Our current challenging social and political situation is driven by the root causes of individualism, skepticism secularism, inadequate myths, human nature and insecurity. In a word: negativity. Civility embraces constructiveness, intentionality and public-spiritedness as clearly “positive” values. It is also based upon the “positive” values of human dignity, respect and acceptance. Is it reasonable to be so positive in a time of negativity driven by politicians, the media and our fellow citizens? The answer is “yes”. We have chosen to emphasize our challenges rather than our accomplishments. Those who pursue Civility need to be aware of the reality of modern progress, conditions in all areas of life and realistic opportunities for change.
Overall Good News
Improvements in all areas of life since the 1976 bicentennial are amazing!
Rose Colored Glasses; Man Bites Dog; If it Bleeds it Leads.
Politicians, journalists and influencers of all stripes emphasize the bad, the emotional and the unusual. This burdens us and our society. Allegedly, “it’s bad now, and it was MUCH better in the past”. This eternal NOSTALGIA is a big problem for our society today, leading many people to turn to populists, idealists, authoritarians and charlatans for salvation.
I will outline how much better the United States of America is TODAY than it was in the mid-1970’s. I graduated from high school with the class of 1974. I watched the emotionally mixed American bicentennial celebrations in 1976. I remember Jimmy Carter’s 1979 “malaise” speech in which he said that we, the people, needed to face our challenges directly, especially at a moral level. He was briefly cheered but then criticized for being too negative and pessimistic; an uninspiring leader!
Modern life in the USA is immeasurably better than it was in the 1970’s. It is certainly not perfect. The country has not achieved all that it could have or should have in the last half century. It still faces large global and moral challenges and wonders where it can possibly find the leadership, consensus and engagement to resolve them.
The sheer magnitude of changes in daily life across 50 years is difficult to describe but I hope that my outline will collectively communicate the great scale of improvements we have experienced and the resulting hope and expectation that the next 50 years will deliver the same kinds of positive growth. When we consider the last 50, 100 or 150 years of American life, we should be very optimistic.
Global Threats and Opportunities
The Cold War ended in 1989, relieving the pressure of 4 decades of imminent nuclear destruction. This was a miracle. No war. No revolution. No territories seized. No leaders executed. A quiet end to the threat. The US managed the threat of nuclear terrorism. West Germany embraced East Germany. The European Union welcomed new members. The global economy thrived.
The US established relations with China in 1979, beginning the country’s path to economic prosperity, trade and global influence. The growing trade between China and the world has acted to reduce the threat of conflicts while reducing the cost of goods for all.
The US welcomed the growth of Japan plus the “four tigers” of Hong Kong, Singapore, South Korea, Taiwan, as Asian nations embraced the “Western consensus” of mixed market capitalism, global trade and liberal democracy.
European nations also left behind histories of authoritarian governments or too much socialism to embrace the “Western consensus” and thicken ties through the European Union. Francis Fukuyama prematurely declared “the end of history” but the attractiveness of these successful choices was clear.
The US joined international efforts to reduce tariffs and increase trade leading to a doubling of imports and exports as a share of GDP.
The US adopted a less internationalist position after 9/11/2001, declaring a war on terror, defining the axis of evil, revoking treaty commitments, justifying preemptive war and invading Iraq without UN support. Even with this change, the US largely avoided major military conflicts and losses.
Total immigration to the US grew during this period from 2.3% to 2.9% of the population per decade. Many immigrant groups successfully joined American society.
The US welcomed foreign students to its universities. International tourists increased from 15 to 75 million per year.
The US attempted to resolve the Middle East conflicts with some success, avoiding large scale wars.
The US participated in talks to define and address the threat and impact of global warming. It has taken steps to reduce US carbon emissions.
Politics
Presidents Ford and Carter helped to rebuild confidence in the government after Vietnam and Watergate.
Ronald Reagan established “Conservatism” as a broad political philosophy for the Republican party.
Bill Clinton repositioned Democrats more to the center on economics with his “third way” approach.
Both parties increasingly used wedge issues and either/or choices to polarize parties and choices; although the share of independent voters has grown from 30 to 45%, with the rest evenly split between the two dominant parties.
Perot, Buchannon, Palin and Trump provided social and economic populists with a choice.
The country increasingly accepted racial minorities, women, gays, religious minorities, and immigrants; but the conflict between traditional and modern views was politicized as some could not tolerate the changes and others sought to embed the changes as universal human and legal rights accompanied by social pressures to comply with the dominant “tolerant” view.
Federal government employment was reduced from 5 to 4 million in 50 years, while the population grew by 50%. After Reagan, “government” solutions were inherently suspect. Even Bill Clinton declared “the era of big government” is over.
Total federal, state and local government activities grew a little faster than the economy, with the ratio of tax receipts to GDP inching up from 29% to 32%. The ongoing pressure to “cut spending, taxes and regulations” could not defeat the pressures to address social, political and economic issues and interests.
The top marginal income tax rate was reduced from 70% in 1982 and has remained just under 40% since 1987. Neither party has proposed widespread tax increases.
The Affordable Care Act was enacted in 2010, helping to bring the share of Americans without health insurance down from 20% in 1975 to 8% today.
The US safety net/welfare system has remained intact during this period driving the supplemental poverty rate down from 20% to 15%, while the official poverty rate has declined by just 1%. The share of the elderly (65+) in poverty has fallen from 16% to 8%.
The Economy
Real dollar GDP is 4 times larger at $24 trillion.
