To Grow the Middle Class, Let Government Unleash Innovation

by Rob Steinernomics

Contrary to what President Donald Trump and his supporters like to argue, it’s actually OK for other countries to get rich off of the United States. In fact, it’s more than OK — it’s preferable. 

Some of the benefits of other countries getting richer are: 

  • More political and economic stability 
  • Less chance of engaging in a war 
  • More global consumers of US products 
  • Less spreading of disease 
  • A more highly educated citizenry
  • Creating a global pool of potential innovation that can improve everyone’s living standards. 

Let’s also be clear on something else: the United States itself did not become the wealthiest country in the world by hard work and elbow grease alone. It got rich and became a global economic superpower for two reasons: 

  1. Despite being attacked by Japan, World War II was not fought anywhere near our borders; a huge, mostly empty landmass guarded by 2 gargantuan bodies of water. We were spared the massive destruction of our infrastructure that plagued Europe and Southeast Asia 
  2. Our government had the balls to fire up the printing presses and spend unprecedented amounts of money on war mobilization. 

It was by these two occurrences that the United States became the global supplier of goods and services — because almost all of our potential competitors were sifting through the rubble of the post-war decimation of their infrastructure. This created an opportunity for more US wealth-building via the Marshall Plan and post-war private sector endeavors to rebuild and get these countries back on line. It would take decades. 

Ergo, there was an expiration date on the United States being a standalone world economic superpower. That ended up being the mid-1970s, and the nail was put in the coffin when China joined the WTO in 2000. 

But should we condemn other countries for trying to compete with US and make themselves rich? Especially when they are getting rich by competing in 20th-century industries? We’ve already gotten rich off those industries. We’ve already improved our standards of living and our wages. It’s quite alright to let other, poorer countries have a go at it. 

“But Rob! What about our manufacturing jobs? What about steel and textiles?” 

In order for those jobs to come back here such that they would be a significant percentage of our gross production, we would have to be willing to let our workers compete with the wages of workers in Third World countries and be willing to enter into a deflationary spiral. Whether we admit it or not, I think we’ve moved on from this scenario, which I don’t think even the disaffected blue collar rust belt workers would support. 

“But Rob! What about all those workers in abandoned Rust Belt cities? If you don’t bring these jobs back, what will they do?” 

Glad you asked! Good thing we have an actual model for this because we already did it!

It’s time to have the courage to deploy the power of our currency like we did in World War II and build a 21st Century economy where America becomes the global leader. This very notion has become a taboo over the last 40 years despite us having very historical, very empirical evidence that large, smart, targeted government investments have extremely positive returns on those investments. In many cases, like the Interstate Highway System, NASA, the Erie Canal, the Tennessee Valley Authority, etc, they are incalculable.  

So what would a similar investment for the 21st Century look like? 

It’s hard to say for sure, but I would bet it centers around green technology. Whether you think climate change is an existential threat or a hoax, it’s hard to argue that everyone wouldn’t benefit from cleaner water, cleaner air and the mass building and retrofitting of buildings and infrastructure to accommodate this. There would be less illness, more flourishing wildlife, and less dependence on price surges in fossil fuels due to war, terror attacks, or the whims of hostile governments.  

But most of all, what the 20th Century did was build a strong, prosperous middle class that wasn’t in personal debt, could save money, start businesses, innovate, hire our citizens, and export these new technologies all over the globe. If Bill Gates had $250,000 of college debt, he probably would’ve been some middle manager tech guy who couldn’t risk starting up a business for fear of having his credit score permanently ruined and eternally dodging bill collectors. The average middle-class person could take these risks back then. Now, it comes largely from already-rich kids who could get into Stanford and have a trust fund backstop their whimsical startup ideas. There’s a small universe of these people. There’s a huge universe of a potential middle class that isn’t deeply in debt but is healthy and educated. 

Therefore, the key to winning the “trade wars” aren’t tariffs or trade agreements, or various quid pro quos between leaders of governments or established cash cow corporations. It’s investing in America’s people and its infrastructure and its innovation. It’s bridging the rural and urban divide with technology and 21st century transportation. But most of all, it’s letting other countries get rich off of our old industries and then watching us getting even richer selling our new stuff to them. 

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