I think it’s quite possible that David Schutz is right to fear a period of national decline for the United States. A sclerotic political system and the forces of organized greed and hatred may well cause the whole country to go the way of California, a naturally rich state now being impoverished by its feckless government, due to institutions that allow a stubborn minority to rule.
But Schutz is simply wrong to treat the question of distribution as orthogonal to the problem of falling living standards. The forces he cites – which all boil down to globalization and the falling cost of making good stuff overseas – are not, by themselves, capable of reducing real GDP per capita in the United States. On the contrary: the cheaper and better stuff we can import, the greater our real income.
The threat of globalization is precisely the threat of a greatly worsened distribution of income.
Now that worsening income distribution, and its political consequences, could easily lead to real economic decline as our roads, railroads, telecoms infrastructure, electrical grid, and schools become less and less capable of sustaining a healthy economy, and our institutions allow more and more of the inefficient looting that characterizes so much of the financial-services and health-care industries. And as long as the oligarchs let their hatred of Al Gore blind them to the obvious facts about climate change and the urgent need to do something about it, we risk serious real economic decline due to utterly preventable changes in the environment.
But if – and it’s a huge if, in this Age of the Tea Party – the gains from trade are recycled by the tax-and-transfer system and by directly provided government so that they translate into rising standards of living up and down the income distribution, and if the result is more support for vital public-sector investments, then there’s no more contradiction between prosperity for China and India and prosperity for the U.S. than there was between economic growth in the U.S. and economic growth in Europe in the 19th Century.