US real per capita GDP has remained the highest of all major countries for a century. Continued leadership reflects a dynamically successful economy.
Real per capita GDP has increased by 250% to $70,000.
US fiscal and monetary policy has repeatedly been effective in taming the business cycle and recovering from shocks like the housing crisis and the pandemic.
Industrial production, including energy, is up by 250%.
The number of business establishments has doubled to 8.6M, providing ownership and employment opportunities in a more specialized, globally traded world.
The number of franchise businesses has grown from 375,000 to 800,000+, employing more than 10 million people.
The rate of new business formation and success increased throughout the period, with a new boost after the pandemic.
Businesses responded to the 1970’s “Japanese invasion” and became strategically more focused, measured more effectively, focused on cost reduction, invested in R&D, and applied information technology and process improvement tools. Foreign and domestic competition led businesses to be more cost effective, improve product quality and offer products better tailored to diverse customer wants and needs.
Firms experimented with factory robots by 1975. They now use 380,000 robots, adding 10% more annually.
Auto production in the US has increased from 8 to 10 million units per year.
Farms produce twice as much using 20% less land and 40% less labor.
Businesses adapted to the world of greater international trade by growing or shrinking facilities, markets, products and product lines. They adapted to the new power of consumers and retailers and reduced power of manufacturers. They divested units and rejected the conglomerate model. They rejected vertical integration, learning to outsource all functions where they did not have a competitive advantage.
Firms embraced more effective banking, equity and bond markets to fund their activities. They tapped global sources and private equity. They learned by use financial leverage to increase net earnings and acquire other less dynamic competitors.
Firms changed organizational structures to have fewer layers, less positional power, more staff experts and the ability to use cross-functional (matrix) approaches to core operations, projects and joint ventures.
Education
Preschool/Kindergarten enrollment up from 5 to 9 million. Nearly all part-time in 1975 and mostly full-time in 2025.
High school graduation rate is up from 75% to 85%.
Intelligence test scores have increased by more than 10 points.
Share of young adults who have earned college degrees has doubled from 20% to 40%.
Share of adults with college degrees has more than tripled from 12% to 38%.
Share of young women with a college degree is up from 17% to 45%; shares for men up from 27% to 37%.
Share of degrees in STEM disciplines has grown from 11% to 19%.
Number of college students studying abroad is up by 5 times.
Law school first-year enrollment remains at 40,000, while the population has grown by 50%.
US holds 18 of top 30 global university spots.
The number of annually earned doctorates has doubled.
US accounts for 50% of Nobel prize winners, up from 40% in 1975.
Transportation
22% of new cars are electric. Self-driving cars are widely deployed.
Fuel milage has doubled from 13 to 27 miles per gallon.
New car defects have dropped by two-thirds.
Air travel miles are up by 5 times.
FedEx 2-pound overnight service was introduced in 1975 for $75. Service is widespread today at $55.
Same day and next day delivery services are available today, making Amazon.com, grocery and restaurant deliveries common. Catalog mail order lead times were 6-8 weeks in 1975.
Energy
The US faced energy crises in 1973 and 1979 that disrupted businesses, emptied filling stations and led to recessions.
The US imported 35% of its petroleum products in the 1970’s. It is a net exporter today.
Energy intensity, the ratio of energy used to GDP, has fallen by 60% since the 1970’s.
LED bulbs last 10 times longer. Lithium-ion batteries last 4 times longer.
Wind power is 10% of electricity generation. Solar is 10% of electricity generation. Solar is the lowest cost source today, accounting for two-thirds of new generating capacity added.
Coal production is the same today as in 1975, down 50% from its 2007 peak. It is declining rapidly.
Environment
Toxic air pollution measures are lower by 65-90%.
The world resolved the threat to the ozone layer.
Percentage of US homes in communities with treated wastewater has increased from 50% to 80%.
State parks acreage has doubled. Federal parks acreage has tripled. Land trust additions are equal to the state parks area.
Total US forest land area has increased from 750 to 800 million acres, while the US population has grown by 50%.
Nesting pairs of American bald eagles have grown 100-fold, from 700 to 70,000.
US (1976) and global (2014) birth rates are half of historical levels, reducing environmental demands.
US is on track to reach 50% reduction in greenhouse gas emissions by 2030.
Health
Life expectancy has increased from 73 to 78 years.
Infant mortality rate has dropped by two-thirds.
Smallpox has been eradicated. Polio remains eliminated. Other diseases close to zero.
Smoking rate is two-thirds lower, down from 37% to 12% of adults.
Death rates down: Strokes 67%. Cancer 25%. Flu/pneumonia 67%. Heart disease 50%+. Liver disease 25%.
US governments, medical industry, businesses and people responded to the Covid-19 pandemic resulting in a death rate that was half of the 1917 Spanish flu. Novel vaccine development and flexible delivery resources limited the death toll.
Abortion rates have fallen by 50% since 1980.
Medical research continues to develop new science and solutions. Cloning and human genome mapping.
In vitro fertilization births have grown from 0 to 100,000 per year.
Modern anti-depression drugs (SSRI-Prozac) are much safer and more effective than their predecessors.
Kidney dialysis extends lives for 550,000 today versus 25,000 in 1975.
Americans have 40 million MRI scans done on 13,000 machines, up from zero.
Laser eyer surgery has grown from an experimental procedure to 800,000 annually.
50,000 organs are transplanted each year, up from just a few experiments.
Safety
Property crime rate is down by more than 50%. Violent crime rate is one-third lower.
