2019: The Year in Pre-view

Who died?  Who thrived? What happened? Who cares?  It was 2018.  It’s over!  So, let’s take a look at what happens next.

Foreign affairs: All eyes are on Syria and ISIS as we end 2018. But, the country to watch is Turkey. 

It is said that nature abhors a vacuum. Pundits adopted the phrase as an idiomatic description of President Obama’s strategy in the Middle East.  His “Pivot to Asia” intended to leave Middle East wars, terrorism and the refugee crisis for Europe to deal with while the US worked to develop beneficial trade relationships with the fast growing economies of Asia.  It seemed to make sense in the context of a shrinking defense budget and economic competition from China and the EU. President Trump’s decision to withdraw our troops from Syria is another step in this direction.

There’s one big problem with this strategy: the vacuum it creates will be filled by Russia.  It’s fair to say that Russia is not much of a military threat to the US.  Their economy is in shambles and, lacking economic power, they don’t have the military might to challenge our global interests.  But, to understand their motives, you must brush up on your geography because geography is destiny.  

To play a role in the global economy, you need access to the sea.  Russia’s access is limited.  Bounded by China to the East, Europe to the West, the Arctic to the North and the southern Asian countries from the Himalayas to the Mediterranean, they are choked off from global trade.  In that context, it’s easy to understand why they would annex the Crimea, support the Assad regime in Syria and create an alliance with Iran.  Ultimately, they hope to exploit cracks in the NATO alliance. So, I expect them to increase pressure on Turkey, a NATO member, by increasing their troop presence not only in Syria but also in Ukraine.  

Is it any wonder Russia wanted Trump in the White House?

Economics:Both the US and global economies have been pumped up by Central Bank interventions and extraordinary growth in government and corporate debt.  

Is the party over? Well, the US Federal Reserve took the punchbowl away when they stopped buying up bonds and started raising interest rates.  So, construction is slowing and the stock market is taking a hit.  Compound those troubles with the economic inefficiency of a trade war and you have the making of a recession. 

It’s fair to say the new Fed Chair is taking appropriate steps to restore interest rates to their natural level.  My greater concern is that they do so while allowing the Fed’s balance sheet to run off. In other words, they are playing with two independent variables simultaneously.  So, when the economy responds, how will we know the cause of that response?

As rates rise, many corporations will incur permanent damage from too much debt and a drop in consumer demand. Our recession may be brief but the deadly combination of overleveraged companies, shoppers rapidly moving from bricks to clicks, a trade war and the Fed’s actions will have a longer lasting effect. 

Going local:  As a nation, we have ceded too much control to a federal government ill suited to address our needs. Liberals have long argued for federal solutions to problems; and lately, conservatives, from the Tea Party to Trump, making bold promises of federal intervention, have joined them.  Yet, nearly everything we need is generated at a local level.  We need better healthcare, better schools, more new businesses, more innovation, more financing, more giving, more connectedness… In short, we need more local control over the institutions that affect our communities.  

It will begin with our schools. Federal and state mandates have imposed unfunded costs on the last important institution over which we have a modicum of local control.  Here in Rochester, our inner city schools have been rated worst in the nation.  Our progressive governor told our local editorial board that he would support reform if and only if it was initiated at a local level.  He was being politically crafty a la Pontius Pilate. He also created an opening for local initiatives to make a difference. 

I hope it will be the beginning of a trend.

Business: Low unemployment and a workforce lacking the skills demanded by highly technical work environments will accelerate the adaptation of artificial intelligence (AI) to practical uses.  It’s already showing up in marketing, warehousing and machine maintenance.  The next wave will likely affect selling. AI will identify cross-selling opportunities, optimize prices and forecast revenue.  It will improve itself by learning from the results.

Like all disruptive technology, the pioneers in this field will be big corporations that can afford the R&D expense.  And, like all disruptive technology, it will eventually become affordable to smaller businesses and trickle down.

Companies that succeed in this new environment will be those that can best capture data, analyze it and generate actionable insights.  

