NYT columnist David Brooks has produced an excellent analysis of the current landscape of the American political-economy (a much clearer logic than that embeds his provocative piece on the Jeremy Lin problem).
Based on what Tyler Cowen‘s report in a fantastic article in The American Interest called “What Export-Oriented America Means,” Brooks points out three key factors that undergird the optimism toward the next decade of U.S. economy, which should be indicative of developing countries as well.
- Automated factories with smart machines: "China and other low-wage countries have a huge advantage when factory floors are crowded with workers. But we are moving to an age of quiet factories, with more robots and better software. That reduces the importance of wage rates. It boosts American companies that make software and smart machines."
- Replacement energy (the shale oil and gas revolution): "In the past year, fracking, a technology pioneered in the United States, has given us access to vast amounts of U.S. energy that can be sold abroad. Europe and Asian nations have much less capacity. As long as fracking can be done responsibly, U.S. exports should surge."
- The surge of global consuming power with the growth of the their middle class: "When China, India and such places were first climbing the income ladder, they imported a lot of raw materials from places like Canada, Australia and Chile to fuel the early stages of their economic growth. But, in the coming decades, as their consumers get richer, they will be importing more pharmaceuticals, semiconductors, planes and entertainment, important American products."
Following this analysis, right now the U.S. is likely in the early days of an export boom that will eventually power an economic revival, including a manufacturing revival.
However, this is where politics comes in as this model involves two interrelated American economies:
- On the one hand, there is the globalized tradable sector: companies that are heavily involved in the global competition have to become relentlessly dynamic and very (brutally) efficient in order to stay afloat and thrive. The surviving ones are producing a lot of the productivity gains, but they not producing a lot of the jobs (because they are highly automated and China took the labor part away).
- On the other hand, there is a domestic sector of the economy that does not face this global competition — health care, education and government. Leaders in this economy try to improve productivity and use new technologies, but they are not compelled by do-or-die pressure, and their pace of change is slower. This more protected sector is producing more jobs, but not as many productivity gains.
The hypercompetitive globalized economy generates enormous profits, while the second, less tradable economy is where more Americans actually liv
Conflicts between those who live in Economy I and those who live in Economy II manifest as Republicans often live in and love the efficient globalized sector and believe it should be a model for the entire society, and as Democrats value the second sector and emphasize the destructive consequences of the neo-liberal ideology in Economy I.
Republicans are mostly Hayekians. They believe the globalized sector is racing far out in front of government and prosper. Government should prepare people to enter that sector but get out of its way as much as possible. They want to use private health care markets and choice-oriented education reforms to make society as dynamic, creative and efficient as Economy I. If given enough freedom, Economy I entrepreneurs will create the future jobs we need.
Democrats in Keynesians in the sense that they opt for more government intervention to subsidize Economy II with Economy I, for the huge profits are produced at the top and the wages are stagnant at the middle. They want to tamp down some of the streamlining in the global economy sector and protect health care, education and government from its remorseless logic. They are sanguine that the government can enhance the sustainability of the global sectors of the economy by redirecting their benefits toward the mass majority in a socialist way.
Brooks himself does not choose a side in this article. And while I am on the Democrat’s side (fully aware that this is not the U.S. issue alone but a perennial problem facing the global political-economy), I agree that there needs to be continual dialogue with neo-liberals/Hayekians lest the rift should get bigger in the hands of blind leftists.