Both the workplace fatality and injury rates are down by two-thirds.
Traffic fatalities per driven mile are three-fourths lower.
Fire incidents have been cut in half while the population grew by half.
Emergency medical services have grown from 2% to 90% of counties; employing 300,000 people, 50,000 ambulances and 1,300 helicopters.
Consumer
Firms have offered consumers much wider options for products in all industries. A typical Walmart Supercenter has 125,000 different SKU’s.
We enjoy year-round availability of most fruits and vegetables today rather than shopping by season.
Clothing and durable goods prices have been cut by half.
The average automobile is 13 years old versus 6, reflecting massive quality improvements.
Car buyers can choose from 15 major manufacturers instead of just 4.
Appliances in more homes: Washing machines (70-85%), dryers (45-82%), dish washers (28-54%), microwave ovens (4-95%). Refrigerators are 25% larger, half price and 75% more energy efficient.
Median new home square footage has increased by half, from 1,500 to 2,200 square feet.
Mortgage loan rates have declined from 8-14% to 4-7%. Real rates are just 2% today.
Total debt service payments (home, car, credit card, student loan) as a percentage of disposable income have declined from 11% to 10%.
Air-conditioned homes have grown from a hot 55% to a cool 95%.
Away from home food spending has more than doubled from 28% to 59% of total food spending.
Household consumption is up from 87% to 92% of disposable income. Savings is down from 13% to 8%.
Leisure
Many television program options. Top 4 network share down from 90% to 30%. Recording and streaming options exist today.
Cable or satellite TV access has grown from 14% to 100%.
The number of feature films released each year has bloomed from 100 to 700.
Music singles are effectively free today. They cost $7.50 each in current dollars in 1975. The transistor radio has been replaced with portable, wearable devices served by playlists, suggestions and feeds.
Real consumer electronics prices have declined by 80-95%. A 21-25 inch color console was $2-3,000 in 1975 in current dollars. A 50-inch tv is available for $500 today.
A 1982 IBM PC cost $10,000 in current dollars. For $2-3,000 today you get 1,000 times the processor speed, 10,000 times the memory and 100,000 times the storage space.
Video rentals boomed in the 1980’s and 1990’s growing into a digital $100 billion industry.
The $5 billion pinball machine sector evolved into the $50 billion handheld and online gaming industry.
Virtual reality equipment is increasingly popular.
Passports are held by half of US citizens, up from 5% in 1975.
Following deregulation, the real price of air travel per mile has glided down by 40-60%.
Hotel room capacity has doubled from 2.4 to 5.3 million.
Pet food consumption has tripled.
American wine production has increased from 250 to 700 million gallons, along with quality.
American brewery count has increased from 150 to 7,000, along with quality.
Wealth
Mutual funds, index funds and 401K’s offer investing to everyone. Percentage of stockholders has grown from 12% to 60%.
The number of retirement plan participants has grown by 250%.
Real dollar retirement plan assets have grown thirty-fold, from $1.6 to $48 trillion.
Homeownership rate increased from 64% to peak of 69% before falling back to 66%.
Family wealth more than doubled for those in the 1st-25th, 26th-50th, and 51st-90th percentiles between 1989 and 2022. Summary data for 1975 to 1989 is not readily available. Real home prices increased by 20% and the real dollar S&P 500 increased by 75% during this period, overall.
Labor
Compounded labor productivity has increased by 150%, more than 2% per year!
Manufacturing, administrative and farm jobs were reduced by 20% of the total during these 50 years. They were replaced by STEM/analysis, management and health care jobs.
Prime age labor force participation increased from 74% to 84%.
Typical unemployment rate declined from 6.5% to 5%.
Share of self-employed workers increased from 9% to 11%.
According to the Gallup Organization, the share of “engaged” workers has increased greatly in the last 20 years.
Real median family income increased by 40% from 1984 to 2024.
There are dozens of expert calculations of real incomes, adjusted for taxes, government benefits, charity, fringe benefits, hours, etc. Most show that 1975-1990 was flat and that 2000-20 showed modest increases.
Society
The US continues to lead the world in charitable giving as a percentage of income, double the nearest country, Canada.
US migration and population growth in the “Sunbelt” impacted local and national economies, politics and society. Texas (13-31M), California (21-39M) and Florida (8-23M) showed the greatest growth and national influence.
Share of adults cohabiting has increased from 1% to 13%.
Teen pregnancy rate has been cut in half.
The share of married couples has declined from 83% to 67% of households.
Parents now invest 20 hours per week caring for children, up from 12 hours in 1975.
Same sex marriage was legalized by the US Supreme Court in 2015.
Female labor force participation rate has increased from 46% to 57%.
The female to male wage discount has been reduced from 35% to 10%.
The number of congresswomen increased from 19 to 155 (7X).
Women today have access to credit and credit cards in their own names.
Black unemployment declined from 15% to 7%, with the excess above whites falling from 7% to 2%.
Black poverty rate has declined from 30% to 18%.
The Black to White income ratio has improved from 60% to 67%.
The share of interracial marriages has increased from less than 1% to 10%.
Percentage of Americans moving per year has declined from 20% to 12%. Interstate moves have declined from 3% to 2%.
Robert Putnam’s “Bowling Alone” shows a 40% decrease in social participation during this time.
Awareness, tolerance and support for “differences” is higher by an order of magnitude: races, nationality, immigration status, physical or mental disability, gender identity, mental health, autism, obesity, and personality.
Hispanic Americans have increased from 6% to 20% of the population.
