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01.11

Outlook for 2011

By George F. McClure

As in past years, this annual survey will examine the outlook in eight areas of significant importance to the U.S. endeavor: technology, energy, climate change, work force, employment benefits, immigration, infrastructure and the economy.

Technology

New Strategic Arms Reduction Treaty

This treaty was confirmed by the Senate in the lame-duck session.  It reduces the allowed number of warheads for each side from START I by 30 percent from 2002 — from 2200 to 1550. Some senators have raised questions of what other restrictions may have been agreed to, before it was ratified.  Critics say there is a provision in the preamble stating that if the United States embarks on the fourth stage of missile defense, the treaty is void.  Advocates say the preamble is not part of the treaty and violating its provisions will have no effect.  Rose Gottemoeller, Assistant Secretary of State for Arms Control, Verification and Compliance, said if this treaty is not ratified in the lame duck session then all of the hearings conducted last year would have to be done over again and that it could add a year or more to the time to ratify the treaty. Sen. Jon Kyl wanted the Senate to have access to the transcript of negotiations conducted to date on New START.  Gottemoeller said if this were done regularly, it would have a “chilling effect” on future treaty negotiations.  START I expired a year ago.  The ratified New START will have a duration of  ten years.  Only the United States and the Russian Federation are parties to either treaty.  A concern is that Russia has begun moving tactical nuclear weapons toward the borders with NATO nations.  Tactical nuclear weapons are not covered under New START.

The first START preserved the U.S. right to modernize U.S. missile defenses, against Russian objections, but New START gave up on this provision, according to Douglas Feith former undersecretary of defense.  He points out that the new treaty counts as nuclear weapons even ICBMs that have been converted to conventional missiles, and waters down the inspection regimen to only “declared” facilities.  The original treaty allowed inspectors to designate any sites for inspection, at short notice. [link]

The United States abandoned a plan, opposed by Russia, to have defensive land-based missiles based in Poland with radar control from the Czech Republic.  Instead, reliance will be placed on AEGIS guided missile cruisers, planned to be on line in 2020.  A future modernization of  U.S. missile defense will be needed, and $85 billion over ten years has been promised for this, but the budget for the missile shield was cut by 15 percent in 2009.  Spencer Abraham, secretary of energy from 2001 to 2005, contended that we need nuclear weapons modernization whether of not the treaty is ratified. [link]

Debate before the vote included concern over tactical nuclear weapons, where the Russians have a 10-to-1 advantage over the United States, which are not covered.  Advocates said this treaty must be ratified before there is any consideration for control of tactical nuclear weapons.  However, a proposed amendment calling for including tactical nuclear weapons control within a year of the effective date of New START was not approved.

Other concerns included a limitation of 700 delivery vehicles, which would hamper the U.S. bomber fleet where a total of 720 is preferred, and the allowed use of encrypted telemetry for testing, increasing the possibility for cheating since the United States would not be able to monitor those transmissions.

The Senate ratified the treaty with 71 senators voting for it.

Defense Level Playing Field Act  (H.R.6540)

This bill affects the jet tanker competition to be evaluated soon.  There could be 48,000 new jobs in Alabama to assemble the A330-based tanker if EADS (the parent of Airbus) is chosen, says Senator Jeff Sessions  But the bill passed only the House before adjournment.  The World Trade Organization had two findings showing that both sides had received government subsidies, but in different forms.  For Airbus it was launch aid for new models.  For Boeing it was defense contracts where the technology was also usable for commercial aircraft. [link]

Technology Transfer to China

Siemens, Alstom, Bombardier, and Kawasaki have sold high-speed rail equipment to China not expecting that China would soon build on their technology to compete with them in other markets.  But that has happened after only a few years.  The Chinese have even been solicited to bid on a high-speed rail line in California.  [link]

Their further “innovation” beyond the technology embodied in the trains they bought makes the Chinese offerings more valuable, they say.  But the companies whose technology is embodied say this is theft of their intellectual property. [link]

Nuclear reactor technology is another area where the Chinese are innovating without licensing. [link]

Four Westinghouse/Toshiba third generation nuclear AP1000 reactors built in China were accompanied by a technology transfer agreement that Westinghouse hopes will position them for further sales in China, but there are no assurances.