*********

Predictions are a tricky business.  Will these trends and events take root in 2019?  I’m not sure.  However, I am fairly confident we’ll see them soon enough. 

WHO WILL LEAD? 

Wall Street, GM, Bush and Baby, It's Still Cold Outside

Just a few snide remarks to wrap up 2018…

Keeping women at arm’s length

An executive recruiter first told me about New York’s law requiring businesses to have all employees sign a legal agreement to abide by sexual harassment policies.  Just between us guys, we agreed the likely unintended consequence of this new law would be fewer women getting hired.  On the heels of this conversation, Bloomberg reported on the unofficial rule now guiding Wall Street during the #MeToo movement: avoid women at all costs.  

A year ago, I expressed dismay that the #MeToo dragnet was catching some dolphins along with the tuna. There’s a vast difference between coerced sex and an unwanted pass, I suggested. I was having a discussion on this topic in a meeting where half the participants were women.  One told me now was not the time to make such distinctions. Shoot them all and let God sort them out, she seemed to be saying. 

Well, ye reap what ye sow.

Yes, Baby, it’s still cold outside

The news that a Cleveland radio station gave in to protests that the old song “Baby, It’s Cold Outside” is too “rapey,” banning the song from its playlist, didn’t surprise me though it should have.  First of all, what the hell does “rapey” mean? Are we really creating cutesy words to describe violent crimes? 

The Frank Loesser song, like nearly all from the Great American Songbook, is intended to be romantic. In an era (1940’s) when extramarital sex was looked down upon, the song is about the conflict between desire and societal standards.  Its clever lyrics are simply a reflection of the times in which it was written.  Contrast them to misogynist popular songs like Taylor Swift’s “Better than Revenge” or Robin Thicke’s “Blurred Lines” and tell me why those songs haven’t attracted the same protests. 

Of course, the generation that objects to these lyrics is one that needs the State of New York (among others) to define what is and isn’t rape.  To those of us who know the difference, the song is simply one of the many romantic tunes to have been preserved from that era.  It’s not about rape.  It’s about permission.  Or to put it another way, it’s not about #MeToo; it’s about #WillSheWon’tShe?

The good is oft interred with their bones. 

The recent funeral of George HW Bush provided some nostalgia for that same era gone by – an era when politicians often set aside their differences for the sake of the nation. I confess that I have never been a Bush fan. (When I lived in Florida, I used to say, “I have never voted for anyone named Bush.”) Nevertheless, I found myself mourning with the rest of the nation, not so much for the man but rather for the era when the Greatest Generation (GG) was in charge.

Forged in the Great Depression and WWII, the GG paid off its war debt during the 1950’s, a decade of unprecedented prosperity.  It’s a generation that had the political courage for landmark Supreme Court rulings (Brown v. Board of Education and Roe v. Wade), extraordinary legislation (The Civil Rights Act and The Voting Rights Act), and a treaty that reduced the threat of nuclear war – all while facing down the Soviet Union.

Yes, I miss those guys. We’ve had four boomer presidents since, none of whom have lived up to the standards of their parents’ generation. 

My admiration is not unbridled however. According to some, the era of political divisiveness began when Bush v. Gore went to the Supreme Court or perhaps when Republicans took control of Congress during the Clinton administration. To my mind, it started earlier during the win-at-all-costs Bush campaign of 1988 when we were introduced to Willie Horton.

What’s good for General Motors is not good for the USA

A couple of social media memes popped up in the wake of GM’s announcement of layoffs and plant closures. One, posted by a liberal friend, suggested people would buy more cars if incomes were more equal.  Another, posted by a conservative friend, implied GM’s government bailout created a moral obligation they abandoned. 

Neither perspective makes much sense.  GM’s 2009 bankruptcy was made inevitable when former Chairman & CEO Bob Stempel negotiated an egregious contract with the UAW in the early 1990’s.  Unable to layoff workers producing cars no one was buying on the cusp of the Great Recession, GM ran out of cash.  Through its bankruptcy, GM shut unprofitable divisions and expunged debt it took decades to accumulate.  