The percentage of non-Christians, including religiously unaffiliated, has increased from 12% to 35% of the population.
The share of 40-year-olds never married has increased from 6% to 25%.
Computers
Personal computer software and phone apps provide tools for email, calendars, word processing and spreadsheets to everyone today.
Personal computers are in 95% of homes versus 0% in 1975.
More than 90% of jobs today require computer skills.
Home internet access is 92%.
Digital cameras, music, videos, sound and storage make everything portable.
Voice controlled devices and instant language translation.
Today’s 10-day weather forecasts are as reliable as next day forecasts in 1975.
Google search and artificial intelligence provide access to all of man’s writings and promise thought, itself.
Communications
Internet structure and web browser provide access to everything and everyone.
Smartphones integrate computing and communications. 90% ownership rate. Provides photo, filming and navigating capabilities.
Mobile/cellular phone networks and wifi routers offer universal access to the internet and phones.
Social media networks combine the input of many to build and use networks.
Internet allows for open-source software and information creation.
Video conferencing and internet enabled phone/video calls are common.
Voice mail, answering machines, caller ID and 911 were invented.
Digital books have grown to 25% market share.
Annual first class mail per person increased from 240 to a peak of 360 in 2000 before falling to 130 today.
Daily newspaper subscriptions have plunged from 60 to 20 million.
Share of homes with landlines has fallen from 90% to 30%.
A 3-minute long distance call in 1975 cost $8.70 in current dollars. An international Skye call today is 77 cents.
Summary
The world is a better, richer and safer place. Politics has evolved. The economy is 4 times larger. Businesses and education are more effective. Energy is cheaper. Transportation is better. The environment is much better. Health is much better. Safety is much better. The consumer is king. Leisure options and quality can’t even be compared with 1975. Wealth is up. Incomes are up. Society is digesting many large changes. The computer and communications revolutions have delivered miracles and promise more.
We face social, political and environmental challenges. We have more resources than ever before. Based on American history we should be very confident about solving our challenges.
The Chevy Chevette was the best product of the largest and most successful corporation in 1976. [WOWSER] It was marginally better than the Corvair or the Vega. Major US corporations had taken advantage of the post-WWII opportunity to produce for the world and perfected minor changes each year to further stimulate consumer demand. Functional roles in corporations were largely unchanged since the 1920’s. Japanese competition in the auto and consumer electronics industries in the 1970’s caused American corporations to eventually reinvent themselves and move into a world of perpetual change management.
It’s difficult to describe the size and impact of these changes. They were like a compounded series of paradigm shifts. I worked with many organizations from 1975-1989: Koppers, Avery Label, Sherwin-Williams, multiple S&L’s, United Telephone, AmeriTrust, E&Y, Tandy Radio Shack, EDS, IBM, Microsoft, GM, NASA, Zenith, Allison Transmission, City of Cleveland, McCormick Convention Center, Amway, US Navy, US Health & Human Services, Lorain Community College, Baldwin-Wallace University and the University of South Florida.
I completed a finance MBA at Case Western Reserve University in 1984. I joined Ernst & Young as a junior management consultant and learned from Dr. E. Leonard Arnoff, one of the founders of the discipline of operations research.
FEW of the most important concepts and skills of my 35-year professional career existed or were rarely applied in 1984. The smartest academic and business leaders were aware of some of the changes that would shape the next 50 years, but the typical 1984 manager was still working from a 1930’s view of business.
I’ll group the more than 100 HUGE advances into 6 categories.
Strategy
Strategy really matters. A strategy function is needed.
Competitive advantage is critical (Michael Porter).
Companies cannot be all things to all people.
Strategy is a process to focus and facilitate thinking, not a mainly a means of control.
Market leaders have a better chance of winning. Better to be a leader in a small market segment than a follower in a large one. Long-tail opportunities.
In many markets, leading market share (1, 2 or 3) is essential.
Product differentiation is required to avoid commodity pricing.
Universal customer needs of quality, speed, flexibility, value (price and function), information/transaction costs and personal relations/risk management can all be used for product differentiation. A customer centric strategic view is necessary.
SWOT analysis is essential. Strengths, weaknesses, opportunities and threats.
Mission, vision and values must be articulated. Begin with the end in mind.
Firms must choose between equity alone and multiple stakeholder priorities.
Modelling and simulation tools can be used to identify, understand and prioritize the critical dimensions of every firm.
International and startup competition must always be considered.
Professional functions within each firm are increasingly essential.
A 3-way strategic choice must be considered: low cost, product differentiation or customer intimacy.
Successful firms clearly articulate abstract ends and flex the means of attainment (Collins).
The customer and retail interface may have more power than the manufacturer/service provider.
Smaller firms are available to be purchased in a roll-up strategy.
In the end, dynamic, sustainable [moats] strategies have the greatest value.
China matters.
As firms become more strategically driven, the fixed costs of SG&A rose, requiring firms to prioritize growth and market share.
Intangible assets may be more important than tangible assets.
Marketing
Market size is essential. Market share is next.
Marketing research of customer preferences matters.
Branding is vital.
Focus groups can provide separate insights and validate numbers.
The marketing function exists to create value, not just sell things.
Targeted marketing is essential. Products must match differentiated markets.
Some customers value quality and reliability.
Some customers value timely delivery.
Digital marketing channels supplement analog channels.
In the digital world, search engine optimization [SEO] matters.
E-commerce is a competitor to analog delivery.
Internet promotion is a competitor of traditional media.