China has 23 nuclear reactors under construction and a further 120 proposed, according to the Financial Times. [link]

Westinghouse is also bidding to build four AP1000 reactors in the UK.  It has other technology transfer agreements with Italy, Spain, and France.

Small modular nuclear power plants, generating less than 300 megawatts, are in prospect.  They can be built in factories and can be deployed rapidly.  Efficient, they can run for 20 years on their initial fuel, minimizing waste.  Two U.S. firms, NuScale and Babcock & Wilcox, have submitted designs to the Nuclear Regulatory Commission.  Other designs are being brought forward from Korea, France,  Japan, and Russia.  [link]

Jet Engine Efficiency Improvements

A new geared turbofan jet engine developed by Pratt & Whitney permits both the fan and the compressor turbine to operate at optimum speeds, reducing fuel consumption by 15 percent and carbon dioxide emissions by 3,600 tons per aircraft per year.  The engine is planned for the next generation Airbus A320 in 2016.  [link]

2009 Airliner Disappearance

A new search is being mounted for Air France 447, an Airbus 330-300 which disappeared off the west coast of Africa during a flight from Rio de Janeiro to Paris.  The latest robotic technology will be used in the search.  Since the European Aeronautic Defense and Space Company N.V. (EADS) plans to use the Airbus 330-300 as the basis for their jet tanker in the U.S. competition, there is more than passing interest in determining the cause of the disappearance. [link]

Energy

A large supply of natural gas is locked up in North American shale deposits.  Some estimates put it at a 100-year supply in the United States.   The gas is released by hydraulic fracturing of the shale, a process called fracking. [link]

Nine out of ten wells on public lands use fracturing, but there is concern for the proprietary chemicals used with water and sand, after TV coverage of some nearby water supplies found flammable.  An inquiry is being launched. [link]

If fracking can release natural gas economically that will be good news for utilities and the makers of combined cycle gas turbines.  But other parts of the world experiencing burgeoning population relocation and growth still need other energy sources.  By 2025,  China will have to build the equivalent of the entire U.S. electric grid to accommodate 350 million people that will live in cities that don’t exist now.  Powering that grid will require all available energy sources, including ubiquitous coal.  Sixty percent of the world’s coal is located in the United States, Russia, China, and India, where there is 40 percent of the world’s population.  China has a sustained program directed toward clean coal, coal gasification, and carbon sequestration. It can support ten-year government-funded plans that are not possible in the United States. [link]. 

China has built many coal-to-gas conversion plants, but the United States has not been able to build one in 30 years.  The United States has one carbon sequestration program.  [link]

Duke Energy is looking to China for future financing of its clean coal technologies.  CEO Jim Rogers points out that by 2050 Duke will have to replace or rebuild every one of its existing power plants, except for its hydroelectric facilities.  Its capital budget for the next three years is $18 billion.

China spent $35 billion on clean energy, from 2005 to 2009 nearly double what the United States spent in the same period, according to The American Prospect (“Clean Job Search”, Dec. 2010).  [link]

Unless the economy picks up significantly, the price of oil in 2011 may hold below $100 per barrel and natural gas below $6.00 per million BTUs. Most of OPEC’s twelve members are content with production quotas that keep the price of oil under $90 per barrel. Saudi Arabia’s national budget for 2010 requires an oil price of $74 or higher, consistent with production of 8.3 million barrels per day, while China needs a price below $90 to preserve its refining profit margin. Iran, Nigeria and Venezuela exceed their quotas and want high prices that will not be possible if  the other OPEC members increase their production.  A cold winter in Europe and a pickup in global demand argue for higher energy prices. The price of oil and gas affect the attractiveness of promoting renewable energy resources further. Oil in December rose to $91 per barrel for the first time since October 2008, as U.S. demand increased by nearly one million barrels per day. [link] [link]