They also shed a management culture that got them in trouble in the first place.  New CEO Mary Barra seems determined not to lead the company down the same path.  Faced with $1 Billion in unanticipated tariffs (enough, by one account, to hire 25,000 workers), a faltering economy and major shifts in consumer tastes (from cars to SUV’s); she did what any good CEO should do.

Her alternative was to keep employing an underutilized workforce, to wait for the next bankruptcy and to seek another taxpayer bailout.  That’s what would happen in socialist America.

WHO WILL LEAD?

Will it take a hurricane?

Note to Readers:  To their credit, the editorial board of our local Rochester news daily (D&C) has decided to focus its attention on our failing city school district this year (last in the nation by some measures). They have reported on successes in other cities, pointing to models that we might follow.  Last month, our local school board trained its sights on its latest scapegoat, the now former school superintendent Barbara Dean-Williams. Within days, the D&C summarized the systemic failures in an editorial, It’s Time to Declare an Emergency. Here’s my response, which was printed the following weekend: 

The Sunday editorial, It’s Time to Declare an Emergency, finally said what needed to be said.  It is indeed time to declare a state of emergency. Our city’s school system is broken and hiring another superintendent of schools without addressing the core challenges is nothing more than lining up the next scapegoat.  

What will it take for the school board to wake up?  

What it took in New Orleans was Hurricane Katrina.  The storm, which took 1800 lives, also wiped out most of the city’s infrastructure and scattered its citizens all over the region.  Many have not returned. 

In it wake, the Recovery School District (RSD) turned all of New Orleans schools into Charter Schools. By 2014, the percentage of students testing at grade level had improved from 35 to 62 percent. Before the storm, 62% of New Orleans students attended schools designated as failing.  By 2016, that number had dropped to 6%.

David Osbourne, a senior fellow at the Progressive Policy Institute, tells the story of New Orleans schools in a book, Reinventing America’s Schools. His book outlines core principles of leadership and management that have succeeded not only in New Orleans but also in Denver, Washington, D.C., and Indianapolis. He outlines seven key strategies that are common to the school districts of those cities and others.  Among them are decentralizing control by giving school principals autonomy to develop best practices; empowering parents by providing them choices of different kinds of schools, with public money following them; and, creating incentives and consequences for performance through competition.

The 20^thCentury model of public education created unified school districts that were critical to the development of human capital that made the United States the most innovative and competitive economy in the world.  Although that system continues to work well in many districts, particularly suburban districts where parents are engaged and intolerant of failure, it has stopped working in large bureaucratic inner city school districts burdened by federal and state mandates that haven’t translated to classroom achievement.  

In each example provided in Osbourne’s book, there was one person who was the prime mover.  One person who was unafraid.  One person who led the charge.  In some cases, it was a mayor.  In others, a member of the school board or the superintendent of schools. I am left to wonder who will lead the revolution in Rochester.  And, what will it take to break us free from a bureaucracy that perpetuates failure? A hurricane? 

WHO WILL LEAD?

As Simple as ABC: Anyone But Cuomo

Note to readers: I have lived in five states in the last 35 years, all but one of them swing states (NJ, CO, PA, FL and, now, NY). New York is the deepest of Blue States and the sensibilities of most people I meet are decidedly liberal.  Our governor, Andrew Cuomo, is running for reelection to his third term.  Polls show him with a substantial lead.  I have written this post for a New York audience but think it relevant for national consideration.  Will failure of the Blue State model make a dent in Cuomo’s chances?  It’s not likely, unfortunately.

Andrew Cuomo

Governor Cuomo bolsters his argument for reelection by touting his economic record.  In truth, not only has the governor failed in his efforts to revive Upstate New York’s economy but also he has been dishonest in portraying his record of achievement. Upstate’s economic recovery has been among the weakest of any region in the nation. 