Individuals’ identity and social interests can be targeted.
Some customers are better targeted by 2-way communications or influencers.
Politicians, regulators and courts increasingly matter, and firms must invest accordingly.
Tariffs matter. Firms must invest to manage them.
Finance
Access to debt, equity and start-up financing is much easier.
Access to global investors is possible.
More efficient markets through mutual funds, ETF’s, derivatives, and efficient trading markets matter.
Portfolio management applies to investments, projects, product lines, channels and new product development.
Marginal costs/benefits apply to every activity and project.
Cash and management accounting perspectives are best used for making decisions, separated from accrual and financial accounting measures.
Price discrimination is a major opportunity in every market.
The formal discounted cash flow analyses apply to many situations.
Activity based costing helps to identify necessary costs at 4 levels.
Corporate and product level costs are subject to cost reduction just like plant/facility and production costs.
The balanced scoreboard system ensures that all levels of economic activity are planned, measured and managed.
Human Resources
Human resources are productive assets; they are not simply “personnel”. They should be managed accordingly.
Required staff skills must be defined, measured and enhanced.
Clerical support skills must be cost-justified.
Analytical skills can be captured in separate positions.
The general concept of meritocracy matters. Exceptions must be justified.
COO’s and CFO’s are not alone. IT, marketing, risk, merchandise and people managers are equally important.
Legal compliance matters.
The role of “managers” is essential. Managing people, tasks and processes. Developing talents.
Highly skilled MBA’s have important roles to play.
Organizational development is a value added function.
Matrix (cross-functional) management is just as important as functional management.
Project teams play a critical role.
Firms cannot cost-justify employing thought leaders in every function. Management consultants can fill in.
Employees can be outsourced.
HR information systems (HRIS) are essential.
Centralized professional services functions are typically more cost effective.
Corporate culture is a strategic asset.
Clearly defining role requirements, recruiting, hiring and performance evaluation greatly improve performance.
Human beings have personalities, habits, talents and motivations that can be leveraged and improved.
Diversity, equity, and inclusion is a worthy investment today.
Workplace flexibility is highly valued by employees.
Information Technology
Basic financial and operations systems can be automated.
Detailed transactional processes can be automated, controlled and improved.
Processes can be documented, standardized and enforced.
Relational database logic can greatly reduce work and errors.
Detailed functional IT subsystems can be developed to improve operations and feed the financial systems. Warehouse Management Systems (WMS), as one example.
Enterprise Resource Planning (ERP) systems can be used to leverage the universal core processes of firms while customizing the details and integrating functional subsystems.
Critical data can be stored in data warehouses for analysis. Big Data comes later.
Reduced IT costs improve access to various tools and systems.
Staff can effectively use personal productivity tools: word processing, spreadsheets, graphs, graphics, email, databases, queries, report writing.
Personal computers allow local use.
The ongoing reduction of computer costs makes them more effective for more employees.
The internet provides access to information, teams, suppliers, customers, markets and others.
Internet search tools provide smart access to information.
Crowdsourced applications provide zero cost tools.
Social media apps provide the opportunity to connect with others effectively.
Smartphones further reduce the cost and limits of accessing all data, functionality and people.
Artificial intelligence provides tools to greatly leverage personal skills.
Operations
Forecasting and statistical techniques refined and easily applied using personal computers.
Professional logistics profession developed, applying the best options for all types of cargo.
Manufacturing outsourced routinely to lowest total costs sources worldwide.
Distribution, logistics, IT, HR, R&D, product development and all functions outsourced (sometimes globally) to leverage specialized skills and focus internal operations.
Operations research tools routinely applied for optimization problems, especially critical paths.
All fixed-cost capacities set at lower percentages, with secondary capacity options, in order to optimize profits, especially in low and high demand situations.
All processes defined, standardized, refined and optimized in order to apply IT and process engineering.
Multiple feedback loops routinely used to improve processes through time.
Lower communications and transportation costs further increased outsourcing activities.
The value of time to customers was identified and turned into a competitive advantage, from 6-weeks mail order to same day to same hour delivery.
Just-in-time production philosophies implemented, and inventories slashed towards zero intentionally to force improvements.
Production processes re-engineered according to process and final goal needs, displacing functional and “like kind” groupings.
Continuous improvement, kaizen quick fixes and full process re-engineering take advantage of global best practices.
Project management discipline created and refined. Agile project management used. Project management offices created to manage portfolios of projects, project managers and subject matter experts from inside, suppliers, customers and consultants.
New product development managed as a portfolio of projects, each within a standard process framework. Firms adopt the “layer cake” view of value as the sum of annuity returns from a series of new products.
Basic insights of modern Total Quality Management or Lean Six Sigma adopted, focused on activity and process variability with unexpectedly large results. Relentless elimination of waste.
The Quality paradigm shift places the process view on par with the finance view.
The variability of actions within a sequence of events [Goldratt] is seen as the critical driver of final results. Processes, measurements, goals, investments, staffing, operations planning and outsourcing are adjusted for dynamic effectiveness.
Summary
Modern firms have cumulatively adopted and leveraged these interrelated capabilities to become strategically driven, self-aware, well-managed and improving through time. The marginal finance/portfolio view together with the process view allow firms to identify, deliver and monetize customer needs while outsourcing functions that are not deemed strategically essential. Firms generally invest more resources in planning, optimization, new product development and risk management today.
The application of these principles has varied by industry. Government, not-for-profit and health care have great improvement opportunities remaining.
