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?

  1. #1 by henitsirk on July 15, 2009 - 18:59

    Funny how I always think of the micro view: look at the economic downturn in terms of personal finance. If I have too much debt and/or my income disappears, there’s no quick fix. I might be able to declare bankruptcy, but that has serious negative consequences and is not always available. More likely is that an increasing amount of my income goes toward paying off debt, which decreases quite slowly. I’ll have to start consuming less. Sacrifices will have to be made in the long term.

    Why people think that the macro view of economics should have a quick fix is beyond me. Don’t even get me started on the fallacy of unlimited growth!

    • #2 by Scott Erb on July 16, 2009 - 01:52

      Excellent point — countries can defray the costs by juggling around resources, and the US managed to do it by using its superpower status to impact world markets and dominate financial markets. The fact the US was a superpower meant countries continued to invest here even when conditions were such that in most other places investment wouldn’t have been considered wise. But sooner or later, things rebalance — ultimately those “micro” rules can’t be ignored even at the macro level!

      Capitalism needs “unlimited growth” because to expand it needs to construct artificial needs. But ultimately this leads to crises both within the system and ecologically (not to mention the way it can warp consumers psychologically). We live in interesting times.

      • #3 by Henitsirk on July 16, 2009 - 02:24

        Is expansion inherent in capitalism? As opposed to other systems? Does it have to construct artificial needs to work? Or is unlimited growth simply a concept we’ve added onto it?

  2. #4 by Scott Erb on July 16, 2009 - 01:48

    I don’t like to censor comments, unless they are blatantly mean spirited or hateful. However, “Fragger” posted a long manifesto about green economics that simply took up too much space. I want comments to be for discussion, not simply cutting and pasting political propaganda, however valid it may be. I invite “Fragger” to post a link to his draft document, and I’ll keep that there, even with a short explanation of its meaning/value. But the whole thing was just too long.

  3. #5 by Scott Erb on July 16, 2009 - 03:51

    I think expansion is inherent in capitalism because it’s dynamic is that profits need to continue to be made. The current era of hyper-consumerism (being ended by the recession?) has seen this rise to a point that artificial needs are the main product of capitalism. Ironic, since so much of the world has real needs that go unfilled by this creative power. I do recommend Benjamin Barber’s “Consumed” as a good, accessible yet complex read on this phenomenon. He compares it to past eras, and essentially argues that capitalism can be salvaged. The key is whether or not that dynamism requires expansion and “no limit to growth” thinking, or if it can be reformed. Reforming it would be best, because the alternative is for it to grow until a crisis destroys it.

  4. #6 by henitsirk on July 16, 2009 - 14:40

    So is there no way to make profits without expansion? I’m imagining a corner store: if they keep their prices commensurate with their costs, why do they have to expand at all? Why become a mini-mart chain selling big gulps and doohickeys, when a local store will continue to bring profit?. Or am I missing some part of the equation?

    I’ll definitely have to look around for “Consumed”.

  5. #7 by Mike Lovell on July 17, 2009 - 16:34

    I see all these “stimulus” packages as the same as a doctor trying to put a bandaid over a severed artery…might slow things down for the moment while pressure is applied in an attempt to make the bandaid stick, but in the end we’ll still bleed to death if a better, long term procedure isnt used to actually solve the problem.

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