Let’s start with employment. The governor points to the creation of over 1 million jobs during his administration.  However, peeling back a layer or two of the onion, we find a more nuanced picture.  According to the New York State Department of Labor (NYSDOL), New York City, Long Island and the lower Hudson Valley had the highest rate of job growth in the state while Upstate had job growth at about one third of both the downstate and national rate during the period from the first quarter of 2010 to the first quarter of 2018.  NYSDOL surveys employment quarterly in cooperation with the US Bureau of Labor Statistics.  From 2010, the quarterly census reports Upstate job growth at 6.3% compared to a US growth rate of 17.8% and a downstate rate of 21.2%.  Monroe County private payrolls grew a bit over 20,000 jobs or 6.6%, less than 1% per year. 

It might be said that, absent the improvement in Wall Street’s prospects, job growth would have been negative.  And, I doubt the millionaires and billionaires on Wall Street would give the governor credit for their success. 

Despite this dismal track record, the governor consistently doubles down on his approach to

Stephanie Miner

economic development characterized by high taxes and a central government creating criteria for distribution of the funds collected. This approach has taken the form of an effort to invest in a photonics center in cooperation with the federal government that has yielded little to nothing, a distribution of a half billion dollars to the Finger Lakes Regional Economic Development Council that has yielded little to nothing, and myriad attempts to revive our downtown by sprinkling millions on a variety of projects. 

Most galling, perhaps, is the dishonesty that characterizes his rhetoric around such activities. Rather than transparently defining our economic challenges and listening to the concerns of business owners, he describes his approach to economic growth as “a ‘ground-up’ strategy that focuses on cooperation and investing in regional assets to generate opportunity.”

Marc Molinaro

This year, New Yorkers are spoiled for choice in the gubernatorial election.  While some third party candidates represent the political extremes, there are two that can only be described as moderate: Republican Marc Molinaro (who might have been described as a Rockefeller Republican in times gone by) and Stephanie Miner, a Democrat turned Independent who demonstrates a deep understanding of the challenges facing Upstate. 

And, that’s why I say you should vote for anyone… and I mean ANYONE but Andrew Cuomo. 

WHO WILL LEAD?

A message from the patriarchy

I recently joined the board of Resolve, a non-profit organization that addresses the needs of victims of domestic abuse. I was inspired to contribute my efforts by its founder and CEO, herself a survivor.  The courage and passion with which she pursues her mission would inspire anyone. Resolve’s partner is an organization called Stand-up Guys.  Why work with men?  Here’s Resolve’s answer:  “It’s time to work together with men as partners in ending violence against women. Most men are good guys; they want to help and simply don’t know how.”

If only all women agreed. Recently, a Facebook friend referred to “rigid old white male thinking.” When I objected to this blatantly sexist remark, a third friend chimed in, “Sexism simply isn’t a problem for guys. It doesn’t cost you anything.  The people with the power are seldom victims.” Well, perhaps that’s true.  But, who are my victims?  I am not guilty of rape or sexual assault.  I have never used the power of my position to coerce sexual favors.

On the other hand, one might ask, “What have I done for women?”  Well, aside from working to end domestic violence, I have hired them, promoted them and given them raises.  Many of the women I hired and promoted have gone on to senior management positions in our nation’s leading corporations. 

The #MeToo movement has raised our awareness of how microaggressions serve to marginalize women. Have I been a guilty party?  Yes.  But, I am a willing student, one who can’t matriculate, much less graduate, if I am placed in a category that casts me as part of the problem rather than part of the solution. 

David Blankenhorn, the founder of Better Angels, an organization dedicated to depolarizing our political discourse, decries our nasty habit of categorizing each other, thusly:

“Of all the mental habits that encourage polarization, the most dangerous is probably binary thinking—the tendency to divide everything into two mutually antagonistic categories… [T]his way of thinking about the world is not only polarizing, it is highly simplistic and leads mainly to pseudo-disagreements as opposed to real ones.”

A recent study by More in Common, an “initiative to build societies and communities that are

stronger, more united, and more resilient to the increasing threats of polarization and social division,” reported that although 82% of Americans “agree that hate speech is a problem in America today,” a similar percentage, 80%, “view political correctness as an issue.”  

Most of us – those the report’s authors refer to as “the Exhausted Majority” – are fed up with both progressive activists and dedicated conservatives who reject any thinking not aligned with their own and whose behavior contaminates our communities.  Exhausted though we may be, it’s time for us to stand up and be counted.