Firms may invest in Joseph Schumpeter’s “creative destruction” or they may optimize within existing market structures if they see higher returns from internal process improvements, incremental product development, supplier squeezing, price discrimination, targeted marketing or regulatory capture. In other words, the capabilities for ongoing world-changing improvements exist but may not be applied for the greater good.
I wrote many posts during the Biden administration to counteract the recurring false claims about “runaway inflation”. Biden was certainly guilty of spending too much taxpayers’ money for economic recovery, infrastructure, green projects and student loan forgiveness. This aggravated the inflation rate, made it slower to fall and established expectations of higher long-term inflation. However, the primary drivers of inflation were the pandemic driven demand for physical goods after factories closed, loose monetary policy and bipartisan government spending to offset the pandemic. We all enjoyed 20 years of price stability before this. A little bumpiness after a pandemic driven global shutdown was not surprising.
The climbing inflation rate broke in June, 2022 more than 3 years ago. It has not slowed under Trump’s stewardship.
The inflation rate has been in the 3% +/- range for the last 2 years. That means that prices, on average, continue to increase each year. 2% inflation was the normal rate for the prior 20 years. It (3%) seems to be a rate that is “non-accelerating”. Economic agents, including consumers, are able to ignore 2% inflation. It is immaterial, too small to really notice. 3% inflation is on the border of being “concerning”. Inflation can more easily accelerate from 3% to a concerning 5% or higher. President Trump can claim that he has maintained the Biden inflation reduction from 9% to 3% but he cannot claim that he has reduced prices, reduced inflation or made the cost of living more affordable.
The core inflation rate, excluding the more volatile food and energy prices, has shown the same pattern. It peaked at 6.5% and declined to “about 3%” by June, 2024. It has moved down by one-quarter percent since then. Unfortunately, it seems to be flat. Trump has not moved it down.
President Trump has pursued 2 of these 12 areas but worked in the opposite way to increase inflation on most. He has pressured drug prices down. He has encouraged increased supply of traditional fossil fuels energy.
Fiscal Policy
Federal budget deficit remains at an unsustainable $1.7T per year. Too much demand, not enough supply.
Monetary Policy
President Trump has been harassing Fed Chair Jerome Powell (who he appointed) to cut interest rates. The real, inflation adjusted, interest rate is currently 1%. Monetary policy is neutral or a little tight. President Trump encourages looser monetary policy which increases inflation. Not an inflation fighter.
US Dollar
The US dollar has declined in value since Trump took office, making foreign purchases more expensive.
Housing Costs
Housing prices peaked in 2022, drifted down by 5% in 2022 and have remained flat for the last two and a half years. Trump policies have no impact here.
Health Care
3% medical inflation continues despite efforts to reduce drug prices.
Food prices are more volatile than most. Inflation reached 11% in 2022. It approached 2% in 2024 but has since increased to 3% annually.
Energy
Energy prices jumped in the first 2 years of recovery from the pandemic. They have been flat since then. Trump has cancelled $8B worth of previously authorized energy projects.
Gas prices averaged $2.50/gallon before the pandemic, spiked up to $4.50/gallon during the recovery and settled back to $3.00/gallon for the last 3 years.
Tariffs
US consumers enjoyed immaterial average import tariff rates for the last 50 years. Trump has levied an 18% tax on imports, increasing costs for American consumers of the 14% of their consumption that is imported. The inflationary impact of the Trump tariffs has not yet been passed along to consumers. The frequent changes in tariff rates have led businesses to absorb costs in the short run. This will not continue.
This recent tax change benefits individuals with enough income to pay federal income taxes, so improves affordability for an estimated 4 million people.
This provision of OBBA benefits low to moderate income households aged 65 and older. Many experts criticize its structure, but it clearly makes life more affordable for those who benefit from the change.
Higher Limit for State and Local Tax (SALT) Deductions
Higher income taxpayers who itemize deductions received a significant federal tax reduction. This change does not benefit most low to moderate income households.
Increased Cost and Reduced Availability of Child Care
The OBBBA increased tax credits to partially offset childcare costs. Critics considered these changes to be inadequate, noting that a “pro-family” political party should do better.
Greatly reduced net immigration will tighten the labor supply in some industries, leading to higher compensation for some workers and higher prices for consumers. Economists have not reached a consensus on the net impact to the typical American.
Inflation continues at 3% annually. Real wages are keeping up with inflation. The memory of large price increases in 2022 that were never reversed seems to have reset inflation expectations from 1-2% to 3-4% per year. Some tax law changes in the One Big Beautiful Bill meaningfully cut taxes. Fiscal policy remains very loose and drives inflation. Monetary policy is considered neutral by most economists, but Trump is trying to loosen it, which risks further inflation. Trump’s “on/off” tariff negotiations have not yet driven large consumer price increases but have slowed business investments. Trump’s claims to have improved “affordability” rest on his specific actions that point in that direction, not on the economy wide statistics or large-scale policies that might significantly improve affordability for the “average” family.
1984 – Eli Goldratt offers a “theory of constraints” as a way to understand and manage complex systems effectively, leading to true “lean manufacturing” and “lean operations”.
Process standardization. Financial innovation. Highly focused strategies. New business forms. Markets and international trade deliver desired products, lower prices and competition. A role for government regulation remains. The macroeconomy can be managed to reduce the impact of business cycles and shocks.
