Category Archives: Economy

by D.J.Rippert

American Airlines Flight 191 – As a frequent flier with over 3 million air miles I pay close attention to airline safety and have a somewhat morbid curiosity about airplane crashes.  One thing always stands out for me – airplane crashes rarely result from one big problem.  Instead, they are caused by multiple problems occurring at the same time.  American Airlines Flight 191 was just such a tragedy that resulted in the worst U.S. air disaster until the Sept 11 attacks.

On May 25, 1979 American Airlines Flight 191 took off from O’Hare field and quickly crashed into Des Plaines, lll.  All aboard and two people on the ground were killed.  The reason for the crash seemed apparent – one of the airplane’s engines fell off the wing during takeoff.  However, even this seemingly straightforward explanation was wrong.  The tragedy was actually a horrible play in five acts.  The engine placement was poorly designed and maintenance crews often damaged the engines during servicing.  The plane would have flown without the engine but the falling engine severed the hydraulics, which are required to control the plane.  Most planes had designs that kept the slats retracted in case of hydraulic failure but the DC-10 did not.  Finally, there were two warning systems that should have sounded but the engine that had fallen off powered them both.

In the end, these multiple problems caused the deaths of 273 people.

Today’s American economy is like an airplane crash – what appears, at first, to be one or two big problems is actually the interplay of many big problems. However, airplane crashes are carefully and dispassionately studied to improve safety while our economy is mere election year fodder for our corrupt political class.

The Dirty Half Dozen.  Six powerful and deeply ingrained trends have conspired to put America in its present economic condition.  The trends themselves must be studied.  Perhaps more importantly, the relationships among these trends must be understood.

Automation – Jobless recoveries occur when the underlying economy improves but that improvement does not serve to sufficiently spike the demand for labor.  Jobless recoveries were an oxymoron until the early 1990s.  Today, they are a fact of life.  One reason is the relentless automation of everyday tasks.  Anybody who understands exponential growth knows that the curve of that growth starts out pretty flat but ends up very vertical.  It’s easy to get lulled to sleep in the early stages of exponential change and equally easy to get gored by the curve once it hits “the elbow”.  We are currently experiencing “the elbow” of technology change.  Today, robots dispense cash, web sites book travel, chemistry controls cholesterol and the world champion chess and Jeopardy players are both software programs written by IBM.  More detail on this trend can be found here.

Globalization – What automation isn’t stealing from an American recovery globalization is taking instead.  The 1970s and 1980s proved that the American economy was strong enough to “pull up” millions of Mexicans from poverty as manufacturing jobs were moved offshore.  The last 15 years have proven that the American economy is not strong enough to pull up billons of Indians and Chinese from poverty by off-shoring everything else.

Illegal immigration – Supply and demand determine price.  The American labor market is but one of a billion commodities subject to the law of supply and demand.  Allowing tens of millions of illegal immigrants into the US raises the supply of largely under-educated labor and that, unsurprisingly, lowers the price of that labor.  This keeps America’s poor impoverished and widens the wealth gap.

Deficits – I’ve always suspected that Lyndon Johnson was a closet magician.  During his relatively brief tenure as President he tried to make the Vietnam War disappear in the smoky haze of The Great Society.  The war remained in plain sight and the smoke of the Great Society congealed into the stifling smog of today’s entitlement society.  Unfortunately, like most Presidential inventions – this Frankenstein of demographic illiteracy has not just endured but grown.  Nixon, Ford, Reagan, Bush and Bush all kept the printing presses rolling one way or another.

Easy credit – Bill Clinton wasn’t known as Slick Willy for nothing.  Clinton unseated an incumbent president with the classic campaign cry, “It’s the economy, stupid.”  Unfortunately for President Clinton, no magic bullet appeared on the day of his inauguration to change that economy.  So, he invented a magic bullet – easy credit for everybody.  He pushed the banks to make loans to anybody who could afford a ball point pen to sign the paperwork.  Bush, Jr. kept the party alive by convincing the Fed to keep interest rates at artificially low levels.  The early results proved the palliative was working.  Consumption inequality rose much more slowly than income inequality in the years before the current crisis.  But America was living on borrowed money and borrowed time.

Moral decay – The consumerist society has reached new heights in the U.S.  Advertising hits us from every direction while Mom, Dad and the local reverend are either too busy shopping for themselves or drowned out by the cacophony of our over-consumptive country.  Corporate CEOs, sports stars, rap artists and the current First Lady all seem to define themselves through the extravagance of their lifestyles.  Image over substance replaces the church and nuclear family as Americans vainly strive to “keep up with the Joneses”.   Savings rates plummet and our children learn to define themselves by what they have versus who they are.  Neuro-plasticity is real.  Prolonged exposure to repetitive messages can change the way our brains work.  The relentless advertising whispering, “buy, buy, buy” in every facet of our lives is creating a society that can’t afford to be what it wants to become.

United Flight 232.  Not every set of mid-air catastrophic failures result in the death of all aboard.  In 1989, United Airlines Flight 232 left Denver for Chicago.  Somewhere over Iowa its rear engine disintegrated and sent shrapnel through all three independent hydraulic control systems shutting them down.  The fact that there were three independent control systems mattered little when one exogenous failure destroyed them all.  The air crew somehow improvised and used the thrust from the two engines to control the plane.  The plane was crash landed and broke in two.  The brilliance of the aircrew and the creativity of the pilot could not stop the horrible tragedy of 111 deaths.  However, the stunning result was less the tragedy of the 111 people who died but rather the amazing fact that 185 people lived.

America’s economy is currently experiencing multiple catastrophic failures. However, some courageous improvisation, a willingness to take risks and the steel will of those piloting the economy may be sufficient to avoid complete disaster.  The real trick will be the hard work of dropping the class warfare, partisan politics and simpl -minded sound bite logic of our our current political class.  This November might be a good time to start.

Next up … a detailed look at how the pace of automation is exceeding our economy’s ability to adapt.

By … DJ Rippert

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