WHO WILL LEAD?

The inequality war comes to retirement communities

Did you know that Facebook has a streaming video channel?  Well, it does.  You can access it by touching the second icon from the left at the bottom of the app on your smartphone. I discovered a Bloomberg-produced program called “At What Cost.”  A recent 5-minute episode calls attention to the 60% of Americans who live paycheck-to-paycheck and claims “even those earning six figure salaries can still feel financially insecure.”  The 60% figure rang true for me as I had recently read (and cited in this blog) a study by Ray Dalio that identified the same 60/40 split pointing out that “the average household in the top 40% earns four times more than the average household in the bottom 60%.”

But, averages can be deceiving.  An income that affords a family a middle-class lifestyle in, say, Nebraska doesn’t provide the same in California.  A recent Fast Company article points to examples of those making $75,000 per year and up who can’t afford anything near the average $1.6M cost of a San Francisco home. The housing crisis in California, if it can be called that, extends to 55+ retirement communities. The Wall Street Journal ran a story of the battle between residents of Oakmont Village over the addition of pickle ball courts.  The average cost of a home in Oakmont has doubled over the last few years and newer residents want to upgrade the facilities.  Their proposed development, at a $300,000 cost that would be borne by all residents through an increase in maintenance fees, amounts to socializing the costs of amenities. 

There’s no relief in sight for the middle class.  Government programs to address income inequality have typically been targeted to the lowest 20% of income earners and tax benefits to encourage saving, investment and home ownership help the wealthy more than the bottom 60%.  After all, if you’re living paycheck-to-paycheck, you can’t afford to set aside money for the down payment on a house, your kids’ college fund or your retirement.  

Further, programs directed at alleviating poverty often work at cross-purposes to their objectives. In the absence of federal increases in the minimum wage, states and local governments are experimenting. Initial outcomes are not encouraging. Analyzing the impact of a minimum wage increase in the city of Seattle, the National Bureau of Economic Research found it resulted in a slight lowering of income for those in the restaurant industry. As the hourly wage went up, the number of hours worked went down.  Go figure. 

Similarly, wealth transfers haven’t lifted the bottom 20% out of poverty.  Since LBJ declared the War on Poverty, it has become entrenched in our inner cities and is now mirrored in rural committees devastated by loss of industrial jobs, breakdown in families and drug addiction. This has occurred despite that the bottom 20% receiving more than 84% of its income from government sources.  (To arrive at this figure, one must include  non-cash benefits like food stamps, Medicaid, and subsidized housing that are not included in the government’s income data.)

I recently pointed out that nearly 2 billion people have been lifted out of poverty in India, China and the developing world through capitalist reforms that have enabled the poor to climb the income ladder.  Yet, the focus of policy discussions in the U.S. have focused on doubling down on failed policies rather than removing barriers to upward mobility.  Citing licensing requirements, land use regulations and (yes) the minimum wage, the Archbridge Institute asserts, “… barriers are typically imposed by some level of government.  Usually justified by claiming to protect citizens from some kind of harm, these policies often end up as little more than legal obstacles that prevent people from being able to take the calculated risks necessary to climb the income ladder.”    

At a local level, communities can improve public education, develop skills-based training programs and collaborate with businesses to create jobs.  But, most of our tax dollars and, therefore, the resources to address our economic challenges go to Washington and come back to us in one-size-fits-all programs that don’t work in at a local level. 

The pitched battle in Washington over this issue and every other is unlikely to achieve any breakthroughs in the near future.  But, something’s got to give.  Skirmishes like those in Seattle and Oakmont are the tip of the iceberg.  As the interests of the middle class become more aligned with those who live in poverty, diverging visions of how to maintain our prosperity will disrupt the current political order.  

WHO WILL LEAD? 

The Fourth Turning: how Millennials will save capitalism

In my last post (Let’s understand just whatsocialism means to us (redux)), I decried the misguided belief that socialism should displace the capitalist system in the industrialized West.  Old, white guys like me won’t be around to turn the tide against this trend.  It will be the Millennial generation that saves capitalism.