The International Energy Agency issued its 2010 Energy Outlook in November. The IEA has a new scenario where alternatives to oil, following the G20 promises to phase out subsidies for fossil fuels, will reduce demand in 2035 to 90 million barrels per day, compared with 107 million barrels per day under the old scenario. A summary is found at www.worldenergyoutlook.org

In 2006 a challenge was issued by Warren Buffet to help create a $50 million low-enrichment uranium stockpile for nations that will forgo sovereign nuclear initiatives. [link] In December the United Nations approved participating, with a total of $150 million for enrichment. [link]

Climate change

Expectations were modest for the 2010 U.N. Climate Change Conference, that met in Cancun, Mexico, but in December an agreement was reached to commit the world’s largest emitters of greenhouse gases to various forms of emissions reduction by 2020. The National Journal reports that it would not be enough to prevent world temperatures from rising 2 degrees Celsius, the amount necessary to stave off the worst ravages of climate change. [link]   The agreement did restore the credibility of the U.N. as a forum where progress can be made.

 The Kyoto treaty, which put a cost on carbon emissions in some developed countries, expires in 2011. Japan and EU, pointed that the Kyoto Protocol covers only 27 per cent of carbon emissions, and does not include the largest emitters of greenhouse gases — the United States and China. [link]

The United States and some other developed countries did not ratify the protocol, which would significantly increase their production costs.  Last year, results were disappointing at the U.N. climate conference in Copenhagen, although world leaders did promise some $150 billion per year to offset the effects of climate change by 2020, mostly from the private sector.

The U.S. Congress proposed, but defeated, a cap-and-trade bill that would have increased costs significantly for all users of carbon-based fuels.  The Congressional Budget Office estimated the cost per household in 2020 at $175. [link]

But this was a low-ball estimate, according to the Heritage Foundation, and, besides, the measure would have virtually no effect on climate. [link]

To meet its burgeoning demand for energy, China is pushing forward on all energy fronts (see the section on Energy, above).

Recent proposals point toward limiting the increase in greenhouse gases to 4.0ºC by 2100 less than the 4.8ºC rise if nothing is done.  [link]

Superbergs

Giant icebergs have broken off from the Antarctic shelf.  As large as 62 miles long by up to 24 miles wide, their movement interferes with marine life.  [link]  Their great bulk may have acted as a barrier to the inflow of krill - shrimp-like creatures that follow the same currents as the bergs and are a vital source of food to many of the island's animals, including its penguins, seals and birds. [link]

Work force

The unemployment situation continues grim. The official unemployment rate rose to 9.8 percent in November.  [link]  Seasonally adjusted, 5.8 percent of the civilian labor force has remained unemployed, unchanged over the past year [Table A-15, U-1]. The total unemployed, including marginally attached workers, those with part-time work because they can’t find full-time employment has fallen over the year, from 17.2 percent to 17.0 percent [Table A-15, U-6]. [link]

The median duration of unemployment over the year ranged between 19 weeks and 25 weeks. [link]   The mean (average) duration of unemployment was as high as 35 weeks, considerably higher than recorded any time since 1950. [link]

The unemployment rate for workers with bachelor or higher degrees increased by 4.1 percent over the year, finishing the year at 5.1 percent (Table  A-4).  [link]

The Federal Reserve Board outlook is that it could take over 5 years to get down to 5% unemployment, and for the next two more years it may be over 8 percent. [link]

How Will Unemployment Fare Following the Recession?  The figure below shows agreement with the Fed’s outlook. [link]

The Silver Tsunami

The name for the wave of older workers approaching retirement.  The aging of the workforce has meant that in many cases succession planning has failed, as workers leave faster than successors can be groomed.  The McKinsey Quarterly considered the consequences over two years ago, and identified some policy changes that would help boomers to stay in the workforce longer. [link]

Bringing Along Future Generations

In addition to continuing to use legacy intellectual property — in the brains of our older workers - we need to cultivate the new generation for future STEM (science, technology, engineering, and mathematics) workers. [link]

