Attentionization

Before it was the ‘United States of America’, the colonies were a collection of farms and investment concerns that produced raw materials that were shipped offshore, turned into finished manufactured goods and then shipped back with the commensurate mark up.

As the economy matured and technology was developed ’stateside’ the colonies fought a war started because of unfair import duties and developed its own manufacturing capability.  The 1800’s brought a wave of innovation and industrialization to the newly hatched USA, paired with protective import tariffs that sealed the country from cheap offshore goods.  This combination brought about the second most prosperous and powerful nation entering the 20th century, behind England.

The US continued its development of manufacturing capability, staffed with foreign immigrant labor in the early 20th century.  As European nations waged war amongst themselves, we helped but continued to develop our manufacturing capability.  Our deep natural resource advantage and the ingenuity of the American people, notably fueled by the influx of talent from around the globe, led the surge.

After WWII wiped out the industrial capacity of most of our allies and enemies, the USA was in a strong position to dominate worldwide manufacturing and in fact did through the early 1970s.  We then encountered the first of the oil shocks and began our slow and steady shift from Northeastern factory production to reliance on production in the cheaper southern states.

In his outstanding article in the May Atlantic Monthly a couple of months ago, ‘The Quiet Coup’, Simon Johnson lays out the case that the American economy has become about making money from interest rate returns, rather than through the manufacture of actual goods.  Here is a brief excerpt:

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.

Click the chart above for a larger view

Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

We need to make something other than money for our society and culture to thrive.

See TechCrunch today for a lively debate on the topic:  Does America Need to Make things?