In Neil Howe’s book “The Fourth Turning: AnAmerican Prophecy – What the Cycles of History Tell Us About America’s Next Rendezvous with Destiny,” he outlines how four repeating generational cycles (or Turnings) determine social attitudes and ultimately govern the social contract. You can find a one page summary on his website.

Howe’s hypothesis will ring true to any student of American History as he traces the impact of events on rising generations and how each generation changes the social order. The WWII generation was in the driver’s seat for the most recent First Turning, the “American High” following WWII when the crisis of the Great Depression gave way to a period of prosperity characterized by high levels of trust in institutions. 

The Fourth Turning in this model is crisis. The Stock Market Crash of 1929 began the crisis that preceded the American High. Four generations later, Howe tells us, “Today’s Hero archetype youth, the Millennial Generation … show many traits similar to those of the G.I. youth, including rising civic engagement, improving behavior, and collective confidence.”  It is they who will develop a new social order in the wake of the financial crisis of 2008.

My contemporaries doubt this.  Like all generations of elders, we collectively take a dim view of youth that that we see as addicted to their smartphones and cowering in their safe zones.  But, I take a different view.  Studies by Big 4 accounting firm Deloitte show Millennials tend to develop values consistent with their elders once they form families.  And, they are also becoming entrepreneurs.  Their future success will be enabled by technologies their elders are, to some extent, ignoring like broadband, social media and 3-D printing.

Still not convinced? 

How about this? Businesses change their approach to the market when it’s in their best interests to do so.  Corporate values will shift as Millennials become their core customers.

In the post-industrial 21^th Century, it’s getting harder to succeed purely on the basis of what you produce.  Your innovation can easily be copied, produced in a low cost factory overseas and exported to any market.  In a world where nearly every consumer can compare prices and features instantaneously, the spoils will go to the lowest cost producer not the innovator. 

To succeed in the 21^st Century, corporations will have to “outbehave the competition…” according to Dov Seidman.  His book, “HOW: Why How We DoAnything Means Everything,” outlines how companies must engage all of the talents of their employees to extend enduring value to customers.  Those that succeed will be those whose behavior is aligned with its customers’ values.  They will accrue enterprise value by becoming internetworked with the communities they serve. To do so they must engage their employees by treating them fairly and giving them good reasons to be proud of what they do and where they work. 

Granted, my argument is highly speculative (or full of holes if you prefer).  The future is hard to predict.  I truly have no idea how Millennials will ensure our continued prosperity.  I simply know that every generation does so.

To buy into my argument one must have faith.  My personal faith is best captured in a quote from the late John McCain:  “Our shared values define us more than our differences.  And acknowledging those shared values can see us through our challenges today if we have the wisdom to trust them again.”

Leaders of the Fourth Turning will be those who can merge our values with our aspirations.  It is they WHO WILL LEAD!

Let’s understand just what socialism means to us (redux)

I first wrote a post with the above title in 2015 when Donald Trump was polling second to Jeb Bush and Bernie Sanders was in the same place in their respective primary races.  I felt then (as now) that the only thing worse than Trump in the White House would be the crackpot from Vermont.  I also thought, once the election was over, the idea that socialism might be a superior economic system would fade away.  But, it hasn’t. 

Frankly, I can’t believe we’re having this conversation in the most prosperous nation on earth. But, we are.  Last week, a local NPR talk show hosted representatives of the International Socialist Organization (ISO), with no opposing viewpoints on the panel, for a solid hour. 

I could write pages of rebuttal of their economic thinking (if it can be called that).  But, I would like to focus on just a few troubling aspects of their presentation. 