The 7 December 2010 release of international test scores for 15-year olds conducted by the Program for International Student Assessment (PISA) shows The Republic of Korea #1 in two out of three categories while the United States (US) continues to rank in the middle of all categories.  Sixty-five countries, including all 34 OECD members, participated in the tests.  The United States ranked 14th in reading, 25th in math literacy, and 17th in science.  The No Child Left Behind mandates of the past decade in the United States have not been effective. [link]

The United States ranks 12th in rate of 2-year college graduation (40.4% of 25 to 34 year olds) — exceeded by Canada, Korea, and the Russian Federation (at 55% or more).  A program to increase the rate from 40 percent to 60 percent over the next ten years was announced.  [link]

The IEEE Power and Energy Society is working with the IEEE Foundation to encourage more engineering students to specialize in power engineering, through a program of scholarships and internships.  By 2015, over 15,000 power engineers could be needed to replace those leaving the field through retirement or for other reasons. [link]

Employment Benefits

For 2 million unemployed, benefits expired 27 November, making more urgent the 13-month extension of benefits approved as part of the tax bill in late December  The extension does not affect those in the 24 states with unemployment above 8.5 percent  who have already received the maximum of  99 weeks of benefits. The average benefit is $310 per week. [link]

A challenge to the mandatory participation requirement for individuals in the new health insurance law (Patient Protection and Affordable Care Act) came from a federal judge who called it unconstitutional.  This was in response to a lawsuit filed by the Virginia attorney-general to test a Virginia law. [link] Another lawsuit, filed on behalf of twenty attorneys-general, is still to be heard.

Under the act, individuals who fail to maintain minimum essential coverage will be subject to a penalty equal to $750. The fee for an uninsured individual under age 18 is one-half of the adult fee. The total household penalty may not exceed 300% of the per-adult penalty. Since coverage cannot be denied for pre-existing conditions, critics point out that it may be cheaper to remain uninsured until illness strikes — then buy coverage.  The analogy is to wait until your house is on fire before buying fire insurance.

The federal government is already adjusting its military health plans, called Tricare, to provide coverage for dependents up to age 26.

Exceptions to full coverage requirements for low-income workers has been worked out.  Mini-med plans with a $2,000 benefit cap are offered by McDonald’s for a premium of $710 per year.  But this was an unintended consequence of the health care act and the Senate promises an investigation.  [link]

Retirement Challenge?

Government Savings Accounts vice 401(k)s is the challenge offered by Professor Teresa Ghilarducci in testimony before the House Education and Labor Committee in 2008, when the stock market decline was near its nadir.  Some $2 trillion in retirement savings had been lost over the past 15 months.  Ghilarducci would eliminate most of the $80 billion in annual tax breaks, that 60 million 401(k) planholders receive owing to the deferred taxation of most of the contributions to the plans.

Under her plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government, but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration.  The money in turn would be invested in special government bonds that would pay 3 percent per year, adjusted for inflation.  Critics of her plan say many employees participate in 401(k) plans just because of the employer match, which helps most people in the lower income brackets. [link]

High-income employers participate in these plans for their employees so they themselves can qualify for the tax benefits for their own defined-contribution plans (under anti-discrimination rules). 

The Employee Benefit Research Institute reported that the plan balance for consistent participants grew by over 30 percent in 2009. [link]

 In October Prof. Ghilarducci appeared on TV’s “Ideas in Action” opposite Alex Brill of AEI and Dallas Salisbury of EBRI discussing her plan.  That episode can be viewed here.

Keep health benefits as an employment benefit?  Or tax them? The employer deduction for health insurance, which costs some $200 billion a year in lost tax revenue, has also distorted incentives by creating a system of third-party payments. Individuals who bear little responsibility for their health-care expenses have little incentive to reduce costs, much less lead a healthier life-style that would save money over time. Refocusing this tax benefit on the needy while encouraging wealthier consumers to economize would help health markets and the federal budget. [link]

Four lesser-known economic indicators are more useful than their better known cousins:

  • Commercial and Industrial Loans Data – The Fed has a weekly report, called Release H.8, accessible at www.federalreserve.gov.  More useful that the more familiar dated report, issued quarterly .

