots at first. But then we’re going to use more advanced ones. More and more, we need to get into more advanced robotics. That can help make a dark factory.”

A dark factory, in case you’re wondering, is the widely used term for a factory without people.

The thought leaders in this arena are, thankfully, taking questions about the human and social impact of these technological changes seriously. Among those people is David Rotman, editor of MIT Technology Review. In the most recent issue of the magazine (March/April 2017), Rotman concludes an excellent article by saying, “if AI is going to achieve its full economic potential, we’ll need to pay as much attention to the social and employment challenges as we do to the technical ones.”

Rotman’s essay addresses questions about what happens to human beings when they can no longer work. He cites Joel Mokyr, an economic historian at Northwestern University, who acknowledges that the removal of work from people would be personally and socially devastating. “There is no question that in the modern capitalist system your occupation is your identity,” Mokyr says. He knows there will be “pain and humiliation” when robots take jobs from people.

Rotman also addresses the tendency for AI and robotics to erode the middle class, increasing the gap between the wealthy and the poor. Government can help ease this pain, but downward pressure on the middle class will continue regardless of who is in the Oval Office.

Missing from this vital discussion about technology, work and economics is a serious theological perspective. Underlying all the science, innovation, and compassion for workers, are deeper questions about human nature and God’s designs for economies. A theological compass, if given an opportunity, could help guide technological development to meaningful destinations.

How we develop technology and use it is a choice; it doesn’t just happen accidentally. AI and robotics are expressions of a worldview and a set of deeply held values. A materialistic worldview will produce a materialistic world with technology serving materialistic ends. Is that what we really want?

Author Andrew Schmookler is asking that question: “Our economy, with its focus on the material and the mechanical, embodies an approach to human life with the spirit drained out of it.”

A World of Corruption

During an election cycle in which cynicism about politics is increasing among most Americans, it is quite disturbing to see several recent academic books claim that the entire global economic system is based on corruption. These books are based on serious research and journalism.

Since the Panama Papers (11.5 million global financial documents) were leaked, more than 400 journalists have been working in a consortium on the documents to unveil what is happening in the global financial system. Here’s the conclusion of one correspondent for The Guardian:

“Previously, we thought that the offshore world was a shadowy, but minor, part of our economic system. What we learned from the Panama Papers is that it is the economic system (The New York Review of Books, October 27, 2016, p. 33).

Hopefully that is an overstatement, but for anyone interested in learning more, we encourage you to read these independent-minded books: The Panama Papers, by Basitan Obermayer and Fredrick Obermaier; The Offshore World, by Ronen Palan, Cornell University Press; The Hidden Wealth of Nations, by Teresa Lavender Fagan, University of Chicago Press.

The books show how the increase of globalized corruption continues to wreak havoc on ordinary people. Here's just one example: According to a report by Global Financial Integrity in 2010, “total illicit outflows from the African continent were anywhere between $854 billion and $1.8 trillion.” The consequences for national economies, jobs, education and healthcare are devastating. In Liberia, where Ebola devastated the nation, the Council on Foreign Relations says that there is only one doctor for every 75,000 people.

Commerce, like all of life, is essentially relational. And trust is the foundation for all relationships. Political and economic corruption erodes the trust that is necessary for commerce to function, including on a global scale. Austan Goolsbee, writing in Foreign Affairs (January/February 2013, p. 170), put it succinctly: “Capital markets can function only when people trust the system.”