Trump focuses only on win/lose. If the US earns $1 trillion from trade and the rest of the world (ROW) earns $1.2 trillion, he sees this as a $200 billion loss. The ROW is winning, taking advantage of the USA and its unenlightened deal makers. If the US earns $500 billion from trade and the ROW earns only $400 billion then we are winning by $100 billion. Trump sees the second scenario as far superior to the first. Relative winnings (win/lose) are the bottom line rather than actual winnings (win/win). This is a fundamental flaw.
The Wrong Measure
Trump only sees costs; he doesn’t consider benefits. Net benefits, benefits minus costs is the right measure.
The Wrong Timeframe
Trump only looks at the short-run. He ignores the long-run. He believes that he can always renegotiate any situation.
International Relations is Complicated
Trump only sees dollar signs. The trade balance can be measured. It is positive or negative. The cost of defense can be measured. Either we pay or others pay. We trade goods and services. Defense/security benefits matter. We care about immigration, crime, taxes, personal security, climate, health, economic development, investments, rule of law, intellectual property, labor, the environment, etc. Other countries care about all of these dimensions. We must too.
International Relations is Irrational
Citizens have an irrational commitment to their nations. They are willing to die for them. Nations have sovereignty. Each has certain minimal rights. Politicians respond to these irrational beliefs. Ignoring this reality is irrational, even though it is very frustrating.
Alliances are Cheaper than Empires
The US learned from European, Japanese and American experiences. Empires are very costly to establish and maintain. Nations can be enticed into becoming reliable allies at a fraction of the cost. They are rationally willing to evaluate costs and benefits, risks and rewards, short-term and long-term, labor and capital, sovereignty and influence, security and opportunity. Trump is right to negotiate, but wrong to discount this basic approach.
Global Agencies are Cheaper than Individual Deals
The US has greatly benefited from the post-1945 system of global governance, finance, economic development, health and trade. Global deals designed by the global leaders provide a framework for low-cost transactions. Trump believes that the strongest nations can extract even more net value through individual deals. Too many countries. Too much complexity to negotiate all of these topics effectively.
Single Deal or Repeated Deals?
Trump comes from the real estate world where each deal is “one off”. International relations and trade are repeated deals. The optimal strategy is different when the “tit for tat” strategy can be used. Firms and nations will punish any bully, even at a significant cost to themselves. The strongest players must consider the weaker players’ strategies. When firms or nations find that they cannot trust someone the total costs go up significantly.
Playing Chicken
There are many strategies in the game of chicken. The strongest player does not automatically win. Bluffing matters. Posturing matters. Resources matter. The ability to endure losses and pain matter. Allies matter. Insurance matters. Flexible resources matter. Capacity matters. Creativity matters. Credibility matters. Non-negotiable factors matter. Trump seems to confuse simple economic might with certain winning.
Comparative Advantage
Trump does not understand David Ricardo’s theory of comparative advantage from 200 years ago. You can be better than someone else in everything, at least in theory. You cannot have a comparative advantage in every production process. Between any two individuals, firms, states or nations, there will be differences in relative productivity. This is the basis for trade and specialization. The U.S. cannot be better in every industry. We can be relatively better in many industries, but not in all. As our incomes and standard of living increase, we will be relatively less competitive in those activities that can use lower cost labor. This is an unavoidable fact. We can choose to subsidize low skilled manufacturing employment, but we are fighting against very strong market forces.
Dealmaking Strategy
Trump focuses on simple short-term one-time win/lose. The best negotiators know that the greatest value comes from “growing the pie” in the long-run (win/win). They don’t assume a fixed-sum game. They cooperate to grow the pie, perhaps at the expense of suppliers, competitors, labor, investors or customers. They exploit comparative advantages to lower overall costs, lower risks and increase benefits. They share or signal their relative priorities. They fulfill their commitments. They create incentives for sustained cooperation. They cooperate to build market power. They manage customer expectations. They under promise and over deliver. They manage the government. They build shared cultural expectations and priorities. They build personal relationships. They manage large risks. They manage and coordinate supply chains. Modern business is complex. The real winners understand and deal accordingly.
Summary
Trump’s dealmaking approach fails on every critical dimension. It is a losing approach for almost all firms and for all countries. His supporters need to understand that he cannot win with his approach and force him to change. His opponents need to highlight these failures. The United States has too much at risk from Trump’s losing strategies.
Real mortage interest rates can be calculated as the difference between nominal mortage interest rates and the 10-year Treasury Bond interest rate. Although nominal interest rates have ranged from 3% to 16%, the real, after expected inflation, interest rates are remarkably consistent, averaging just 1.7% and ranging between 1.3% and 2.1% in 70% of the last 52 years. The peak real rate was 3.0% in 1982 following the unexpectedly high and remaining high nominal rates of the prior 4 years.
Banks, mortgage-backed securities investors and mortgage borrowers all take risks when they complete mortgage transactions. Lenders are betting that their present and future borrowing interest rates are and will be low enough to fund their mortgages at a profit. Each lender locks in funding commitments for a reasonable share of the loan life and counts on the consistency of interest rates over the business cycle to fund the remaining portion. Lenders that experience a mismatch put their stockholders’ equity at risk and face bankruptcy. Investors in mortgage-backed securities are subject to valuation change risks throughout the period in which they are invested. Most such investors hold diversified portfolios of mortgages (region, amount, riskiness, urban vs suburban vs rural) and non-mortgage assets to ensure that any investment decision will not be too damaging.