  • Number of hours worked — better than number of people hired.

  • Job Openings and Labor Turnover Survey (Jolts) — better than unemployment rate, showing ebb and flow of the economy’s health

  • Disposable Personal Income — better than wage growth , found at www.bea.gov

Details at [link]

Immigration

Comprehensive immigration reform is still not on the horizon.  There have been discussions of stapling a (permanent resident status) green card to a diploma from a U.S. college or university earned by a foreign student, so that the country could gain some benefit from the educations subsidized by U.S. taxpayers.  That is not on the table but a part that deals with alien youths who have been in the United States for at least five years is being pushed now.

The Development, Relief and Education for Alien Minors (DREAM) Act is bipartisan legislation that would give eligible young people who were brought to the United States before age 16 the opportunity to legalize their immigration status and work towards citizenship.

To move from being undocumented to being a U.S. citizen, eligible young people would be required to pass background checks, be of good moral character, graduate from high school and go on to attend college for at least two years or serve in the military.  It is estimated that each year, 65,000 young people graduate from high school in the United States who find themselves unable to work, join the military or go to college because of their immigration status. Approximately 800,000 young people, who have been in the United States for at least five years, would be eligible for the DREAM Act upon passage. [link]

An earlier version estimated that 2.1 million people could pursue the DREAM path to citizenship. [link]

According to Frank Sharry, executive director for America’s Voice, an advocacy group, those qualifying would receive conditional non-immigrant status followed by three years to qualify for a green card.

The Secretary of Defense has endorsed the concept.  The proposal will be on the agenda for the 112th Congress if it does not see passage in the lame duck session of the 111th Congress.

Critics point out key flaws of the DREAM Act, including:

  • The DREAM Act grants amnesty to certain criminal aliens—such as those who failed to attend their removal proceedings, have engaged in voter fraud, and have engaged in marriage fraud;

  • The DREAM Act does not actually require the completion of any educational degree program from an institution of higher education (including vocational schools and community colleges), but rather a beneficiary must prove only that he or she has finished two years of course work within eight years of the grant of conditional non-immigrant status

  • Those earning citizenship under the DREAM Act would be able in the future to sponsor immigration for other family members.

While the DREAM Act passed in the House during the lame duck session, it was defeated in the Senate.  It may come up again in 2011.  Rather than a comprehensive reform look for smaller bills that address specific issues:

  • Secure the southern border

  • Encourage and expand permanent high-skilled immigration

  • Expand low-skilled guest worker program

  • Solve the illegal alien problem (11 million?)

There were calls to stop deportation enforcement of DREAM candidates after the Senate vote.

Infrastructure

Much work needs to be done, according to the ASCE, which estimates the 5-year total at over $2 trillion.  The ASCE advocates a 15 cent increase in the gas tax, which has remained constant for 17 years. [link]


Source: Wall Street Journal

Protecting Mass Transit

The holes in security leave travelers more vulnerable on the more than 4 billion trips they take by subway and rail each year than in the sky, where airlines carried fewer than 700 million passengers from U.S. airports last year.  Is the solution airport-type scanning, human intelligence, or something else? [link]

A Real Cyber Attack

An interesting example of a cyber attack on infrastructure has recently been disclosed.  A computer worm (not a virus) called Stuxnet is viewed as the “greatest triumph in the short history of cyberwarfare.”  Stuxnet was designed to tamper with industrial systems built by Siemens by overriding their supervisory control and data acquisition (SCADA) protocols.  It exploited four vulnerabilities in Windows.  SCADA systems are rarely connected to the Internet, but Stuxnet could be loaded from a USB flash drive.  It found its way on to about 100,000 computers worldwide, 60 percent of them in Iran.  Its ‘payloads’ appear to have been targeted at the Siemens S7-417 controller at Iran’s Bushehr nuclear power plant, and at the Siemens S7-315 controller at the Natanz centrifuge operation, where uranium is processed and enriched  [“How the worm turned”, The Weekly Standard ].  Stuxnet took over the frequency converters for centrifuges, introducing tiny bursts of speed followed by abrupt decelerations, corrupting the uranium processing and wearing out centrifuge components.  It could have taken a team of 30 to 50 programmers a year or two to code Stuxnet.  [link]

