Archive for July 13th, 2009

Economic Heresy

If you read what the political pundits are writing, the big economic issue is whether or not the stimulus is “working,” (either helping cause a recovery, or at least slowing the decline).   President Obama continues to appear Reaganesque in his political maneuvering.  Do a lot quickly, and then hope you can ride the storm of bad economic news until the inevitable rebound.  Obama’s numbers are still high, in the upper 50s (Bush’s were in the 20s when he left office), but have fallen a bit as the reality of power weighs on the popularity of the President.

What if the conventional wisdom is wrong?   What if an economic recovery is not around the corner, and what if, in fact, it’s not the thing we should be desiring right now?

At the risk of committing economic heresy, I do not believe we should be seeking a quick recovery, a quick stimulus to the economy, or to get back to where we were before this crisis.  In fact, I think such efforts can at best buy short term gain at long term peril.   Instead we need a restructuring of the economy with a decreased emphasis on consumption and an increased focus on saving.   The last thirty years were like a wild party, and while sometimes a ‘hair of the dog’ remedy can seem to work (i.e., a shot of vodka in the morning might help make the hang over more bearable), if you try to just keep partying you’ll soon destroy your body.

A restructuring of the economy means acceptance that this economic crisis is a true economic contraction, and one we can’t get out of until we change priorities and assumptions about how the economy operates.  Consider: the US is aging, and soon we’ll have large number of baby boomers retiring, wanting social security and Medicare.   They’ll also not be paying as much in the way of taxes, and instead of contributing to retirement funds, will be withdrawing from them.   This also means higher medical costs, and more strain on a health care system that is already in crisis.   On top of that, pollution, global warming, declining future oil supplies, and other dangers point to the fact that we cannot sustain the kind of consumer driven economy we had in the past.

The US also has aging infrastructure (most dramatically evidenced by the collapse of the I-35W bridge in Minneapolis in 2007 — a bridge I used to cross everyday when I was in grad school!)   And, though total industrial production rates high in absolute terms to other countries, there has been a shift from production to service sector employment, beginning with the collapse of the steel industry in the eighties, and now with a domino effect with the contraction of the automobile industry.   These are truly astounding developments — the idea that GM (and a host of other big industrial names) could be in existential peril would have seemed absurd not that long ago.  Remember “What’s good for General Motors is good for America!”?

We’ve been able to avoid confronting the reality of this economic transformation because of the high debt rates (government, corporate, and household) and trade deficits from recent years.   Cheap goods from China along with a cheap credit bubble economy meant that as a country we became like the credit card user who “kites” — gets new credit cards to pay off balances of old ones, ultimately ending so in debt that they can’t get out.

Actions have consequences.  People don’t want to believe it, they are used to the ‘you can have it all’ Michelob mentality of the last thirty years.   There seems to be a belief that just because the US is a rich, powerful country we can avoid the laws of cause and effect.   People think that somehow all the imbalances can be overcome with some new legislation from Washington, and that someone else will feel the pain (if there is any).  Solve the problem, stimulate the economy (or let the market magically cure everything) and all will be well!

My view is that we have be ready to make sacrifices for a shift in economic reality to a more sustainable, and perhaps ultimately more satsifying one than the consumption driven recent past.    This is a kind of heresy these days.  Since the roaring 90s made the “limits to growth” arguments of the 70s seem misguided and unappreciative of the inventive nature of science, any attack on consumption and unlimited growth is seen as a pessimistic misunderstanding of the power of human initiative.   Those arguments were, however, never really defeated, just buried by a mountain of cheap goods bought on credit from rising third world states.

So what to do?   First, as a society, I suspect we’ll need to think locally and work together to assure that we not only help people harmed by the lingering downturn, but find a new source of meaning other than consumption.   Second, the government will have to prioritize — what do we really need to spend money on?   Military action in Afghanistan, or green infrastructure development at home?   Which government programs can be cut?  Moreover, how can we restructure our economic base to provide for a sustainable future, taking into account the difficult terrain the future holds?  This will be hard; interest groups will fight for their concerns, but the driving force should be people-oriented: how do we make sure that people can get through this restructuring without being cut off or left to suffer.  Third, as individuals we need to take stock of our lives, our priorities, and what we really need.    What gives life meaning, what simply distracts us from boredom?

Societies collapse not because the environment changes, but because they cannot adapt to environmental change.   That happens because people can’t break old patterns of thought, or old habits.    I’m convinced we’re leaving an era defined by unsustainable hyper-consumerism, and entering an era we still have the power to define — if we choose to.   Groping around for someway to hold on to an unsustainable past will cause us to miss that chance.  Figuring out how to define a future, sustainable economy requires re-connecting economics with societal values, and finding a path different than the radical individualism of neo-liberalism, and the bureaucratic drudgery of socialism.   Are we up to it?