Fixed-rate mortgage borrowers are betting that inflation will not fall too much lower than the expected inflation rates when they borrowed. If so, they will be paying back the mortgage in higher real value dollars than expected. If inflation and mortgage rates drop by more than 2%, most borrowers will seek to refinance their mortgages at the new, lower market rates, paying another round of closing costs for this privilege. Fixed rate borrowers are also hoping that inflation will be higher than the expected inflation rates at the time they borrowed, allowing them to pay back their debt with cheaper real dollars. Mortgage originators do not generally have the legal right to “call” the debt and require a change in the rates and terms as many commercial lenders and bond issuers do.
The “good news” is that the US mortgage market is very efficient and the real interest rate premium for borrowing to own a home is just 2% more than what the US government pays for borrowing. Borrowers face interest rate change risks, especially being caught with a high interest rate mortgage when inflation rates fall if they are unable to refinance.
The market has been tested through 7 business cycles and held up very well. The “Great Recession” exposed excessive risk taking by mortgage originators and funders. They lost money and many went out of business. Riskier mortgages are rarely issued today, and government regulations provide some added protection against any future overreach.
For higher income households that itemize deduction on their federal tax returns, the nominal interest rate paid is a tax-deductible offset to earned income. These individuals typically pay 22%, 24% or 34% marginal tax rates. A 5% nominal tax rate can provide a 1%, 1.25% or 1.65% reduction in the effective interest rate, thereby making the 2% real mortgage rate less than 1%. Higher income households can benefit greatly from this tax benefit.
One-half of US government spending is managed at the state and local level. Only 3 OECD (developed economy) countries have a higher share at the local level. The median level is one-third of the total and some countries limit local spending to just 10-20% of the total. The US federal government model ensures that a significant share of government is managed closer to “the people”, which is even more important today with 330 million people than it was 200 years ago.
State and local expenditures as a percentage of GDP is 19% for the US, on the high side compared with other OECD nations as expected based on the 50/50 local/national split.
Government employment is even more concentrated at the more responsive state and local government level. State and local government employees comprise three-fourths of total government employment. This total increased from 21 to 23 million across 20 years while total US employment grew from 132 to 152 million. The share of government to total employment eased down from 16% to 15%. Note that this is much lower than the 38% government share of GDP.
The share of total government spending to GDP is the most important ratio to track. Since the 1960’s the federal government has moved spending responsibilities to the state for many programs. Spending drifted up to 25% of a growing post-war GDP by 1966. The Vietnam War and the Great Society programs pushed this up to 29% in 1975. The oil crisis, Japanese competition, inflation and recession pushed it up to 32% in 1976. Spending was still 33% of GDP 30 years later in 2007. The Great Recession drove spending up to 40% of GDP and then it declined back to 34% in 2014. State and local government spending has been relatively constant since 1976.
States and local governments routinely deliver solid budget surpluses in normal years and greatly exceeding the deficits encountered in recessionary years. State and local governments rely more on property and sales taxes which do not vary as much as income taxes. States have proactively reduced spending budgets whenever they have encountered recessions.
States have built up a nearly 3 month cushion of reserves to buffer recessionary periods. States and local governments did much better during the pandemic recession than anyone expected. They reacted quickly to ensure fiscal stability and found ways to put the federal government transfers to good use. Some states have provided rebates to their taxpayers.
State and local governments have continued to accumulate valuable assets, especially in the last 10 years.
States have generally improved their credit ratings since 2006, before the Great Recession. At that time, 9 states had the very highest AAA rating. 39 held very strong AA ratings. Just 2, Louisiana and California held “upper medium” A ratings. Recent data shows 7 more states, for a total of 16, at AAA ratings. 29 have strong AA ratings. 3 are at single A: Pennsylvania, Connecticut and Kentucky. 2 have fallen a step lower to BBB: Illinois and New Jersey. The median rating has improved from AA to AA+.
State and local government spending per capita varies widely, reflecting local preferences. The mideast and far west are 15% above the national average while the southeast and southwest are 10% below the national average.
State spending varies even more widely. The national average is $6,900 per capita. California is 12th highest at $9,000 but neighbor Washington is much lower at $7,000 (26th). Massachusetts is also at $9,000 but its neighbor New Hampshire is at a very low $5,000 (46th). New York is lower than might be expected at $8,600 (15th). Nearby New Jersey, Pennsylvania and Virginia spend $7,200-7,500, a bit above the national average. Michigan, Ohio and Illinois spend less than the national average at $6,100-6,300, but nearby Indiana ($5,500), Kentucky ($8,500) and West Virginia ($10,300) have much different priorities. Georgia ($5,700), Alabama ($6,300) and Mississippi ($6,700) spend less than the national average. Texas spends only $4,700 per capita (48th) while its neighbor Arkansas spends $9,200 (10th). Florida is the lowest spending state at just $4,000 per person, an amazing 42% less than the national average.
Another way to look at these differences is to compare the spending of 5 states. Rhode Island $10,400 (6th), Kentucky $8,500 (16th), Washington $7,000 (26th), Colorado $6,200 (36th) and New Hampshire $5,000 (46th). Rhode Island spends twice as much on state government than New Hampshire, a few miles away. This is the range in the US, reflecting vastly different local priorities.
Summary
In our federal system, state and local governments are called upon to manage one-half of total government spending. They routinely deliver budget surpluses and adapt during recessions, even the pandemic driven recession. They have accumulated significant real and financial assets to buffer difficult times. They have managed pension liabilities appropriately and improved their bond ratings and ability to borrow. They have taxed and spent to match local preferences. In aggregate, their spending has remained at the same percentage of GDP for many years.
Good News 