There is speculation that Israel may be the worm’s source and that the code is designed to stop working on 24 June 2012. [link]   Symantec has produced a detailed technical paper analyzing the worm, which first appeared about 18 months ago. [link]

Another 18-Minute Gap

On 8 April 2010, 18 minutes of Internet traffic was hijacked and sent through Chinese servers. This amounted to 15 percent of the entire Internet traffic. U.S. targets included the White House, Department of Homeland Security, US Secret Service and Department of Defense.  This was reported in the US- China Economic and Security Review Commission's annual report.  [link]

Net Neutrality

The Federal Communications Commission approved a regulation, by a 3-2 vote, that puts it in the business of managing the Internet, ostensibly to provide high speed access to all users. Part of the motivation is the increasing use of bandwidth to stream movies, even to mobile subscribers through WiMAX. [link] [link]

The minority opinion was articulated by Commissioner McDowell. [link]

Clouds

Cloud infrastructure, both public and private, for off-site storage of data and access to applications will be a $160 billion market by 2011, according to Merrill Lynch, reports eWeek. [link] Cloud advantages, especially for small companies, include multiple access to a firm’s data (e.g., its comptroller and its accountant) and lower probability of catastrophic data loss (as well as lower costs for maintaining the data). [link]

The Economy

The economy is picking up before employment does, perhaps because investors are optimistic and because the taxation outlook for 2011-2012 is now certain.  A tax bill costing $858 billion over ten years passed in the lame duck session of Congress.  The 2010 Tax Relief Act extends the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for two years.  The estate tax comes back from zero in 2010 to a top rate of 35 percent, with an exclusion of $5 million. Portability between spouses for 2011-2012 permits estates of $10 million to be excluded, with advance planning. There is another patch for the Alternative Minimum Tax (to keep it from hitting 21 million more households).  The Social Security payroll tax portion paid by the employee will be cut by 2 percentage points — from 6.2 percent to 4.2 percent for 2011.  There will be no reduction in the employer portion.

Bonus depreciation is available for qualified investments and property, 50 percent to 100 percent, placed in service prior to 2013.  [link]

The Corporate Tax

The posted U.S. rate of 35 percent is nearly  the world’s highest.  Japan is looking to reduce its higher rate by 5 percentage points.  Canada is reducing its corporate income tax in five steps, from 22.12 percent in 2007 to 15 percent in 2012. [link] One of the attractions to doing business in Ireland was the 12.5 percent corporate tax rate.  Any reductions in the U.S. rate would have to be accompanied by measures to keep the revenue constant.

Free Trade Agreements

Three agreements are pending now and could be ratified in 2011.  They are Korea, Panama, and Colombia.  All have been improved and all will provide more U.S. jobs. [link]

South Korea

South Korea negotiated better tariff reductions on auto imports/exports (we now import 30 Korean cars for every one of ours Korea imports).  Expected to increase U. S. exports by some $10 billion per year.  The agreement will also create new opportunities for even more exports as it opens Korea’s $560 billion services market to more American companies — supporting additional jobs for American workers in service sectors ranging from express delivery to engineering to legal and accounting services to education and health care. [link]

However, the Administration does not want to pursue the Panama and Colombia agreements, fearing a lack of support.  Under the Andean Trade Promotion and Drug Eradication Act (ATPDEA), 90 percent of Colombian exports already enter the U.S. duty-free while U.S. goods face tariffs of up to 20 percent in Colombia. This means that signing the proposed FTA would only slightly increase Colombia’s competitiveness in U.S. markets while dramatically increasing U.S. competitiveness in the Colombian market, which has been also affected by multiple tariff-lifting trade agreements that Colombia has signed with other countries. [link]

