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Tuesday, July 15, 2014

Is America Finished?

Nearly half of Media Realism readers tend to be from outside the United States. Over the last five years, I have heard from readers in over 125 countries. I love to read the mail and respond to a great deal of it. Last week, I received a note from someone who lives in an emerging Asian country and comments directly to me several times a year. With his permission, I quote him verbatim: “I really enjoy reading Media Realism. You bring up topics that I do not see anywhere else. But, you need to stop posting so much on US centric issues. You and I both know that the United States is finished.”

He may know it but I certainly do not.  I will be devoting this post to stating that we could be on the verge of an exciting United States turnaround.

If you confronted many Americans with the comment “the United States is finished” you would often get an indignant response. People would conjure up Ronald Reagan’s famous speech where he talked of the shining city on the hill and America’s rendezvous with destiny. When Reagan made those comments back in 1980, it was pitch-perfect. The malaise of the Carter years had Americans discouraged. The upbeat candidate talked of our potential and tapped in to a yearning for imagination, innovation, and greatness. He won by a landslide and did it again in 1984 with a wonderful ad campaign highlighted by the “It’s morning in America” execution. Thirty years later, things are different. Our problems are deeper and institutions such as Congress are far more suspect than they were then. So, we need more than an inspirational message and leader. I believe we may have it.

Several things appear to me to be coming together. They are:

1) The Energy Advantage--Observers have often said that the 20th century was the American century and that was helped by low energy costs. Also, as a result, Americans became addicted to cheap energy, particularly oil.  Things got a bit tougher as Americans were importing up to $250 billion dollars a year in oil largely from the Middle East, Venezuela, and Nigeria, which were areas of the world not particularly friendly to US interests. In recent years, thanks to new technologies, we are now producing more oil domestically than we have in 30 years. Steadily, the balance of payments regarding energy is turning around and much of the money that leaves the U.S. goes to our friendly neighbor, Canada. New technological gains have allowed us to tap in to our vast holdings of natural gas and production is so strong that costs are very low (one-fourth of Western Europe and one-fifth of Japan). This energy renaissance is creating thousands of good paying ($70-100k) blue collar jobs which have been sadly missing in our economy over the last decade.  
2) The other benefit to the domestic energy boom is that it is helping our moribund manufacturing base.  We have all heard of offshoring where American companies moved operations offshore to take advantage of lower wages and lower taxes than they faced at home. Now, a trend is beginning that is known as “reshoring” where manufacturing is coming back to our shores. Some 15 years ago, a Chinese factory worker might get 90 cents per hour. Now, the average rate is over nine dollars per hour. With energy costs less in the U.S. and transportation a fraction of what it would cost to transfer finished goods to the U.S. markets, companies are often deciding it is easier and more economical to manufacture at home. This can be a big help to the unemployed in America. The only fly in the ointment is will the jobs be very low paying?  To stay at parity with Asian outposts, will domestic manufacturers keep wages down really low? One of the big problems of our slow motion recovery is that many of the new jobs created each month tend to be hovering around minimum wage.  (Also, and I know that I am a distinct minority on this issue, but I worry a bit about natural gas as our one fits all solution to environmental and economic issues. In his 2012 State of the Union address, President Obama said the following: “We have a supply of natural gas that can last America nearly one hundred years.” Relax. I am not going to attack the president or even the Department of Energy. What I will say is that I have been following natural resources and their equities for 42 years. From my early days of reading Canadian trade journal THE NORTHERN MINER to annual reports and press releases today, I am always amused by the somewhat breathless projections of natural resource experts. The unsolicited e-mails are even funnier. A sample of recent entries sound like-- “Bigger than the Bakken. America’s newest and largest energy field” or “A Gold Strike So Large It will catapult this junior to one of North America’s top 10 producers.” You get the idea. If the trend continues of companies shifting to natural gas to heat their plants and run their fleets plus utilities shifting to gas from dirty coal for their electricity generation (a good thing!), will we have enough gas for 100 years? Companies are furiously lobbying to get permission to export liquified natural gas to Asia and Europe. I thought that I was the only person worried about this until Charlie Munger, Vice Chairman of Berkshire Hathaway, voiced the same concern. Others say that exports will never be more than 10% of US production.). So natural gas, is for the moment, a game changer. It can help lower CO2 emissions as it burns cleaner than oil or coal and is quite plentiful. Some say it will be the bridge that will lead us to renewables in a few decades. Clearly, low cost gas will help manufacturing here. The gas boom is creating thousands of good paying jobs and makes home grown manufacturing more globally competitive.
3) Americans are still the world’s best marketers and, I would add, salespeople. We seem to tap in to what people want. Also, American Pop Culture travels well (see Media Realism, “The Triumph of American Pop Culture”, May 31, 2011) and the newly minted middle class around the world love American products. Author Daniel Gross has dubbed some products “Inports.” These are products produced by American companies overseas using local or non-American ingredients or components. So, Starbucks is exploding overseas. From the coffee to the cups to the pastries everything is produced outside the U.S. Profits, however, are repatriated home hence his term Inport.
4) People are finally seeing the importance of improving our infrastructure. Landing at grungy Kennedy airport some weeks back, I was struck by what a foreign tourist’s first impression of America might be compared to the efficient and state of the art airports that they came from at home. I vividly remember as a child President Eisenhower lobbying for the national highway system. It was positioned as a “defense highway system” so in case of foreign attack, thousands could escape an attack area quickly via the new superhighways. Well, the Soviets never bombed us but the infrastructure improvement was very real. Salespeople could cover hundreds of miles more in their territory. Contractors and tradesmen were not limited to their home cities any more and people in remote rural areas could get things shipped by truck almost as quickly as those in major cities. Would Wal-Mart have grown so large without the interstate highway system? The highways gave us an international leg up and increased business volume all over America. The Panama Canal is now getting a multi-billion dollar facelift and larger ships will be passing through it soon. Can all American ports handle the larger vessels or will they simply go to China or other nations who can accommodate them? Our state roads and bridges vary wildly in quality from place to place. Some are funded with gasoline taxes so we should not hold our breath regarding a quick fix there. Infrastructure is one place where government and business need to work together. If they will, it can sharpen our competitive edge significantly.
5) Tax and entitlement reform--you may say good luck on this one. I was excited when the Simpson-Bowles reforms were presented. If we could get a resolution on Social Security and Medicare that would protect our safety net for generations to come, businesses and individuals could plan better for the future. This would help us. We need a simpler, fairer tax code that does not punish success but squashes crony capitalism.

The first three points that I have outlined are happening and will make American stronger in the years to come. If we can resolve the issues around #4 and #5 then I am very confident that America’s best days are yet to come.

For a quick and easy read on the myth of America’s decline, may I suggest BETTER, FASTER, STRONGER by columnist Daniel Gross (Free Press, 2012)?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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