While reading this at the San Francisco Fed web site, a few things struck me that I wanted to share. I've thought about these issues before, but never in such a comprehensive manner.
The first consideration is that, for the US economy to have the kind of hiring that is required to rebuild (recreate?) the middle class, American companies are going to have to produce GOOD, if not AMAZING, products. Products that sell not only in the US but also to foreigners. In fact, I'd venture to say that foreign buyers will be more important to an economic recovery in the US than American buyers. A service based economy, serving only a domestic market at that, cannot support the level of GDP that will be required to employ as many people as required to resurrect the "middle class". Americans will have to make stuff - not just design stuff, not just create marketing and ideas, but actually implement and build physical products. Even if the products that US companies start producing are virtual goods - intellectual property, designs, etc. - the buyers will have to be overseas. That means whatever the products of the future are, they will need to be mindblowingly amazing! "Insanely great!" as Steve Jobs of Apple once said. They will have to solve real world problems at a huge level of value add/creation.
Second, for Americans to be employed by these companies in the numbers required by the population level, Americans will have to get used to higher prices. Why? Because if products are to be sold to American consumers, the prices will have to be high enough to allow people to make a so-called "living wage". Now, I personally have no problem paying more for a product if it provides value for me. (See Myth #5 here, this and this. Thanks Ramit!) However, as mentioned above, American products will need to be excellent values. Price is a lesser factor in considering the value that a product offers you, but the simple fact is that overall, Americans cannot be employed if they can't make enough to support themselves and their families.
For the last 2 decades, the emphasis has been on acquiring more stuff. That stuff became easier to acquire because manufacturing moved overseas, to Mexico, Central America, China, Vietnam or wherever. Now that conspicuous consumption is on life support, Americans will have to go back to living within their means, which is largely determined by income. So at both ends, the issue will need to be addressed. Consumers will need to save more and spend less overall, which they have started doing (but whether this will be permanent is to be determined). However, incomes have to be able to support a certain standard of living as well. For now, in the deflationary economic environment we have, that standard of living WILL decrease. Whether it stays that way over time will depend on whether American consumers have the intestinal fortitude to spend more on American made products to employ other Americans (that - *gasp* - they don't already know!).
Not all products consumed by Americans will need to be made by Americans. However, I contend that a hell of a lot more products than are currently purchased by American consumers will have to be American in origin. If the value vs. cost comparison favors an imported product, so be it. This is NOT about dogma, protectionism and nationalism but it is simple truth.
For those products where American companies and workers can create huge amounts of VALUE, then American consumers owe it to themselves to pay the higher price (in exchange for that value). This is what will lead to rising incomes, rebuilding the hollowed out middle class, and along with other political and economic efforts, prevent the US from becoming the UK.
That's just a thought. Let me know what you think. For now, I'm going to bed.
Until next time...