Both are being held up over objections by labor unions.  [link]

On Taxes

Rep. Paul Ryan, the 2011 chair of the House Budget Committee, has drafted the 99-page document called the GOP Roadmap, “America’s Future, V 2.0. [link] [link]. With Alice Rivlin, he has written a plan to reform Medicare. [link]

Deficit Commission Recommendations

  • Cut $100 billion in defense spending

  • Raise Social Security age to 69

  • Raise gas tax by 15 cents (now 18.4 cents per gallon)

  • Lower corporate tax rate to 26%

  • Repeal Alternative Minimum Tax

  • Cut out mortgage deductions over $500K

  •  Cut federal work force by 10%

  • Cut farm subsidies by $3 billion

  • Tax capital gains and dividends at wage income rates

  • Permanently ban Congressional earmarks

  • Make permanent the R&D tax credit

Details at: http://www.fiscalcommission.gov/

Read the co-chairs’ 50-page draft report. The complete recommendation package fell two votes short of adoption by the Commission but some of its recommendations are expected to affect future legislation.

Bringing Back U.S. Manufacturing

A recipe for a rebirth of manufacturing in the United States includes a focus on high-tech, future-oriented products in areas such as biotechnology and precision machinery and tools.  Between 1947 and 2008, U.S. manufacturing as a share of GDP fell by 2.3 times, according to the National Journal. [link]  A broad-based growth in the manufacturing economy may depend on the right policy environment, including lower taxes, a weaker dollar (to encourage exports), better training for workers, smart regulation, and the preservation of local industrial clusters that feed off one another. Many of the factories will be in the South, which may become a new industrial heartland.

The United States has shifted from goods to services.  Financial and professional services have more that doubled in GDP share over sixty years.  Even so, U.S. manufacturers are the world’s most efficient, producing 21 percent of all goods made globally.  For every dollar that manufacturers spend directly, they foster another $1.40 in economic activity.

The table below shows the changes in a dozen economic sectors.

See also an interactive graphic showing more detail.

Improving Our Balance of Trade

Aircraft exports historically have been one of our best means of trying to achieve a trade balance between the United States and its trade partners. Boeing’s $29 billion worth of foreign sales in 2009 single handedly comprised about 2% of America’s total exports.

The Boeing 737 workhorse is a good example.  Through March 2010, Boeing manufactured 6,348 737s.  Aviation Week reports that the company expects to build a total of 3,968 more 737s during the next decade.  The competition is the Airbus A320 family.  In June Air China announced that it was buying 20 737-800s for $1.4 billion.  [link]

But China is readying its own competition for the 737.  The state-owned Commercial Aircraft Corporation of China, or Comac, unveiled the C919, a single-aisle plane some call a 737-killer at the Zhuhai air show in November.  Comac has already booked 100 orders from Air China, China Southern, Hainan Airlines, and GE Capital Aviation Service.  For the 787, Boeing divulged proprietary information to its global partners, including design and performance specifications.  Previously it put out “build to print” guidelines.  But the information out now enables others to compete on the bread-and-butter 737.  [link]

The C919 seats from 156 to 168. [link]

Debt and GDP

Debt as a percentage of GDP is a useful benchmark of sovereign economic health.  The 121 percent peak for the United States was in 1946, after WW II.  In 2010 it had increased to 94 percent, from 52 percent estimated for  2009.  [link] In a comparison with other countries, Wikipedia lists the world average at 56 percent.

U.S. housing prices still have 20 percent to fall to get back to the long-term trend line, and some expect a drop to ten percent below the trend line perhaps in five years.  Eleven million homes are ‘underwater’ — with mortgages bigger than their current value. [link]

City, County, and State Debt on the Edge 

The Build America Bond (BAB) program promoted as part of the 2009 stimulus provided $185 billion in 2009-2010 as alternatives to municipal bonds for state and local spending projects.  The federal government must pay about 35 percent of  the lifetime interest payments for BABs.  Over the next decade, BABs will add $36 billion to federal debt.