The Scandinavia myth.  The nations most cited as a model for those promoting socialism in the U.S. are Sweden, Norway and Denmark. There is only one problem with this analogy:  those countries are not socialist.  And, I am not the only one who thinks so.  The Foundation for Economic Education (FEE) points out that, “like all other developed countries, the means of production are primarily owned by private individuals, not the community or the government.”  (Italics mine)  FEE is a self-described “non-political, non-profit, educational foundation…”

The folks from ISO like to compare data points from the performance of those countries to the U.S.  That’s like comparing bicycles to oranges.  Scandinavian countries (and Germany) have benefited from the creation of the European Currency Union, which has made the Euro the single currency of those countries who have joined the union.  It has enabled them to benefit economically by boosting exports, especially to the countries of Southern Europe.  The profits from those international sales are then reinvested by privately owned, capitalist companies to innovate new or better products or to improve the efficiency of their production.

The U.S., by contrast, is a net importer of goods and services.  Why? Because, first, we are the most prosperous nation on Earth, enabling us to buy more stuff.  And, second, because we are a consuming rather than saving nation.  So, we must recapture capital differently than net exporters.  We attract Foreign Direct Investment (FDI).  The Bureau of Economic Analysis reports a positive flow of $269 Billion in 2017, slightly below the historical average. “As in previous years, acquisitions of existing businesses accounted for a large majority of it,” according to the BEA.  In other words, our economy attracts investors from other countries who are spoiled for choice.

The Poverty myth.  You can find a lot of conservative sources – from the Cato Institute to the American Enterprise Institute – that will describe the ways in which capitalism has reduced poverty.  I know because I’ve been reading them for years.  To create a more balanced perspective, I searched for and found a non-partisan group focused on the topic.  The Huffington Post describes the Borgen Institute as “an incredible non-profit organization… addressing poverty and hunger and working towards ending them.”  Borgen cites free market capitalism as a key driver in the effort to reduce poverty, citing data showing a reduction by half in industrialized countries between 1990 and 2010 (from 43% to 21%).  Meanwhile, they say, “China increased per capita income 13-fold since the beginning of its economic reforms in 1978.  The country pulled 680 Million people out of poverty between 1981 and 2010… In India, income rose three-fold after the country liberalized its markets.”

There can be no doubt that liberalization of trade and the spread of free-market principles have improved the prospects of hundreds of millions of people throughout the world. 

Innovation. All of the advances in technology, healthcare and efficiency have come from capitalist countries. The Scottish enlightenment began in the 1690’s when liberalization of the economy gave rise to a spurt of innovation from the steam engine to canal locks as entrepreneurs worked to improve economic conditions.  In colonial and early American, the shortage of labor drove innovation in the form of steel plows and the cotton gin.  Throughout history, such innovation has improved the economic prospects of nations that have allowed capitalism to flourish. 

Since WWII, innovative improvements in healthcare, information technology and lifestyle  – polio vaccine, computers, jet travel, air conditioning – have all come from capitalist countries.  Driven by motivation to earn a living free of the constraints of central planning, free-market capitalism always has and always will improve the lives of those who have the good fortune to live under its umbrella.

No discussion of capitalism can exclude the dark side in these politically correct times.  For many, income inequality (which is increasing in the U.S. by many measures) is the reason we should consider another approach to managing our economy.    We often frame these arguments in the context of the Top 1%, or even the Top 0.1%.  But, that doesn’t describe the challenge appropriately, in my view. 

Hedge fund billionaire Ray Dalio has produced a study that outlines the critical challenges of the United States economy by comparing the fortunes of the Top 40% to the rest.  While pointing out that it is dangerous to form opinions by relying upon averages, he nevertheless describes the conditions of the 40/60 in a few resonant data points.  “The average household in the Top 40% earns four times more than the average household in the bottom 60%,” he tells us.  The result is “[t]hose in the top 40% now have on average 10 times as much wealth as those in the bottom 60%.  That is up from six times as much in 1980.”

It’s popular in conservative circles to point to economic outcomes for those less fortunate as the result of people making poor choices.  Indeed, that trope resonates with me in a big way.  That said, we should all be concerned about trends that ultimately destroy the middle class families on which the stability of our economy relies.  As it continues, the interests of the middle class will become aligned with those of the working poor.  There are economic, political and social consequences that will result. 

In a future post, I will outline what I foresee as the shift that will ultimately save our nation from destruction.  Stay tuned!

WHO WILL LEAD?