Over $2.8 trillion  is carried in outstanding debt by municipalities while another $2 trillion is needed to cover unfunded  public worker pension and health-care liabilities.

One example is Jefferson County, Alabama, where a $3 billion refinancing of debt for sewer bonds collapsed during the credit crisis.  The county is unable to pay its debt.  Prichard, Alabama, near Mobile, has attempted to declare bankruptcy — twice — after it stopped sending pension checks to 150 retired workers.  Other workers near retirement want to keep working, if there will be no pension checks.  New York City plans to put $8.3 billion into its pension fund next year.  Maryland plans to raise the retirement age to 62 for all public workers with fewer than five years of service.  Illinois is borrowing $17.2 billion to invest in its pension funds.  New Jersey won’t pay the $3.1 billion due its pension plan this year.  Colorado, Minnesota and South Dakota have cut benefits by reducing cost-of-living increases.  While the Pension Benefit Guaranty Corporation covers private pensions in bankruptcy under federal law, there is no comparable backup for public pensions. [link] Arizona is selling off several government buildings for $735 million, but leasing back the buildings will cost an extra $400 million in interest over the next 20 years.

Europe Has Problems, Too

In the Euro-Zone Greece has already become unstable, with over $100 billion committed to its rescue. Ireland, next in line, was propped up with loans from the Euro community and the International Monetary Fund.  [link]  Concern is whether some members of the Euro community will drop out.  Portugal, Spain and Italy are shaky.  Germany and France are concerned lest their economies be dragged down, concluding that a new EU treaty is needed within two years. [link]

Central banks in developing countries are increasing their holdings in U.S. dollars and cutting back on euros, as the euro loses value compared to the dollar.  There had been concern that the “quantitative easing,” as the Fed bought $600 billion in Treasuries over seven months could sharply weaken the dollar.  [link]

Losing Ground

Alan Blinder, a former vice chairman of the Federal Reserve, observes that U.S. workers have been losing ground.  Since 1978, productivity has risen by 86 percent while real hourly compensation has risen by only 37 percent. [link]

To Dig Deeper-

  1. The World Ahead – special issue of  Foreign Affairs, Nov./Dec. 2010 http://www.foreignaffairs.com

  2. Washington Watch – assessing impact of bills in Congress, http://washingtonwatch.com

  3. Taxpayers for Common Sense - http://www.taxpayers.org

  4. A summary of global  nuclear ambitions is found at http://www.technologyreview.com

  5. Stuxnet Worm – Nine Facts to Know  http://www.tinyurl.com

  6. Global Economic Forum:  2011 Outlook, Morgan Stanley. 40 pp.  http://www.morganstanley.com

  7. Global warming Q&A - http://www.ncdc.noaa.gov

  8. John D. Sterman has a ‘timeline’ showing deleterious surface CO2 effects as the climate warms, up to 5ºC  [page 3 at http://sdm.mit.edu]

  9. Global solar photovoltaic output has been growing nearly 40 percent per year since 2000, about half outside Europe, Japan, and the United States [page 22, ibid.]

  10. A 19-page summary of the science in climate change, by the Royal Society, at http://royalsociety.org.

  11. Why have the dynamics of labor productivity changed?  Relationship between productivity and employment:

  12. http://www.kansascityfed.org

  13. MIT systems conference – includes Boeing 787.  http://sdm.mit.edu

  14. Cybersecurity policy - http://arstechnica.com

  15. Predictions gone wrong in 2010 - http://online.wsj.com

  16. Outlook for 2011, The Futurist,  World Future Society.  http://www.wfs.org
     

Back

 


George F. McClure is Technology Policy editor for IEEE-USA Today’s Engineer and the IEEE Vehicular Technology Society's representative to IEEE-USA's Committee on Transportation and Aerospace policy.

Comments may be submitted to todaysengineer@ieee.org.


Copyright © 2011 IEEE

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